VIRGIN ISLANDS ECONOMIC DEVELOPMENT AUTHORITY FINANCIAL STATEMENTS AND SUPPLEMENTAL INFORMATION FISCAL YEAR ENDED SEPTEMBER 30, 2014 AND 2013 Together With Independent Auditor’s Report Certified Public Accountants and Management Consultants VIRGIN ISLANDS ECONOMIC DEVELOPMENT AUTHORITY FINANCIAL STATEMENTS SEPTEMBER 30, 2014 AND 2013 TABLE OF CONTENTS Independent Auditor’s Report ............................................................................................................................. 1 Management’s Discussion and Analysis ........................................................................................................... 3 Basic Financial Statements: Statements of Net Position as of September 30, 2014 and 2013 ................................................................ 15 Statements of Revenue, Expenses and Changes in Net Position for September 30, 2014 and 2013 ........ 16 Statements of Cash Flows for September 30, 2014 and 2013 .................................................................... 17 Notes to Financial Statements ..................................................................................................................... 18 Supplementary Information: Combining Statement of Net Position as of September 30, 2014 .............................................................. 28 Combining Statement of Revenue, Expenses and Changes in Net Position for September 30, 2014 ...... 29 CERTIFIED PUBLIC ACCOUNTANTS AND MANAGEMENT CONSULTANTS BER SMITH CO. INDEPENDENT AUDITOR'S REPORT Board of Directors Virgin Islands Economic Development Authority St. Thomas, U.S. Virgin Islands Report on the Financial Statements We have audited the accompanying statements of net position of the Virgin Islands Economic Development Authority (the Authority) a component unit of the Government of the U.S. Virgin Islands, as of and for the years ended September 30, 2014 and 2013, and the related statements of revenues, expenses and changes in net position and cash flows for the years then ended and the related notes to the financial statements. Management's Responsibility The Authority's management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of the financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express opinions on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depends on the auditor's 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; the auditor considers 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 of the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant 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 audit opinion. I CJC)OVermont Avenue, N.W. .:. Suite 920 .:. Washington, D.c. 20005 .:. PHONE 202.393.')600 .:. FAX 202.393.')608 .:. INTERNET www.bertsmithco.com Opinions In our opinion, the financial statements referred to above presents fairly, in all material respects, the financial position of the Authority as of September 30, 2014 and 2013, and the respective changes in net position and cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Other Matters - RequiredSupplementaryInformation Accounting principles generally accepted in the United States of America require that the management's discussion and analysis on pages 3 through 14 be presented to supplement the basic financial statements. Such information, although not a part of the basic fmancial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to management's discussion and analysis and the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audits of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming an opmlOn on the Authority's basic financial statements. The other supplementary information listed in the accompanying table of contents is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. The other supplementary information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the fmancial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the other supplementary information is fairly stated in all material respects in relation to the basic financial statements as a whole. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated May 22, 2015, on our consideration of the Authority's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, grants agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Authority's internal control over financial reporting and compliance. ~o4:!;~;~ ~Co" / Washington D.C. May 22,2015 - 2 - VIRGIN ISLANDS ECONOMIC DEVELOPMENT AUTHORITY MANAGEMENT’S DISCUSSION AND ANALYSIS REQUIRED SUPPLEMENTAL INFORMATION YEARS ENDED SEPTEMBER 30, 2014 AND 2013 (UNAUDITED) - 3 - I. INTRODUCTION The Virgin Islands Economic Development Authority (“VIEDA” or “Authority”) is a semi-autonomous governmental instrumentality responsible for the development, promotion and enhancement of the economy of the U.S. Virgin Islands. The VIEDA is the umbrella organization which assumes, integrates, and unifies the functions of the following subsidiary entities: the Economic Development Bank (“EDB”), the Economic Development Commission (“EDC”), the Economic Development Park Corporation (“EDPC”), and the Enterprise and Commercial Zone Commission (“ECZC”). The VIEDA operates under one Governing Board (“Board”) in order to achieve maximum efficiency of operation to avoid duplication of services, positions, and responsibilities; to reduce expenses of personnel, physical plant and operations; and to develop comprehensive programs for the economic development of the U.S. Virgin Islands. The Authority is funded primarily by allotments from the Office of Management and Budget via the Department of Finance based on an approved budget authorized by the Legislature of the Virgin Islands. As management of the Authority, we offer the readers of the Authority’s financial statements this narrative overview and analysis of the financial activities of the Authority for the years ended September 30, 2014 and September 30, 2013. We encourage readers to consider the information presented here in conjunction with the Authority’s financial statements. This overview and analysis is required by accounting principles generally accepted in the United States of America (“GAAP”), and the Governmental Accounting Standards Board (“GASB”) Statement No. 34, Basic Financial Statements— and Management’s Discussion and Analysis—for State and Local Government. II. OVERVIEW OF THE FINANCIAL STATEMENTS The financial report and statements consist of four parts: management’s discussion and analysis, the financial statements, notes to the financial statements, and supplementary schedules. The Authority is a component unit of the Government of the U.S. Virgin Islands, and follows enterprise fund reporting. The financial statements, therefore, are presented in a manner similar to that of a private business, using the economic resources measurement focus and the accrual basis of accounting.  