Consolidated Financial Statements (With Auditors Report Thereon) For the year ended
Table of Contents Directors' Report.... 1 Independent Auditors' Report... 2 Consolidated statement of financial position... 3 Consolidated statement of comprehensive income... 5 Consolidated statement of changes in equity... 6 Consolidated statement of cash flows... 8... 1. Reporting entity... 9 2. Basis of preparation... 9 3. Significant accounting policies... 10 4. Capital management... 15 5. Consolidated subsidiaries... 15 6. Investment in subsidiary companies... 15 7. Revenue... 16 8. Other income... 16 9. Administrative expenses... 16 10. Personnel expenses... 16 11. Income tax expense... 17 12. Property and equipment... 18 13. Intangible assets... 19 14. Trade and other receivables... 20 15. Cash and cash equivalents... 20 16. Share capital... 20 17. Loans and borrowings... 21 18. Bank overdraft facility... 21 19. Employee benefits... 22 20. Trade and other payables... 22 21. Operating leases... 22 22. Related party transactions... 23 23. Financial instruments... 24 24. Subsequent events... 28
DIRECTORS REPORT TO THE SHAREHOLDERS OF APEX FUND SERVICES LTD. Directors Report The directors of Apex Fund Services Ltd. are pleased to submit the consolidated financial statements to the shareholders for the year ended. The Board of Directors comprise of: - Peter Hughes - John Bohan Principal Activities Apex Fund Services Ltd, (the Company ) has operated since 1 September 2003. The Company was granted a Fund Administrator License by the Bermuda Monetary Authority ( BMA ) under the Investment Funds Act 2006 Section 44(1) on 19 February 2008. Our core business is provision of fund services, such as administration, corporate secretarial, director and other related services, to investment funds, hedge funds and private equity funds globally. The Company is in its seventh year of operations and we are continuing the process of building our client base as well as enhancing our product range. Financial Results Revenue for the year ended was USD 15,761,294 (2009 - USD 10,840,293), which represents growth of 45% and the profit after tax for the year was USD 1,468,318 (net loss 2009 - USD 406,853). Expansion Plans The Company intends to continue its rapid growth plans in 2011 by opening several additional offices to ensure that the Company is able to deliver a quality service locally to all fund strategies, all fund sizes, all fund structures in all fund domiciles. The release of Apex MOOR, a middle office and operational risk reporting system, is another exciting development that will ensure that our service levels will be difficult to beat. On behalf of the Board, I would like to take this opportunity to thank our staff who go beyond what is reasonably expected of them to ensure that we have a reputation for delivering the highest levels of client service available in the fund administration industry. We look forward to growing our reputation and business globally in the years ahead. On behalf of the Board, Peter Hughes Managing Director 1
KPMG Crown House Telephone 441 295-5063 4 Par-la-Ville Road Fax 441 295-9132 Hamilton HM 08, Bermuda www.kpmg.bm Mailing Address: P.O. Box HM 906 Hamilton HM DX, Bermuda INDEPENDENT AUDITORS REPORT TO THE SHAREHOLDERS OF APEX FUND SERVICES LTD. We have audited the accompanying consolidated financial statements of Apex Fund Services Ltd. and its subsidiaries (the Group ), which comprise the consolidated statement of financial position as at 30 September 2010, and the consolidated statements of comprehensive income, changes in equity and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory notes. Management s responsibility for the financial statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatements, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditors responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with relevant ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting principles used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at, and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards. Chartered Accountants Hamilton, Bermuda 10 February 2011 KPMG, a Bermuda partnership and a member firm of the KPMG network of Independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity.