The Statement of Net Position: This statement includes all of the Authority’s assets and liabilities and provides information about the nature and amounts of investments in resources (assets) and the obligations to creditors (liabilities). The assets and liabilities are presented in order of liquidity. The resulting net position presented in these statements is displayed as restricted or unrestricted.  The Statement of Revenues, Expenses and Changes in Net Position: All of the current year’s revenues and expenses are accounted for in the Statement of Revenue, Expenses and Changes in Net Position. This statement measures the activities of the Authority’s operations over the past year and can be used to determine whether the Authority has successfully recovered all of its costs through appropriations and the services it provided. VIRGIN ISLANDS ECONOMIC DEVELOPMENT AUTHORITY MANAGEMENT’S DISCUSSION AND ANALYSIS (Continued) REQUIRED SUPPLEMENTAL INFORMATION YEARS ENDED SEPTEMBER 30, 2013 AND 2012 (UNAUDITED) - 4 -  Statement of Cash Flows: The primary purpose of this statement is to provide information about the Authority’s net cash used in operating activities, capital and related financing activities, and provide information regarding the sources and uses of cash and the changes in the cash balance during the reporting period. The notes to the financial statements provide additional information essential to the full understanding of the Authority’s financial statements.  Notes to the Financial Statements: The notes to the financial statements provide additional information that is essential to the full understanding of the data provided in the financial statements.  Supplementary Schedules: The Authority’s fund financial statements are presented as supplementary schedules. These schedules separate the financial statements and operations for each of the major funds. III. FINANCIAL HIGHLIGHTS 2014 • The Authority’s net position increased by $364,914 or 2% compared to fiscal year 2013. • The Authority’s total assets increased by $589,316 or 3% and total liabilities increased by $224,402 or 3% compared to fiscal year 2013. • The Authority’s operating revenues increased by $458,623 or 7% and operating expenses decreased by $1,590,930 or 18% compared to fiscal year 2013. • Government appropriations increased by $374,175 or 8% compared to fiscal year 2013. VIRGIN ISLANDS ECONOMIC DEVELOPMENT AUTHORITY MANAGEMENT’S DISCUSSION AND ANALYSIS (Continued) REQUIRED SUPPLEMENTAL INFORMATION YEARS ENDED SEPTEMBER 30, 2014 AND 2013 (UNAUDITED) - 5 - IV. CONDENSED FINANCIAL INFORMATION Condensed Statements of Net Position as of September 30, 2014 and 2013 2014 2013 Variances Current Assets $ 4,183,785 $ 5,081,511 $ ( 897,726) Noncurrent Assets 15,937,971 14,084,520 1,853,451 Capital Assets, net 2,259,654 2,626,063 ( 366,409) Total Assets 22,381,410 21,792,094 589,316 Current Liabilities 5,057,022 5,416,235 ( 359,213) Noncurrent Liabilities 2,075,731 1,492,116 583,615 Total Liabilities 7,132,753 6,908,351 224,402 Net Position Invested in Capital Assets, net of related debt 2,259,654 2,626,063 (366,409) Restricted 13,553,923 13,647,640 (93,717) Unrestricted (564,920) (1,389,960) 825,040 Total Net Position $15,248,657 $14,883,743 $364,914 Current Assets • Current assets decreased by $897,726 or 18% compared to last fiscal year. This was due mainly to the cumulative effect of a decrease in cash of $60,875 or 2% and a decrease of $562,243 or 73% in investments relating to the financial activities of the State Small Business Credit Initiative (SSBCI) program. Accounts receivables, net of allowance for doubtful accounts, decreased by $254,134 or 16% due to the reimbursement of funds expended by the Authority on behalf of two federal programs. Prepaid and other assets decreased by $20,474 or 25% which represents the portion used up during the period. Noncurrent Assets • Noncurrent assets increased by $1,853,451 or 13% compared to last fiscal year. Loan receivable, net of allowance for doubtful accounts, increased by $145,487 or 4% and is attributable to the Economic Development Bank (EDB) making more loans and thus increasing its loan portfolio. Restricted cash decreased by $312,547 or 4% while restricted investments increased by $2,020,511 or 76% due mainly to the use of SSBCI funds to provide the required collateral for business loans approved by local banks. VIRGIN ISLANDS ECONOMIC DEVELOPMENT AUTHORITY MANAGEMENT’S DISCUSSION AND ANALYSIS (Continued) REQUIRED SUPPLEMENTAL INFORMATION YEARS ENDED SEPTEMBER 30, 2014 AND 2013 (UNAUDITED) - 6 - Capital Assets • Capital assets, net of accumulated depreciation, decreased by $366,409 or 14% compared to last fiscal year. This is due to the capitalization of the leasehold improvement, equipment and furniture and depreciation taken on the capital assets Current Liabilities • Current liabilities decreased by $359,213 or 7% compared to last fiscal year. This decrease includes $58,901 or 9% in accounts payable due to a reduction in vendor obligations. There was also a decrease of $226,296 or 68% in accrued expenses due to reductions in payroll liabilities, contractual and other obligations. Additionally, compensated absences decreased by $12,291 or 8% due to management enforcing its vacation policy. There was also a decrease in deferred revenues of $62,620 or 1% representing the amount earned during the period. Noncurrent Liabilities • Noncurrent liabilities increased by $583,615 or 39 % compared to last fiscal year. This net increase was due mainly to the $400,000 received in matching funds from the local government as a required match for a federal grant to support the Authority Post-Disaster Relief Revolving Loan Fund. There is $1,000,000 in deferred revenue that is restricted for loans within the lending program. Security deposits increased by $4,234 or 11% due to new tenants moving into the Industrial Park. Long term debt decreased by $25,614 or 7% as the Authority pay down its debt on its Intermediary Relending Program (IRP) loan. Net Position • Net position represents residual interest in the Authority’s assets after all liabilities are deducted for reporting purposes and are divided into three major components: − Invested in Capital Assets − Restricted Net Position − Unrestricted Net Position The increase in the Authority’s total net position of $364,914 or 2% was due to the excess of revenues over expenses in the reporting period. VIRGIN ISLANDS ECONOMIC DEVELOPMENT AUTHORITY MANAGEMENT’S DISCUSSION AND ANALYSIS (Continued) REQUIRED SUPPLEMENTAL INFORMATION YEARS ENDED SEPTEMBER 30, 2014 AND 2013 (UNAUDITED) - 7 - Condensed Statements of Revenues, Expenses and Changes in Net Position for the Years Ended September 30, 2014 and 2013 2014 2013 Variances Operating Revenues $ 7,280,588 $ 6,821,965 $ 458,623 Operating Expenses (7,181,283) (8,772,213) (1,590,930) Operating Income 99,305 (1,950,248) 2,049,553 Net