Consolidated statement of financial position (Expressed in United States Dollars) Note Assets Property and equipment 12 584,014 603,897 Intangible assets 13 705,786 614,019 Other assets 14,658 5,278 Total non-current assets 1,304,458 1,223,194 Trade and other receivables 14 4,243,241 2,988,433 Cash and cash equivalents 15 1,730,776 838,393 Total current assets 5,974,017 3,826,826 Total assets 7,278,475 5,050,020 Equity Share Capital 16 12,000 12,000 Share Premium 88,000 88,000 Translation reserves (6,234) 26,753 Retained earnings 2,857,834 1,654,020 Total equity attributable to equity holders of the company 2,951,600 1,780,773 Non-controlling interest 97,318 48,512 Total equity 3,048,918 1,829,285 3
Consolidated statement of financial position (continued) (Expressed in United States Dollars) Note Liabilities Non-current Liabilities Loans and borrowings 17 140,000 240,000 Other liabilities 19 198,895 97,043 Deferred tax liabilities 11 31,462 18,120 Total non-current liabilities 370,357 355,163 Loans and borrowings 17 550,000 550,000 Bank Overdraft 18 667,452 542,534 Trade and other payables 20 2,401,362 1,623,311 Current tax payable 240,386 149,727 Total current liabilities 3,859,200 2,865,572 Total liabilities 4,229,557 3,220,735 Total equity and liabilities 7,278,475 5,050,020 See accompanying notes to consolidated financial statements 4
Consolidated statement of comprehensive income Year ended (Expressed in United States Dollars) Note Revenue 7 14,642,282 10,229,617 Other income 8 1,119,012 610,676 Administrative expenses 9 (13,979,303) (11,027,203) Results from operating activities 1,781,991 (186,910) Finance income 10,291 9,037 Finance costs (26,501) (30,949) Foreign exchange losses (8,926) (72,881) Profit on sale of investments 71,981 12,337 Profit before income tax 1,828,836 (269,366) Income tax expenses 11 (360,518) (137,487) Profit/ (loss) for the year 1,468,318 (406,853) Other comprehensive (loss)/ income Foreign currency translation differences - foreign operations (33,028) 37,841 Total other comprehensive income (33,028) 37,841 Total comprehensive income/ (loss) for the year 1,435,290 (369,012) Profit/(loss) attributable to: Owners of the Company 1,225,260 (515,100) Non-controlling interest 243,058 108,247 Profit/ (loss) for the year 1,468,318 (406,853) Total comprehensive income/(loss) attributable to: Owners of the Company 1,192,273 (477,611) Non-controlling interest 243,017 108,599 Total comprehensive income/(loss) for the year 1,435,290 (369,012) See accompanying notes to consolidated financial statements 5
Consolidated statement of changes in equity Year ended (Expressed in United States Dollars) Share Share Retained Transalation Total Non-controlling Total capital Premium earnings reserves interest equity $ Balance at 01 October 2008 12,000 88,000 2,169,120 (10,736) 2,258,384 54,413 2,312,797 Total comprehensive income for the year Profit /(loss) for the year - - (515,100) - (515,100) 108,247 (406,853) Total other comprehensive income - - - 37,489 37,489 352 37,841 Total comprehensive income for the year - - (515,100) 37,489 (477,611) 108,599 (369,012) Transactions with owners, recorded directly in equity Contributions by and distributions to owners Dividend paid to non-controlling interest - - - - - (115,500) (115,500) Total contributions by and distributions - - - - - (115,500) (115,500) Changes in ownership interest in subsidiaries Disposal of non-controlling interest without a change in control - - - - - 1,000 1,000 Total transactions with owners of the company - - - - - (114,500) (114,500) Balance at 30 September 2009 12,000 88,000 1,654,020 26,753 1,780,773 48,512 1,829,285 6
Consolidated statement of changes in equity (continued) Year ended (Expressed in United States Dollars) Share Share Retained Transalation Total Non-controlling Total capital Premium earnings reserves interest equity $ Balance at 01 October 2009 12,000 88,000 1,654,020 26,753 1,780,773 48,512 1,829,285 Adjustment to opening retained earnings - - - - - - - Restated balance as at 01 October 2009 12,000 88,000 1,654,020 26,753 1,780,773 48,512 1,829,285 Total comprehensive income for the year Profit for the year - - 1,225,260-1,225,260 243,058 1,468,318 Total other comprehensive income - - - (32,987) (32,987) (41) (33,028) Total comprehensive income for the year - - 1,225,260 (32,987) 1,192,273 243,017 1,435,290 Transactions with owners, recorded directly in equity Contributions by and distributions to owners Dividends to non-controlling interest holders - - - - - (223,157) (223,157) Total contributions by and distributions to owners - - - - - (223,157) (223,157) Changes in ownership interest in subsidiaries Disposal of non-controlling interest without a change in control - - (21,446) - (21,446) 28,946 7,500 Total transactions with owners of the company - - (21,446) - (21,446) (194,211) (215,657) Balance at 12,000 88,000 2,857,834 (6,234) 2,951,600 97,318 3,048,918 7
Consolidated statement of cash flows Year ended (Expressed in United States Dollars) Note Cash flows from operating activities Net profit/ (loss) before tax 1,828,836 (269,366) Adjustments for: Depreciation 220,989 190,822 Amortisation 88,823 114,561 Foreign exchange loss 8,108 57,868 Gain on sale of shares of a subsidiary (71,981) (12,337) Changes in: Trade and other receivables (1,254,808) (391,104) Other assets (9,380) (3,607) Trade and other payables 778,051 331,075 Other liabilities 101,852 24,342 Cash generated from operating activities 1,690,490 42,254 Taxation paid (256,517) (44,641) Net cash provided by/(used in) operating activities 1,433,973 (2,387) Cash flows from investing activities Acquisition of property, plant and equipment (233,618) (72,367) Proceeds from sale of property, plant and equipment 5,935 21,009 Acquisition of intangible assets (163,229) (114,028) Proceeds from sale of shares held in a subsidiary 47,561 13,337 Net cash used in investing activities (343,351) (152,049) Cash flows from financing activities Loan from a Director - 50,000 Proceeds from issuance of loan 80,000 440,000 Repayment of loan (180,000) - Dividends paid to non-controlling interests (223,157) (115,500) Net cash (used in) provided by financing activities (323,157) 374,500 Net increase in cash 767,464 220,064 Cash and cash equivalents at start of year 295,859 75,795 Cash and cash equivalents at end of year 1,063,323 295,859 Represented by: Cash and cash equivalents 1,730,776 838,393 Bank overdraft (667,452) (542,534) Total cash 15 1,063,324 295,859 Interest paid on overdraft facility during the year amounted to $26,501 (2009 - $30,949) and interest income received during the year amounted to $10,291 (2009 - $9,037) See accompanying notes to consolidated financial statements 8
1. Reporting entity Apex Fund Services Ltd. (the Company ) was incorporated as a private company on 25 June 2003 under the laws of Bermuda. Its registered office is 1 st Floor, T.J. Pearman Building, 3 Burnaby Street, Hamilton, HM 12. Apex Fund Services Ltd. carries on business as a provider of fund administration, accounting, registrar and transfer agency, corporate secretarial, and director services to investment funds. The consolidated financial statements of the Company for the year ended comprise the Company and its subsidiaries (together referred to as the Group ). 2. Basis of preparation (a) Statement of compliance The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ( IFRSs ). The consolidated financial statements were authorised for issue by the Board of Directors on 11 February 2011. (b) Basis of measurement The consolidated financial statements have been prepared on the historical cost basis. (c) Functional and presentation currency Items included in the consolidated financial statements of the Group are measured using the currency of the primary economic environment in which the entity operates (the functional currency ). The consolidated financial statements are presented in United States Dollars, which is the Group s primary functional and presentation currency. (d) Use of estimates and judgments The preparation of the consolidated financial statements in conformity with IFRSs requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected. In the opinion of the directors, the accounting estimates and judgements made in the course of preparing these consolidated financial statements are not difficult to reach, subjective or complex to a degree which would warrant their description as significant and critical in terms of the requirements of IAS 1 (revised). (e) Changes in accounting policies The Company applies revised IAS 1, Presentation of Financial Statements (2007), which became effective as of 1 January 2009. As a result, the Company presents in the consolidated statement of changes in equity all owner changes in equity, whereas all non-owner changes in equity are presented in the consolidated statement of comprehensive income. Comparative information has been re-presented so that it also is in conformity with the revised standard. 9
3. Significant accounting policies The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements. (a) Basis of consolidation Subsidiaries are entities controlled by the Company. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. (b) Loss of control Upon the loss of control, the Company derecognises the assets and liabilities of the subsidiary, any non controlling interests and the other components of equity related to the subsidiary. Any surplus or deficit arising on the loss of control is recognised in profit or loss. (c) Transactions eliminated on consolidation Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. (d) Revenue recognition Revenue is measured at the fair value of the consideration received or receivable for services provided in the normal course of business, net of value added tax and discounts, where applicable. Revenue is recognised to the extent that it is probable that future economic benefits will flow to the Group and these can be measured reliably. The following specific recognition criteria must also be met before revenue is recognised: (i) Services rendered Revenue from the provision of services is recognised in the period in which the services are rendered, by reference to completion of the specific transaction assessed on the basis of the actual service provided as a proportion of the total services to be provided. (ii) Interest income Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts the estimated future cash receipts through the expected life of the financial asset to the asset s net carrying amount. 10