Non-operating Revenues 265,609 57,867 207,742 Change in Net Position 364,914 (1,892,381) 2,257,295 Net Position, Beginning of the Year 14,883,743 16,776,124 (1,892,381) Net Position, End of the Year $ 15,248,657 $ 14,883,743 $ 364,914 Revenues • Operating revenues increased by $458,623 or 7% compared to last fiscal year. Included in this was an increase in government allotments of $374,175 or 8% to restore employees’ salaries at their full level after they were reduced due to the fiscal condition of the government. Other operating income includes $214,568 that was earned in tour bus revenues when the Authority took control of the tour bus. Penalties in the amount $88,607 were assessed on EDC beneficiaries that did not submit reports on time. There was an increase in rental income of $62,150 or 15% due to an increase in occupancy at the Industrial Park continues. Application and processing fees decreased by $296,412 or 31% due to the decrease in (EDC) beneficiary fines imposed. Interest on loans decreased by $63,819 or 28% due to the increase in the number of loans that were written-off during within last two years. Grant revenue decreased by $157,479 or 23% due to the expiration of a grant program. Operating Expenses • Operating expenses decreased by $1,590,930 or 18% compared to last fiscal year. Included in this was a decrease of $977,280 or 88% in bad debt due to the Authority writing off a large amount of its delinquent in the previous year. Grant expenditure by $156,881 or 23% due to the close-out of one of the grant programs. Travel and per diem decreased by $10,135 or 10% due to the Authority making better use video technology to reduce inter-island travel. Professional service costs decreased by $382,873 or 32% due to a reduction in consulting expenses relative to the EDC program. Occupancy decreased by $28,392 or 9% due to that in FY 2013 the Authority paid to months rent to Rebob Development Corp. after the Authority moved out based on the contract agreement. Advertising expense increased by $43,827 or 22%, due to the designing and launching of the Authority’s new website. Additionally, the Authority incurring expenses relative to captive insurance and the EB-5 program Personnel cost increased by $59,709 or 2% due to the hiring of an employee to oversee the expansion of activities within the marketing area. VIRGIN ISLANDS ECONOMIC DEVELOPMENT AUTHORITY MANAGEMENT’S DISCUSSION AND ANALYSIS (Continued) REQUIRED SUPPLEMENTAL INFORMATION YEARS ENDED SEPTEMBER 30, 2014 AND 2013 (UNAUDITED) - 8 - Non-operating Revenues and Expenses • Non-operating revenues increased by $207,742 or 359% compared to last year. This includes an increase of $49,172 in interest income from deposit accounts and certificate of deposits and $29,233 collected in bad debt recoveries. Additionally, $55,238 was earned in indirect revenues from the administration of federal programs and $71,900 was received from the sale of the tour buses. V. CAPITAL ASSETS The Authority’s capital assets as of September 30, 2014 and 2013 were $2,259,654 and $2,626,063, respectively (net of accumulated depreciation). The net decrease in capital assets of $366,409 results from the disposition of the tour buses and reduction in the value of the capital assets due to depreciation. 2014 2013 Building & Building Improvements $ 9,149,776 $ 9,149,776 Leasehold Improvements 858,894 836,124 Equipment 1,132,399 1,038,349 Furniture & Fixture 356,325 349,457 Vehicles 232,621 1,119,896 Leasehold Equipment 20,585 20,585 Total Costs 11,750,600 12,514,187 Less: Accumulated Depreciation (9,490,946) (9,888,124) Net Capital Assets $ 2,259,654 $ 2,626,063 VI. FINANCIAL HIGHLIGHTS 2013 • The Authority’s net position was $14,883,743 in fiscal year 2013, which represents a decrease of $1,892,382 or 11% compared to fiscal year 2012. • Total assets exceeded total liabilities by $14,883,743 in fiscal year 2013 compared to fiscal year 2012. • Operating revenues were $6,821,965 in fiscal year 2013, which reflects an increase of $653,003 or 11% compared to fiscal year 2012. • Operating expenses were $8,050,838 in fiscal year 2013, an increase of $2,004,830 or 25% compared to fiscal year 2012. • Appropriations totaling $4,481,814 received from the Government of the Virgin Islands in fiscal year 2013 were $204,321 or 4% lower than in fiscal year 2012. VIRGIN ISLANDS ECONOMIC DEVELOPMENT AUTHORITY MANAGEMENT’S DISCUSSION AND ANALYSIS (Continued) REQUIRED SUPPLEMENTAL INFORMATION YEARS ENDED SEPTEMBER 30, 2014 AND 2013 (UNAUDITED) - 9 - VII. CONDENSED FINANCIAL INFORMATION Condensed Statements of Net Position as of September 30, 2013 and 2012 2013 2012 Variances Current Assets $ 5,081,511 $ 5,527,254 $ (445,743) Noncurrent Assets 14,084,520 15,355,225 (1,270,705) Capital Assets, net 2,626,063 2,422,132 203,931 Total Assets 21,792,094 23,304,611 (1,512,517) Current Liabilities 5,416,235 4,887,887 528,348 Noncurrent Liabilities 1,492,116 1,640,600 (148,484) Total Liabilities 6,908,351 6,528,487 379,864 Net Position Invested in Capital Assets, net of related debt 2,626,063 2,422,132 203,931 Restricted 13,647,640 14,524,049 (876,409) Unrestricted (1,389,960) (170,057) (1,219,903) Total Net Position $14,883,743 $16,776,124 $(1,892,381) Current Assets • Current assets decreased by $445,743 or 8% in fiscal year 2013 compared to fiscal year 2012. This includes a reduction in cash and cash equivalents of $1,178,887 or 31% that was used for leasehold improvements and the purchase of furniture and fixtures at the new office on St. Thomas. Investments increased by $417,003 or 118% compared to fiscal year 2012. This increase in investments is attributed to the State Small Business Credit Initiative (SSBCI) grant funds used as collateral in support of loans financed through the local banks. Accounts receivables, net increased by $310,212 or 25% compared to fiscal year 2012 and, of this amount, $158,160 or 51% is owed to the Authority in reimbursable expenses from the State Trade Export (STEP) and Incubator Federal programs. Additionally, the outstanding receivables from the Economic Development Commission (EDC) beneficiaries increased by $194,233 or 162% due to a substantial fine assessed on one beneficiary. The increase in prepaid and other assets of $5,929 or 8% was as a result of an advance payment made on the financial institutional bond insurance premium. Noncurrent Assets • Noncurrent assets decreased by $1,270,705 or 8% which was due largely to the net write-off of $1,246,504 between loan receivables and allowance for uncollectible that was written off in the lending unit. Restricted cash and cash equivalents increased by $105,835 or 1% from the cumulative effect of changes in restricted cash and cash equivalent. There was an increase in restricted investments of $33,738 or 1%, of which $21,884 is sequestered in compliance with Federal restriction. The additional amount in restricted