3. Significant accounting policies (continued) (e) Property and equipment The Group s property and equipment consists of the following classes of assets: computer equipment, furniture and fittings, office equipment and a motor vehicle. These are measured at cost less accumulated depreciation and impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the asset. Subsequent costs are included in the asset s carrying amount when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. Expenditure on repairs and maintenance of property and equipment is recognised as an expense when incurred. Capital expenditures and work in progress is recognized at cost, and transferred to other classes of property and equipment once the items of property and equipment become available for use. Depreciation Depreciation is calculated over the depreciable amount, which is the cost of an asset less its residual value. Depreciation is recognised in the consolidated income statement on a straight-line basis over the estimated useful lives of each part of an item of property and equipment, since this most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset. The estimated useful lives for the current and comparative periods are as follows: Computer equipment Furniture and fittings Office equipment Motor vehicle 3 5 years 5 10 years 5 years 5 years Depreciation methods, useful lives and residual values are reviewed at each reporting date. (f) Financial instruments Non-derivative financial instruments comprise trade and other receivables, cash equivalents and trade and other payables. These non-derivative financial instruments are recognized initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition these non-derivative financial instruments are measured at amortised cost using the effective interest method, less any impairment losses. (g) Employee benefits i) Defined contribution plan The Group contributes towards the defined contribution pension plans for its employees in accordance with local legislation and to which it has no commitment beyond the payment of the fixed contribution. Contributions are recognized as an expense as they fall due. Provisions made by certain subsidiaries to cover their obligations under the employees terminal benefits are charged to the consolidated statement of comprehensive income. 11
3. Significant accounting policies (continued) (g) Employee benefits (continued) ii) Employee entitlements to annual leave Employee entitlements to annual leave are recognized when they accrue to employees. A provision is made for the estimated liability for unconsumed leave as a result of services rendered by employees up to the balance sheet date, if material. iii) Staff terminal benefits Dubai Subsidiary In Compliance with the Employment Law No. 4 of 2005 (Dubai), the Dubai Subsidiary has a termination gratuity benefit scheme covering all of its salaried employees who have been employed with the Company for more than one year. Contributions made to cover the obligation under the employees terminal benefits are charged to the consolidate statement of comprehensive income as they fall due. iv) Expatriate employees Bahrain Subsidiary (h) Government Grants Expatriate employees are entitled to leaving indemnities payable under Bahrain Labor Law for the private sector of 1976, based on the length of service and final remuneration. Provision for this unfunded commitment has been made by calculating the notional liability had all employees left at the consolidated statement of financial position date. A government grant was awarded under the Financial Services (Inward Investment) Assistance (Amendment) Scheme 2007 to the Apex Isle of Man subsidiary. The scheme is directed at providing financial businesses with financial assistance to establish a new physical presence on the Isle of Man. The grant is recognized in the consolidated statement of comprehensive income when it becomes receivable under IAS 20. In the event of closure or cessation of business the Company would be liable to repay the Government Grants received: - Within one year of the last payment 100% - Within 2 years of the last payment 66.7% - Within 3 years of the last payment 33.3% (i) Operating Leases An operating lease is a lease other than a finance lease. Payments made under operating leases are recognized in the consolidated statement of comprehensive income on a straight-line basis over the term of the lease. (j) Cash and cash equivalents Cash and cash equivalents comprises cash balances and time deposits. Bank overdrafts that are repayable on demand and form part of the Group s cash management are included as a component of cash and cash equivalents for the purpose of the consolidated statement of cash flows. 12
3. Significant accounting policies (continued) (k) Intangible assets Intangible assets consist of computer software and customer lists. Software acquired by the Group is initially measured at cost and subsequently stated net of the accumulated amortisation and impairment losses. Amortisation is provided for using a straight-line basis over the estimated useful life of software of 3 to 10 years. Customer lists are measured at cost less any impairment in value. Customer lists have an indefinite useful life and are reviewed on an annual basis for impairment. Any impairment in the value of customer lists is taken directly to the consolidated statement of comprehensive income. (l) Impairment (i) Financial assets A financial asset is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial asset is considered to be impaired if objective evidence indicates that one or more events have a negative effect on the estimated future cash flows of that asset. An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount, and the present value of the estimated future cash flows discounted at the original effective interest rate. All impairment losses are recognised in the consolidated statement of comprehensive income. An impairment is reversed if the reversal can be related objectively to an event occurring after the impairment was recognised. For financial assets measured at amortised cost, the reversal is recognized in the consolidated statement of comprehensive income. (ii) Non-financial assets The carrying amount of the Group s non-financial assets, other than deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset s recoverable amount is estimated. An impairment loss is recognised if the carrying amount of an asset exceeds its estimated recoverable amount. Impairment losses are recognised in the consolidated statement of comprehensive income. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount and is reversed only to the extent that the asset s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. 13