funds of $11,854 constitutes interest income received on funds invested on restricted assets. VIRGIN ISLANDS ECONOMIC DEVELOPMENT AUTHORITY MANAGEMENT’S DISCUSSION AND ANALYSIS (Continued) REQUIRED SUPPLEMENTAL INFORMATION YEARS ENDED SEPTEMBER 30, 2014 AND 2013 (UNAUDITED) - 10 - Capital Assets • There was a net increase of $203,931 or 8% due to the capitalization of the leasehold improvements and purchase of furniture and fixtures for the new office and storage facility on St. Thomas and depreciation taken on the authority’s capital assets. Current Liabilities • The Authority’s current liabilities increased in fiscal year 2013 by $528,348 or 11% compared to fiscal year 2012 and were due largely to the net effect of the following: − An increase in accounts payable of $379,394 or 145%, that represents vendor payments and payroll liabilities that were not paid by the end of the fiscal year. − An increase in accrued expenses of $174,774 or 112%, that consists of various obligations including contractual agreements and earned employee compensation absences. − A decrease in deferred revenues of $57,951 or 1% as funds was transferred from the SSBCI account to provide collateral support to local banks. Noncurrent Liabilities • Noncurrent liabilities decreased by $148,484 or 9% this fiscal year compared to the same period last year. This decrease was due to the cumulative effect of: − A reduction in compensated absences of $141,737 or 66% as management strictly enforced the Authority’s compensated absence policy. − A reduction of $24,812 or 6% in long term debt that represents this year’s payment of principal on a revolving loan. − An increase of $9,937 or 1% in deferred revenue representing advance rent payment from a tenant in the Industrial Park. − An increase in security deposits of $8,128 or 26% for a new tenant at the Industrial Park. Net Position • Net position represents residual interest in the Authority’s assets after all liabilities are deducted for reporting purposes and are divided into three major components: − Invested in Capital Assets − Restricted Net Position − Unrestricted Net Position The Authority’s total net position at September 30, 2013 were reduced to $14,883,743, which is a decrease of 11% compared to fiscal year 2012 as total expenses exceeded total revenues by $1,892,381 or 28%. VIRGIN ISLANDS ECONOMIC DEVELOPMENT AUTHORITY MANAGEMENT’S DISCUSSION AND ANALYSIS (Continued) REQUIRED SUPPLEMENTAL INFORMATION YEARS ENDED SEPTEMBER 30, 2014 AND 2013 (UNAUDITED) - 11 - Condensed Statements of Revenues, Expenses and Changes in Net Position for the Years Ended September 30, 2013 and 2012 2013 2012 Variances Operating Revenues $ 6,821,965 $ 6,168,962 $ 653,003 Operating Expenses (8,775,997) (6,582,952) (2,193,045) Operating Income (1,954,032) (413,990) (1,540,042) Net Non-operating Revenues 61,651 33,250 28,401 Change in Net Position (1,892,381) (380,740) (1,511,641) Net Position, Beginning of the Year 16,776,124 17,156,864 (380,740) Net Position, End of the Year $ 14,883,743 $ 16,776,124 $ (1,892,381) Revenues • Operating revenues increased by $653,002 or 11% in fiscal year 2013 compared to the same period of the prior fiscal year. The net effect of this change includes: − An increase in (EDC) beneficiary billings of $437,536 or 83% due to a substantial fine that was imposed on one beneficiary. − An increase in grant revenues of $567,989 or 439% including $547,070 received from the STEP program. − A decrease of $34,463 or 13% in loan interest was due to the write-down of certain loans in the Government Development Bank (GDB) portfolio. − A decrease of $74,806 or 95% in PFA funds. The $4,184 drawdown this year was the final amount to be received from the appropriation. − A decrease in penalties of $30,987 or 144% was due mainly to collaborative efforts with the EDC beneficiaries to ensure they comply with rules and regulations. − A decrease in other operating income of $11,342 or 19%, which includes NSF and late fees, was due to management revising policies with respect to collections. − A decrease in government allotment of $204,322 or 4%, which was a result of a reduction in government revenues. Operating Expenses • Operating expenses increased by $2,193,045 or 33% in fiscal year 2013 compared to the previous year. The major changes were in the following areas: − Personnel costs were increased by $285,008 or 9% due to the filling of vacancies, and the addition of part-time and temporary employees, to assist the Authority in meeting its mandate. − Advertising costs went up by $111,725 or 130% as the Authority continues to aggressively market the EDC program within the United States and Europe. − Professional services increased by $614,137 or 106% due to increased marketing and lead generation activities, legal and other consulting services in support of the EDC program, and the marine economic development initiative. VIRGIN ISLANDS ECONOMIC DEVELOPMENT AUTHORITY MANAGEMENT’S DISCUSSION AND ANALYSIS (Continued) REQUIRED SUPPLEMENTAL INFORMATION YEARS ENDED SEPTEMBER 30, 2014 AND 2013 (UNAUDITED) - 12 - − Other administrative expenses increased by $242,206 or 28%. This amount includes $175,986 attributable to grant expenses. Within this expense category, funds were expended to do emergency repairs to the St. Croix office building. − Grant expenditures were $567,391 or 439% more than the previous year which include $24,446 for the Scrape and Paint and Historical Walking Tour programs that are administered by the Enterprise Zone Commission. Additionally, $56,533 and $546,472 were expended for the SSBCI and STEP programs, respectively. − Loss on asset termination was $157,259, the amount written-off that represents the undepreciated costs of leasehold improvements when the Authority moved from its old location on St. Thomas to Nisky Center. − Bad debt increased by $246,653 or 29% as the Authority is aggressively taking the necessary steps of removing from its portfolio those loans that are determined to be uncollectible. − Depreciation expenses increased by $27,172 or 5% due to the acquisition of capital assets during the fiscal year. Non-operating Revenues and Expenses • Although total net non-operating revenues increased by $21,857 or 55% in fiscal year 2013, interest income declined by $8,755 or 30% due to the conversion of a certificate of deposit to cash which was used to pay for leasehold improvements and furniture and fixtures at the new office on St. Thomas. However, other income increased by $30,612 or 287% due to the receipt of $20,950 in bad debt recoveries and $14,927 as a gain on the sale of an asset. There was also a reduction in interest expense and finance charges of $2,760 or 42% as the Authority continues to pay down its outstanding debts. VIII. CAPITAL ASSETS The Authority’s capital assets as of September 30, 2013 and 2012 were $2,626,063 and $2,422,132 (net of accumulated depreciation). The capital assets addition during the fiscal year included leasehold improvements, equipment and furniture. 