3. Significant accounting policies (continued) (m) Foreign currency (i) Foreign currency transactions Transactions in foreign currencies are translated to the respective functional currencies of Group entities at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate at that date. The foreign currency gain or loss on monetary items is the difference between amortised cost in the functional currency at the beginning of the period, adjusted for effective interest and payments during the period, and the amortised cost in foreign currency translated at the exchange rate at the end of the period. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined. Foreign currency differences arising on retranslation are recognised in the consolidated statement of comprehensive income. (ii) Foreign operations (n) Taxation The assets and liabilities of foreign operations are translated to US Dollars at exchange rates at the reporting date. The income and expenses of foreign operations are translated to US Dollars at exchange rates at the dates of the transactions. Foreign currency differences are recognised directly in equity. Since 1 October 2007, the Group s date of transition to IFRSs, such differences have been recognised in the foreign currency translation reserve (FCTR). When a foreign operation is disposed of, in part or in full, the relevant amount on the FCTR is transferred to the consolidated statement of comprehensive income. Income tax expense comprises current and deferred taxes. Income tax expense is recognised in the consolidated statement of comprehensive income except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. Current tax is the expected tax payable on the taxable income for the period, using tax rates enacted or substantively enacted at the reporting date, along with any adjustment to tax payable in respect of previous years. Deferred tax is recognised using the balance sheet method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets, are recognised to the extent that it is probable taxable profits will be available against which deductible temporary differences can be utilized. 14
4. Capital management The Board s policy is to maintain a strong capital base to sustain future development of the business. The Board of Directors monitors the level of dividends to ordinary shareholders. There were no changes in the Group s approach to capital management during the year. The Group is required to maintain minimum shareholders equity of $100,000 in accordance with the covenants the Group is subject to from its bankers. The Group monitors this on a monthly basis and ensures, if necessary, suitable action is taken to ensure the required equity levels are met. Apex Fund Services Ltd. Dubai subsidiary is subject to complying with the DSFA who set and monitor regulatory capital requirements. It is currently complying with these requirements and monitors its capital resources to ensure they are in accordance with the guidelines issued by the DSFA who have prescribed minimum capital adequacy requirements. Apex Fund Services Ltd. will support its Dubai subsidiary should it require additional resources in order to comply with the prescribed minimum capital requirements in future years. 5. Consolidated subsidiaries At the subsidiaries of the Group are as follows: Ownership interest % % Apex Fund Services (IOM) Ltd. 100.00 100.00 Apex Administration Training and Recruitment Services Pte. Ltd. 100.00 100.00 Apex Business Advisory Services Pte. Ltd. 75.00 75.00 Apex Fund Services Bahrain WLL 90.00 90.00 Apex Fund Services (Cyprus) Ltd 100.00 100.00 Apex Fund Services (Dubai) Ltd 100.00 100.00 Apex Fund Services (HK) Limited 100.00 100.00 Apex Fund Services (Ireland) Limited 99.99 99.99 Apex Fund Services (Malta) Limited 100.00 100.00 Apex Fund Services (Mauritius) Ltd 71.50 79.00 Apex Fund Services (Singapore) Pte. Ltd 100.00 100.00 Apex Investment Consulting (Shanghai) Co. Ltd. 100.00 100.00 Apex Fund Services (US) Inc 100.00 100.00 Apex Fund Services Holding Ltd. 100.00 - Apex Holdings Ltd. 100.00 - Apex Tax Services LLC 100.00 - Apex Fund Services (Canada) Ltd. 100.00 - Apex Fund Services (Cayman) Ltd. 100.00 - Saudi Arabian Apex Company for Administrative Consultancy 100.00 - Non-controlling interest represents the non-controlling interest in Apex Business Advisory Services Pte. Ltd., Apex Fund Services Bahrain WLL and Apex Fund Services (Mauritius) Ltd. During the year a 7.5% stake in Apex Fund Services (Mauritius) Ltd was sold to a minority interest for $74,481 in cash, resulting in a gain to the Group of $71,981. This has been included within profit from sale of investment in the consolidated statement of comprehensive income. 6. Investment in subsidiary companies Management has elected to consolidate the results of all subsidiaries of the Group. 15
7. Revenue Accounting fees 766,732 754,649 Administration fees 11,124,881 7,411,450 Company set-up fees 798,131 604,337 Corporate secreterial fees 479,367 381,566 Directors fees 724,835 548,893 Disburesements recovered 748,336 528,722 8. Other income 14,642,282 10,229,617 Commissions received 13,163 - Government grant received 22,497 146,652 Refund on taxes paid 91,519 - Miscellanous income 991,833 464,024 1,119,012 610,676 9. Administrative expenses Personnel expenses 9,147,751 7,039,376 Rent 868,327 899,049 Depreciation 220,289 190,822 Amortization 88,823 114,961 Other 3,654,113 2,782,995 10. Personnel expenses 13,979,303 11,027,203 Wages and salaries 8,630,810 6,997,746 Contributions to defined contribution plans 516,941 41,630 9,147,751 7,039,376 16
11. Income tax expense Under current Bermuda Law the Company is not required to pay any taxes in Bermuda on either income or capital gains. The Company has received an undertaking from the Minister of Finance in Bermuda that in the event of any such taxes being imposed the Company will be exempted from taxation until the year 2016. The Group s income tax expense relates to income from operations and is attributable to the income tax expense of certain overseas subsidiaries. Overseas subsidiaries provided for taxation at the appropriate rates in the countries in which they operate. A reconciliation of the tax liability is shown below: Current tax expense 347,176 125,917 Deferred tax expense 13,342 11,570 360,518 137,487 Deferred tax assets and liabilities Deferred tax liability at 01 October 18,120 6,550 Movement during the year 13,342 11,570 as at 30 September 31,462 18,120 2010 2009 % $ % $ Profit /(loss) before tax 1,828,836 (269,366) Income tax using the Company's domestic rate 0% - 0% - Tax incurred by subsidiaries in foreign jurisdictions Malta 35% (95,320) 35% (16,696) Mauritius 15% (174,281) 15% (108,015) Ireland 12.50% (90,917) 12.50% (12,776) Income tax for the year (360,518) (137,487) 17
12. Property and equipment Property and equipment are stated at cost less accumulated depreciation and comprise the following: Computer Office Furniture and Motor Total Equipment Equipment Fittings Vehicle $ Cost At 01 October 2008 411,082 164,222 382,898 1,759 959,961 Additions 35,435 2,901 34,031-72,367 Disposals (5,498) (10,136) (5,375) - (21,009) At 30 September 2009 441,019 156,987 411,554 1,759 1,011,319 At 01 October 2009 441,019 156,987 411,554 1,759 1,011,319 Write-off of fully depreciated assets (22,997) - (10,992) - (33,989) Effect of exchange (6,409) (732) (5,067) - (12,208) Additions for the year 86,245 30,738 116,635-233,618 Disposals for the year (5,935) - - - (5,935) At 491,923 186,993 512,130 1,759 1,192,805 Depreciation At 01 October 2008 119,867 19,900 76,307 499 216,573 Depreciation for the year 91,935 29,225 69,337 352 190,849 30 September 2009 211,802 49,125 145,644 851 407,422 At 01 October 2009 211,802 49,125 145,644 851 407,422 Write-off of fully depreciated assets (9,908) - (5,753) - (15,661) Effect of exchange (1,512) (129) (297) - (1,938) Released on disposal (2,021) - - - (2,021) Depreciation for the year 90,963 56,917 72,758 351 220,989 289,324 105,913 212,352 1,202 608,791 Carrying amount 30 September 2009 229,217 107,862 265,910 908 603,897 202,599 81,080 299,778 557 584,014 Property and equipment have been provided as security to the Bank for the overdraft facility (see Note 18). 18
13. Intangible assets Intangible assets are stated at cost less accumulated amortisation and comprise the following: Computer Customer Total Software List $ Cost At 01 October 2008 657,874 9,113 666,987 Additions for the year 114,028-114,028 30 September 2009 771,902 9,113 781,015 At 01 October 2009 771,902 9,113 781,015 Write-off of fully depreciated assets (39,966) - (39,966) Effect of exchange (2,225) 146 (2,079) Additions for the year 163,229-163,229 892,940 9,259 902,199 Amortisation At 01 October 2008 52,435-52,435 Amortisation for the year 114,561-114,561 30 September 2009 166,996-166,996 At 01 October 2009 166,996-166,996 Write-off of fully depreciated assets (57,280) - (57,280) Effect of exchange (2,126) - (2,126) Amortisation for the year 88,823-88,823 196,413-196,413 Carrying amount 30 September 2009 604,906 9,113 614,019 696,527 9,259 705,786 19
14. Trade and other receivables Trade receivables 3,639,294 2,574,131 Prepayments 492,343 414,302 Other receivables 111,604-4,243,241 2,988,433 15. Cash and cash equivalents Bank balances 1,726,191 838,393 Cash in hand 4,585 - Cash and cash equivalents 1,730,776 838,393 Bank overdrafts used for cash management purposes (667,452) (542,534) Cash and cash equivalents in the statement of cashflows 1,063,324 295,859 16. Share capital Ordinary Ordinary Shares Shares On issue 30 September 12,000 12,000 At, the authorised share capital comprised 12,000 (2009: 12,000) ordinary shares at a par value of $1 each. All shares in issue are fully paid up. The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company. The board of directors has not proposed to pay any dividends for the year. 20