2013 2012 Building & Building Improvements $ 9,149,776 $ 9,148,427 Leasehold Improvements 836,124 428,431 Equipment 1,038,349 960,530 Furniture & Fixture 349,457 220,326 Vehicles 1,119,896 1,112,518 Leasehold Equipment 20,585 20,585 Total Costs 12,514,187 11,890,817 Less: Accumulated Depreciation (9,888,124) (9,468,685) Net Capital Assets $ 2,626,063 $ 2,422,132 VIRGIN ISLANDS ECONOMIC DEVELOPMENT AUTHORITY MANAGEMENT’S DISCUSSION AND ANALYSIS (Continued) REQUIRED SUPPLEMENTAL INFORMATION YEARS ENDED SEPTEMBER 30, 2014 AND 2013 (UNAUDITED) - 13 - PROGRAMS Enterprise and Commercial Zone Program – This program offers incentives for businesses to invest in severely economically depressed areas on St. Thomas and St. Croix. It provides tax credits to businesses, which provide employment to residents of the designated areas. Additionally, it manages the Scrape and Paint and Historic Walk programs funded by sub-grants from federal grantor agencies. Tax-Incentive Program – This program is aimed at local entrepreneurs who want to develop and expand their current businesses in exchange for various tax exemptions. Micro Loan Program – This program is geared to current and potential business owners who meet certain eligibility criteria. The micro-loans range from $1,000 to $50,000, have an interest rate of 5% and a term of five (5) years. The Micro Loan program is administered by the Economic Development Bank (EDB). Performance Bonding Program – This program allows local contractors to participate in capital development projects by providing payment and performance bonding. Tour Bus Program – Financing was obtained in the amount of $1,000,000 from the PFA to purchase twenty-six (26) tour buses to provide ground transportation for cruise passengers on the island of St. Croix. The buses were sold in August of 2014 and local taxi operators are now providing this service. Energy Loan and Rebate Program – As a loan agent for this program, the Authority processes loan applications, issues loan and rebate checks, and maintains loan files and balances on behalf of the Virgin Islands Energy Office. These transactions are not reflected in the financial statements of the Authority. Department of Agriculture Loan Program – As a loan agent for this program, the Authority processes loan applications, issues loan checks and maintains loan files and balances on behalf of the Department of Agriculture. These transactions are not reflected in the financial statements of the Authority. State Small Business Credit Initiative (SSBCI) Program – The Authority was awarded a federal grant of $13.1M to support loan enhancements and performance bonding for local businesses. Those businesses who otherwise qualify to receive a loan from local banks are eligible for this program. State Trade Export Program (STEP) – This federal program was designed to promote trade and assist small local manufacturers to increase exports and promote trade. Disaster Small-Midsized Enterprises Incubator Program – The Authority was awarded $1.0M in federal funds matched with $200,000 of local funding in the establishment of an incubator program on the island of St. Croix. It is a collaborative venture, involving the government and other community based institutions to create avenues for economic viability and sustainability. VIRGIN ISLANDS ECONOMIC DEVELOPMENT AUTHORITY MANAGEMENT’S DISCUSSION AND ANALYSIS (Continued) REQUIRED SUPPLEMENTAL INFORMATION YEARS ENDED SEPTEMBER 30, 2014 AND 2013 (UNAUDITED) - 14 - Post-Disaster Relief Revolving Loan – The United States EDA awarded $2,000,000 in federal grant matched with $400,000 of local funding to support natural disaster resiliency and economic diversification in the territory. Request for Information – This financial report is designed to provide a general overview of the Authority’s finances for those with an interest in the Authority’s operation. Questions concerning any of the information provided in this report or request for additional financial information should be addressed to the Virgin Islands Economic Development Authority, Nisky Shopping Center, Suite 620, St. Thomas, VI 00802. - 15 - VIRGIN ISLANDS ECONOMIC DEVELOPMENT AUTHORITY STATEMENTS OF NET POSITION AS OF SEPTEMBER 30, 2014 AND 2013 2014 2013 ASSETS Current Assets: Cash and Cash Equivalents $ 2,608,485 $ 2,669,360 Investments 206,848 769,091 Receivable, net 1,306,627 1,560,761 Prepaid and Other Assets 61,825 82,299 Total Current Assets 4,183,785 5,081,511 Noncurrent Assets: Restricted Cash and Cash Equivalents 7,552,195 7,864,742 Restricted Investments 4,695,812 2,675,301 Restricted Loans Receivable, net 3,689,964 3,544,477 Total Noncurrent Assets 15,937,971 14,084,520 Capital Assets, net 2,259,654 2,626,063 Total Assets $ 22,381,410 $ 21,792,094 LIABILITIES Current Liabilities: Accounts Payable $ 581,700 $ 640,601 Accrued Expenses 104,680 330,976 Compensated Absences, current 135,060 147,351 Interest Payable 20,638 19,987 Deferred Revenue 4,190,312 4,252,932 Loan Payable, current 24,632 24,388 Total Current Liabilities 5,057,022 5,416,235 Noncurrent Liabilities: Compensated Absences 289,479 74,547 Security Deposits 44,099 39,865 Deferred Revenue 1,000,000 1,009,937 Relief Revolving Funds 400,000 - Loan Payable 342,153 367,767 Total Noncurrent Liabilities 2,075,731 1,492,116 Total Liabilities 7,132,753 6,908,351 Net Position: Invested in Capital Assets, net of related debt 2,259,654 2,626,063 Restricted Net Position 13,553,923 13,647,640 Unrestricted Net Position ( 564,920) (1,389,960) Total Net Position $ 15,248,657 $ 14,883,743 The accompanying notes are an integral part of these financial statements. - 16 - VIRGIN ISLANDS ECONOMIC DEVELOPMENT AUTHORITY STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET POSITION YEARS ENDED SEPTEMBER 30, 2014 AND 2013 2014 2013 Operating Revenues: Government Appropriation $ 4,855,989 $ 4,481,814 Allocation of Bond Proceeds ( 1,945) 4,184 Application and Processing Fees 665,195 961,607 Rental Income 474,761 412,611 Interest Income from Loans 162,913 226,732 Grant Revenue 539,761 697,240 Penalties 88,607 - Other Operating Revenue 495,307 37,777 Total Operating Revenues 7,280,588 6,821,965 Operating Expenses: Personnel Costs 3,386,931 3,327,222 General and Administrative 1,211,020 1,118,648 Occupancy 272,450 300,842 Advertising 241,350 197,523 Professional Services 810,529 1,193,402 Travel 95,280 105,415 Program Cost 539,761 696,642 Bad Debt 133,864 1,111,144 Total Operating Expenses 6,691,186 8,050,838 Excess (Deficiency) of Revenues from Operations Before Depreciation and Other Assets 589,402 (1,228,873) Depreciation 490,097 564,116 Loss on Assets/Termination of Lease - 157,259 Operating Income (Loss) 99,305 (1,950,248) Non-operating Revenues (Expenses): Interest Income 69,536 20,364 Other Income 199,818 41,287 Interest Expenses and Finance Charges (3,745) (3,784) Total Non-Operating Revenues 265,609 57,867 Change In Net Position 364,914 (1,892,381) Net Position, Beginning of Year 14,883,743 16,776,124 Net Position, End of Year $ 15,248,657 $ 14,883,743 The accompanying notes are an integral part of these financial statements. - 17 - VIRGIN ISLANDS ECONOMIC DEVELOPMENT AUTHORITY STATEMENTS OF CASH FLOWS YEARS ENDED SEPTEMBER 30, 2014 AND 2013 The accompanying notes are an integral part of these financial statements. 2014 2013 Cash Flows from Operating Activities Cash Received from Primary Government and Allocation of Bond Proceeds $ 5,094,083 $ 4,404,911 Cash Received from Application and Processing 509,240 767,374 Cash Received from Tenants 514,130 444,926 Cash Received from Loan Repayments 547,991 838,998 Cash Received from Other Operating Income 746,827 264,509 Cash Received from Federal Government 792,849 484,576 Cash Paid for Grant Program ( 539,762) ( 696,642) Cash Paid for Goods and Services (2,894,701) ( 2,367,701) Cash Paid to Employee for Services (3,184,290) ( 3,436,960) Loan Disbursements ( 618,072) ( 434,291) Net Cash Provided by Operating Activities 968,295 269,700 Cash Flows from Noncapital Financing Activities Other Income 194,778 41,287 Interest Expense and Finance Charges 1,295 ( 3,784) Net Cash Provided by Noncapital Financing Activities 196,073 37,503 Cash Flows from Capital and Related Financing Activities Note Principal Payments ( 25,370) ( 24,572) Acquisition of Property and Equipment ( 123,688) ( 925,306) Net Cash (Used In) Capital and Related Financing Activities ( 149,058) ( 949,878) Cash Flows from Investing Activities Interest Income 69,536 20,364 Net Purchase (Sale) of Investments (1,458,268) ( 450,741) Net Cash (Used In) Investing Activities (1,388,732) ( 430,377) Net (Decrease)/Increase in Cash and Cash Equivalents ( 373,422) (1,073,052) Cash and Cash Equivalents, Beginning of Year 10,534,102 11,607,154 Cash and Cash Equivalents, End of Year $ 10,160.680 $ 10,534,102 Reconciliation of Operating Income to Net Cash Used in Operating Activities: Operating Income (Loss) $ 99,305 $ ( 1,950,248) Adjustments to Reconcile Operating Income to Net Cash Provided by Operating Activities: Depreciation Expense 490,097 564,116 Bad Debt Expense 133,864 1,111,144 Loss on Assets/Termination of Lease - 157,259 Decrease (Increase) in Accounts Receivable 120,270 ( 415,784) Decrease (Increase) in Prepaid Expenses 20,474 (5,929) (Increase) Decrease in Loans Receivable ( 145,487) 404,706 (Decrease) Increase in Accounts Payable and Accrued Expenses ( 285,198) 554,168 Increase (Decrease) in Compensated Absences 202,641 ( 109,738) (Decrease) in Deferred Revenue ( 72,557) ( 48,014) Increase in Security Deposit 4,234 8,128 Increase in Relief Revolving Funds 400,000 - Increase (Decrease) in Interest Payable 651 ( 108) Net Cash Provided by Operating Activities $ 968,294 $ 269,700 - 18 - VIRGIN ISLANDS ECONOMIC DEVELOPMENT AUTHORITY NOTES TO THE FINANCIAL STATEMENTS FOR THE YEARS ENDED SEPTEMBER 30, 2014 AND 2013 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES • Governance: The Virgin Islands Economic Development Authority (the “Authority”), was created on December 21, 2000, as an umbrella authority to assume, integrate and unify the functions of the Government Development Bank, the Economic Development Commission, the Industrial Park Development Corporation and the Small Business Development Agency under an executive board, which consists of seven members appointed by the Governor. The Authority is a public corporation and a semi-autonomous instrumentality of the Government of the Virgin Islands and operates under the provisions of Act of 6390, approved by the Twenty-third Legislature of the Virgin Islands of the United States Virgin Islands. The general purposes and functions of the Authority were previously carried out by the Government Development Bank for the United States Virgin Islands which was created originally in 1978 by Act No. 902, and subsequently amended in 1995 and 1996. The mission of the Authority is to accelerate the economic development of the Virgin Islands by providing financial and technical assistance to industrial and commercial enterprises to create and save jobs in the community. In this regard, the Authority is authorized, among other things, to make loans to eligible small business enterprises. The Authority is a component unit of the Government of the Virgin Islands and as such, its financial statements are included in the Comprehensive Annual Financial Statements of the Central Government. • Economic Dependency: The Authority’s sustainability depends primarily on appropriations from the Government of the Virgin Islands. In addition, it earns income from application fees, processing fees, compliance fees, and rental income from its Industrial Park facilities. During fiscal years ended September 30, 2014 and 2013, the Authority received in appropriations totaling $4,855,989 and $4,481,814 from the Government of the Virgin Islands, which approximates 67 and 66 percent, respectively, of its operating revenue. • Basis of Presentation: The Authority’s financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP) as prescribed by Government Accounting Standards Board. The Authority uses the economic resources measurement focus and follows the accrual basis of accounting. In accordance with the provisions of Government Accounting Standards Board (GASB) Pronouncement as well as any applicable Financial Accounting Standards Board (FASB) Statements and Interpretations, Accounting Principles Board opinions, and Accounting Research Bulletins issued on or before November 30, 1989, unless those pronouncements conflict with or contradict GASB pronouncements. The Authority distinguishes between operating and nonoperating revenues and expenses. Operating revenues and expenses generally result from providing services in connection with the Authority’s principal ongoing business operations. Operating expenses include costs and losses resulting from services, administrative expenses, and depreciation expense. All other revenues and expenses are reported as nonoperating revenues and expenses. Nonoperating revenues consist of interest generated from restricted and unrestricted investments in short-term investment instruments. Note 1 – Summary of Significant Accounting Policies (Continued) - 19 - • Separate Funds: The accounts of the Authority are organized on the basis of funds, each of which is considered to be a separate accounting entity. All transactions are recorded in a separate set of self- balancing accounts, which include assets, liabilities, fund net assets, revenues and expenses. During fiscal years ended September 30, 2014 and 2013, the Authority maintained twelve (12) accounting entities and twelve (12) major funds, respectively, which constitute major transactions