17. Loans and borrowings Non-current liabilities Loan payable 140,000 240,000 140,000 240,000 Current liabilities Loan payable 200,000 200,000 Amounts due to Director 350,000 350,000 550,000 550,000 At the Company had received a loan from an investment manager that manages investment funds that the Company acts as administrator. The total amount of the loan at year end is $340,000 (2009: $440,000). The loan does not bear interest and there are no fixed terns for repayment. The loan from a Director of $350,000 (2009 - $350,000) does not bear any interest and has no fixed repayment terms. 18. Bank overdraft facility On 20 July 2009 the Group obtained an overdraft facility in the amount of up to $750,000 with HSBC Bank of Bermuda Limited (the Bank ). The amount available under the overdraft facility is dependent on the amount of assets under administration. Amounts borrowed under the facility bear interest at the rate of six month United States Dollar LIBOR plus 2.5% per annum which is payable monthly. At, the amount outstanding under this overdraft facility was $667,452 (2009 - $542,534). All amounts owed to the Bank under the facility are secured by the following: i) A fixed and floating charge over all the Company s assets, property and undertakings. ii) A limited personal guarantee in the sum of $750,000 given by a Director of Apex Fund Services Ltd. The overdraft facility requires the Group to comply with various covenants. The Bank has confirmed that it will continue to provide the overdraft facility, however as from 4 February 2011 the limit will be reduced by $50,000 a month until it reaches a limit of $500,000. 21
19. Employee benefits The Group has a defined contribution pension plan for its employees. The pension expense recognized by the Group in the current year is $173,609 (2009 - $41,630), representing the Group s share of contributions to the plan. In compliance with the Employment Law No. 4 of 2005 in Dubai, the Group has a termination gratuity benefit scheme covering all of the salaried employees of Apex Fund Services (Dubai) Ltd. who have been employed for more than one year. The cost to cover the obligation under the employees terminal benefits in the current year is $198,895 (2009 - $97,043). Expatriate employees are entitled to leaving indemnities payable under Bahrain Labor Law for the private sector of 1976, based on the length of service and final remuneration. Provision for this unfunded commitment, has been made by calculating the notional liability had all employees left at the consolidated statement of financial position date and amounts to $27,201 (2009 - $12,014). 20. Trade and other payables The Group s currency and liquidity risks related to trade and other payables are disclosed in note 24. Trade payables 1,028,087 1,623,311 Accrued expenses 728,358 - Other payables 644,917-2,401,362 1,623,311 21. Operating leases Less than one year 381,023 309,184 Between one and five years 813,139 579,028 1,194,162 888,212 Operating lease payments represent rentals payable by the Group for the office premises and equipment. 22
22. Related party transactions Certain directors of the Group are also directors of the funds to whom the Group provides services. The fees earned from these related party funds for the year ended, aggregating $6,567,970 (2009 - $9,680,939), represent administration services, company set-up services, consulting services, corporate secretarial services, director services, accounting services, nominee accounting services, and disbursements recoverable from client funds. These transactions are in the normal course of operations and are measured at the exchange amount of consideration established through service agreements with the related parties. At the Group had receivables due from such related parties of $1,731,125 (2009 - $2,430,009). During the current year the Group s Dubai subsidiary paid rent on behalf of a Director amounting to $18,000 (2009 - $36,000). Included in the prepaid expenses and other assets is an amount of $10,100 (2009 - $50,000) being an advance to a Director of that company. At, accounts payable and accrued expenses include amounts due to directors of $123,243 (2009 - $127,651). Key management personnel compensation Compensations paid to Directors Salaries 340,000 340,000 Fees 40,000 40,000 To tal Directors compensation 380,000 380,000 Key management personnel compensation Salaries and other benefits 2,984,439 1,180,864 23
23. Financial instruments The Group has exposure to the following risks from its use of financial instruments: credit risk liquidity risk market risk This note presents information about the Group s exposure to each of the above risks, the Group s objectives, policies and processes for measuring and managing risk, and the Group s management of capital. Further quantitative disclosures are included throughout these consolidated financial statements. Credit risk Credit risk is the risk that a counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the Group. The carrying amount of financial assets represents the maximum credit exposure. The Group s exposure to credit risk is monitored by management on an ongoing basis. The Group does not have any significant concentration of credit risk. The carrying amount of financial assets represent the maximum credit exposure. The maximum exposure to credit risk at the reporting date was as follows: Trade and other receivables 3,639,294 2,574,131 Cash and cash equivalents 1,726,191 838,393 5,365,485 3,412,524 The Group limits its exposure to credit risk on bank balances by maintaining balances with banks having high credit ratings. Given these high credit ratings, the Group does not expect any bank to fail to meet its obligations. The Group reviews the carrying amounts of the receivables at each reporting date to determine whether the receivables have been impaired. The Group after consideration of all factors believes the receivables to be fully recoverable, and as such no adjustment has been made to the consolidated financial statements. Subsidiary guarantees The Company has provided guarantees to several of its subsidiaries where their ability to continue as a going concern has come into question due to either having net current liabilities, net liabilities position or generating losses during the financial reporting period. As such the Company has provided a guarantee to support the following subsidiaries to meet their obligations as they fall due and provide capital for further expansion where required: Apex Fund Services (HK) Limited Apex Fund Services (Bahrain) WLL Apex Fund Services (Singapore) Pte. Ltd. 24