of the Authority: The following is a summary of these funds: − Government Development Bank Fund (GDB) accounts for the locally funded Micro Loan Program. This fund accounts for interest income from the operating account and certificate of deposit, local government appropriations, and administrative costs. The Authority’s administration and processing of loan applications on behalf of the Virgin Islands Department of Agriculture and the Virgin Islands Energy Office also occur within this fund. Those transactions have however been excluded from the Authority’s financial statements. − Economic Development Commission Fund (EDC) accounts for application, activation and annual compliance fees. Local government appropriations are also accounted for in this account together with related administrative costs. − Small Business Development Agency (SBDA) accounts for the Federal Economic Development Administration Loan Funds from the U.S. Department of Agriculture, Farmers and Fishermen local loans, Frederiksted Revolving Loan Fund and the SDBA Direct Loan Fund. Appropriations from the central government and administrative costs are also accounted for under this fund. The SBDA legislation does not allow interest earned from its loan portfolio to be used for administrative purposes. The interest income is restricted and is used for issuing new loans. − Industrial Park Development Corporation Fund (IPDC) accounts for the activities conducted by the IPDC. The IPDC was established in March 1984 to acquire, operate, and improve industrial parks in order to provide suitable sites for the location of industries to the Virgin Islands. The IPDC accounts for rental and investment income, and administrative costs associated with its operation. The IPDC does not receive any appropriations from the local government. − Intermediary Relending Program (IRP) accounts for loans that are funded by the United States Department of Agriculture Rural Development Program. The interest income earned from these loans is applied to the program’s administrative costs. − Enterprise Zone Commission (EZC) accounts for funds committed to the task of offering incentives to businesses that invest in severely economically depressed designated areas of St. Thomas and St. Croix. As a result, employment opportunities are provided to residents of the areas so designated. − Economic Development Authority (Authority) accounts for loans that are funded through U.S. Department of Agriculture. − Tax Increment Financing (TIF) this fund allows projects to be financed by pledging the increases in tax revenues that can be reasonably anticipated to be collected by the government once the financed project or activity is completed. − Economic Development Management (EDM) this account was established to record all administrative costs associated with the day-to-day operations of the Authority. − State Small Business Credit Initiative (SSBCI) this fund was established by the Small Business Jobs Act of 2010 by the Federal Government to Collateral Support Program, the Credit Guarantee Program and the Payment, Surety and Performance Bond Program. Note 1 – Summary of Significant Accounting Policies (Continued) - 20 - − State Trade and Export Promotion Grant Program (STEP) this program is funded by a federal grant from U.S. Small Business Administration. The program authorized by the Small Business Jobs Act of 2010 is a 3-year trade and export promotion pilot initiative to make matching-fund grants for states to assist ‘eligible small business concerns.’ The program objectives are to increase the number of small businesses that are exporting, and to increase the value of exports for those small businesses. − Disaster Small-Midsized Enterprises Incubator Program – The Authority was awarded a Federal grant in the amount of $1.0M that is matched with $200, 000 of local funding for the establishment of an incubator program on the island of St. Croix. The program promotes resource collaborations between the local government and other community based institutions to create an avenue to spark economic viability and sustainability. • Cash and Cash Equivalents: For the purposes of reporting cash flows, cash and cash equivalents are defined as cash on hand, demand deposits, certificate of deposits with financial institutions and all highly liquid investments available for current use with an initial maturity of three months or less are considered to be cash or cash equivalents. • Investments: Investments in marketable securities or other short-term investments of cash with readily determinable fair values and investments in debt securities are reported at their fair values in the Authority’s statement of net assets. • Restricted Cash and Cash Equivalents: This consists of cash and cash equivalents to be used for specific purposes as specified by legislation or by a grant agreement. • Allowance for Uncollectible Accounts (Loan Losses): The Authority provides for losses when a specific need for an allowance is indicated. The provision for loan losses charged to operating expenses is the amount necessary to report the net asset at its estimated realizable value. In determining the adequacy of the allowance, management considers the composition of the loan portfolio, economic factors, historical loss experience, and value and sufficiency of collateral in the current level of the allowance. • Capital Assets: The Authority capitalizes all property and equipment at cost. The property and equipment is capitalized and depreciated using the straight line method over the assets estimated useful lives. The cost of normal maintenance and repairs that do not add to the value of the asset or materially extends the asset life are not capitalized. Depreciation has been provided using the straight line method. The estimated economic lives of the Authority’s property and equipment varied as follows: Equipment and Furniture and Fixtures 3-5 Years Vehicles 5 Years Buildings and Leasehold Improvements 5-27 Years • Compensated Absences: The Authority has recognized the liability for annual leave, which is payable to employees upon separation. Sick leave balances are not paid out upon termination, however, a liability for the balances do exist in the event an employee transfers to another government agency; such liability is recognized at the time of the transfer. The liability for both amounts is calculated based on the Authority salary rates in effect at the statements of net position date. Note 1 – Summary of Significant Accounting Policies (Continued) - 21 - • Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities at the date of the financial statements, and reported amounts of revenues and expenditures during the reporting period. Accordingly, actual results could differ from those estimates. • Recently Adopted Accounting Pronouncements: The Authority recently adopted GASB 62 and 63 for the period