23. Financial instruments (continued) Liquidity risk Liquidity risk is the risk that the Group has insufficient liquid resources to be able to meet its financial obligations as they fall due. The Group s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due. Funding across all subsidiaries is provided by head office who support the daily demands of certain subsidiaries in order to meet their obligations as required. The following are the contractual maturities of financial liabilities at the reporting date: Carrying Less than 1 Between 1 No stated Amount year and 5 years maturity 2010 2010 2010 2010 Accounts payable and accrued liabilities 2,401,362 2,401,362 - - Current tax payable 240,386 240,386 - - Loan payable 340,000 200,000 140,000 - Loan from a director 350,000 - - 350,000 Other liabilities 198,895-198,895 - Bank overdraft 667,452 667,452 - - 4,198,095 3,509,200 338,895 350,000 Carrying Less than 1 Between 1 No stated Amount year and 5 years maturity 2009 2009 2009 2009 Accounts payable and accrued liabilities 1,623,311 1,623,311 - - Taxation payable 149,727 149,727 - - Loan payable 440,000 200,000 240,000 - Loan from a director 350,000 - - 350,000 Other liabilities 97,043-97,043 - Bank overdraft 542,534 542,534 - - Fair values 3,202,615 2,515,572 337,043 350,000 The carrying amounts of cash, receivables, accounts payable and accrued liabilities, bank overdraft, loan from a director and taxation payable approximate their fair values. 25
23. Financial instruments (continued) Market risk Market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates will affect the Group s income or the value of its holdings of financial instruments. Other market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate due to changes in market prices (other than those arising from interest rate risk or currency risk), whether those changes are caused by factor specific to the individual financial instruments or its issuers, or factors affecting all similar financial instruments traded in the market. The Group is not exposed to any significant other market price risk. Currency risk The Group is exposed to currency risk on revenue, expenses, assets and liabilities that are denominated in a currency other than the functional currencies of Group entities primarily the Euro, but also Pound Sterling, Singapore Dollar, Mauritius rupee and Indian Rupee. The currencies in which these transactions primarily are denominated are Euro and Pound Sterling. The Group s exposure to foreign currency risk as at 30 September was as follows: Net Monetary Monetary exposure assets liabilities 2010 2010 2010 $ Euro 827,337 1,541,370 (714,033) Bahrain dollar 5,382 5,382 - Chinese yuan (41,347) 12,563 (53,910) Pound sterling 31,582 103,548 (71,966) Hong Kong dollar 83,067 83,067 - Singapore dollar 76,411 80,052 (3,641) Mauritius rupee (4,780) 46,674 (51,454) Indian rupee 4,036 4,036 - United Arab Emirates dirham 20,218 20,218 - Saudi Arabia riyal 134,917 134,917-1,136,823 2,031,827 (895,004) Net Monetary Monetary exposure assets liabilities 2009 2009 2009 $ Euro 538,428 740,514 (202,086) Pound sterling 163,656 185,932 (22,276) Singapore dollar 56,969 79,245 (22,276) Mauritius rupee (2,238) 2,938 (5,176) Indian rupee 2,803 2,803-759,618 1,011,432 (251,814) 26
23. Financial instruments (continued) Sensitivity Analysis At, had the US dollar weakened by 5% in relation to all currencies, with all other variables held constant, net income (loss) per the consolidated statement of comprehensive income and equity per the consolidated statement of financial position would have decreased (net loss would have increased) by the amounts shown below. The analysis is performed on the same basis for 2009. An increase in the US dollar by 5% would have had the opposite effect. Euro 41,367 26,921 Bahrain dollar 269 - Chinese yuan (2,067) - Pound sterling 1,579 8,183 Hong Kong dollar 4,153 - Singapore dollar 3,821 2,848 Mauritius rupee (239) (112) Indian rupee 202 140 United Arab Emirates dirham 1,011 - Saudi Arabia riyal 6,746-56,842 37,980 Interest rate risk Interest rate risk is the risk associated to fluctuations in the rate of interest in relation to interest bearing financial assets and liabilities held by the Group. The Group s interest-bearing financial instruments at the reporting date were as follows: Bank balances 1,730,776 838,393 Bank overdrafts (667,452) (542,534) 1,063,324 295,859 Cash flow sensitivity analysis for variable rate instruments An increase of 100 basis points in interest rates at the reporting date would have increased net income (decreased net loss) and equity by $10,633 (2009: $2,959). A decrease of 100 basis points in interest rates would have had an equal but opposite effect. This analysis assumes that all other variables, in particular foreign currency rates, remain constant. 27
24. Subsequent events Changes to corporate structure As at 01 October 2010, the Company revised the management structure of its subsidiaries under two financial holding companies. Apex Fund Services Holdings Ltd owns all subsidiaries that conduct core fund administration business. Apex Holdings Ltd would have all non core business subsidiaries. 28