ending September 30, 2013.In December, 2010, the GASB issued Statement No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements, effective for periods beginning after December 15, 2011, with earlier application encouraged. The objective of GASB Statement No. 62 is to incorporate into the GASB’s authoritative literature certain accounting and financial reporting guidance that is included in the FASB and AICPA pronouncements issued on or before November 30, 1989, which does not conflict with or contradict GASB pronouncements. In June 2011, the GASB issued Statement No. 63, Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position, effective for period beginning after December 15, 2011, with earlier application encouraged. GASB Statement No. 63 provides guidance for reporting deferred outflows of resources, deferred inflows of resources, and net position in a statement of financial position and related disclosures. For fiscal year 2013, both GASB 62 and 63 had no effect on the financial statements of the Authority. New Accounting Pronouncements: In March 2012, the GASB issued Statement No. 65, Items Previously Reported as Assets NOTE 2 CASH AND CASH EQUIVALENTS Cash and cash equivalents consisted of the following at September 30, 2014 and 2013: Unrestricted Restricted Total 2014 Cash and Cash Equivalents $2,608,485 $7,552,195 $10,160,680 Unrestricted Restricted Total 2013 Cash and Cash Equivalents $2,669,360 $7,864,742 $10,534,102 Custodial Risk is the risk that in the event of bank failure the Authority’s deposits may not be returned to it. Cash consists of cash on hand held by depository institutions and trustees in the Authority’s name. During the fiscal years, including the final date of the period, September 30, 2014 and 2013, accounts at each financial institution were insured by the Federal Deposit Insurance Corporation up to $250,000. Cash in excess of this limit are $16,347,475 and $15,595,308, respectively, and are fully collateralized. Restricted Cash and Cash Equivalents. The restricted cash and cash equivalents at September 30, 2014 and 2013 consist of the following: 2014 2013 Micro Credit Loan Program $1,997,983 $1,290,480 Farmers and Fishermen Loan Fund 295,859 280,779 Frederiksted Revolving Loan Fund 264,888 264,001 Performance Bonding Loan Fund 1,666,148 1,792,645 Intermediary Relending Loan Fund 119,468 201,992 SBDA Revolving Loan Fund 447,857 385,593 SBDA Administration Loan Fund I 88,334 43,834 SBDA Administration Loan Fund II 97,403 43,310 SSBCI Grant 2,166,327 3,543,541 Historic Grant 8,039 18,567 Relief revolving Fund 399,889 - $7,552,195 $7,864,742 Note 2 – Cash and Cash Equivalents (Continued) - 22 - The restrictions above relate to revolving loan funds established through legislation to offer direct assistance to various industries and businesses and to aid in the creation of economic opportunities within the United States Virgin Islands. NOTE 3 INVESTMENTS Investments at September 30, 2014 and 2013 were comprised of certificate of deposits totaling $4,902,660 and $3,444,392, respectively. Balances in excess of $250,000 maintained in depository institution are collateralized. Investments as of September 30, 2014 and 2013 are as follows: FY 2014 Investment Maturities Investment Type Fair Value Less than 1 Year 1-5 Years Certificate of Deposits $4,902,660 $4,716,660 $ 186,000 FY 2013 Investment Maturities Investment Type Fair Value Less than 1 Year 1-5 Years Certificate of Deposits $3,444,392 $2,859,386 $ 585,006 NOTE 4 RESTRICTED NET POSITION FOR LOAN PROGRAMS AND OTHER FUNDS The restricted net position at September 30, 2014 and 2013 consist of the following: 2014 2013 Micro Credit Loan Program $ 2,739,572 $ 2,078,220 GDB Funds – Start Up 2,665,338 2,653,417 Farmers and Fishermen Loan Fund 309,563 310,672 Frederiksted Revolving Loan Fund 264,889 264,001 Performance Bonding Loan Fund 2,717,019 2,479,975 Intermediary Relending Loan Fund (79,079) 363,917 SBDA Revolving Loan Fund 1,212,651 861,504 SBDA Administration Loan Fund I 259,067 236,402 SBDA Administration Loan Fund II 277,324 252,419 SSBCI Grant 3,179,540 4,128,548 Historic Walk Grant 8,039 18,565 $ 13,553,923 $13,647,640 NOTE 5 LOANS RECEIVABLE Loans receivable at as of September 30, 2014 and 2013 are as follows: 2014 2013 Loan Principal $ 4,889,119 $ 9,596,574 Allowance for Doubtful Accounts (1,199,155) (6,052,097) Net Loans Receivable $ 3,689,964 $ 3,544,477 Note 5 – Loans Receivable (Continued) - 23 - The loans bear interest rates ranging from 4% to 12%. The majority of the allowance for doubtful accounts is attributed to SBDA loans which were assumed by the Authority at its inception; the additional allowances recorded in fiscal year 2014 and 2013 were $1,065,645 and $628,586, respectively. NOTE 6 RECEIVABLES The receivable balances as of September 30, 2014: Receivables Allowance Receivables, net Interest Receivable $ 11,730 $ - $ 11,730 Performance Bonding Receivable 412,646 - 412,646 EDC Fees & Charges 688,530 (229,392) 459,138 SBDA Receivable 2,265 - 2,265 Rent Receivable 209,083 (161,205) 47,878 Grant Receivable – Board Up & Scrap 40 - 40 Tax Increment Financing Fund 30,015 (30,015) - Economic Development Management 58,760 - 58,760 STEP Grant & STEP Grant 2 80,052 - 80,052 Incubator Grant 158,448 - 158,448 Receivable for USVI Government 71,900 - 71,900 Receivable – Taxi – Tour Bus 3770 - 3,770 Total $ 1,727,239 $ (420,612) $ 1,306,627 There was no provision for uncollectible accounts during fiscal year 2014. The receivable balances as of September 30, 2013: Receivables Allowance Receivables, net Interest Receivable $ 6,027 $ - $ 6,027 Performance Bonding Receivable 910,646 - 910,646 EDC Fees & Charges 608,849 (295,166) 313,683 Rent Receivable 254,156 (187,630) 66,526 Grant Receivable – Board Up & Scrap 1,790 1,790 Tax Increment Financing Fund 30,015 ( 30,015) - Economic Development Management 103,469 - 103,469 Employee Advance 460 - 460 STEP Grant 88,969 - 88,969 Incubator Grant 69,191 - 69,191 Total $ 2,073.572 $ (512,811) $ 1,560,761 Total provision for uncollectible accounts during fiscal year 2013 was $192,551. - 24 - NOTE 7 CAPITAL ASSETS Capital assets are composed of the following at September 30, 2014 Beginning Balance Additions Retirement 2014 Ending Balance Capital Assets Building and Building Improvements $ 9,149,776 $ - $ - $ 9,149,776 Leasehold Improvements 836,124 $ 22,770 - 858,894 Equipment 1,038,349 94,050 $ - 1,132,399 Furniture and Fixtures 349,457 6,868 $ - 356,325 Vehicles 1,119,896 $ - (887,275) 232,621 Leasehold Equipment 20,585 $ - $ - 20,585 Total Capital Assets 12,514,187 123,688 (887,275) 11,750,600 Accumulated Depreciation Building and Building Improvements (7,692,627) ( 231,573) $ - (7,924,200) Leasehold Improvements (68,138) ( 75,415) - ( 143,553) Equipment (850,841) ( 94,300) $ - ( 945,141) Furniture and Fixtures (225,414) ( 27,862) $ - ( 253,276) Vehicles (1,030,519) ( 60,947) 887,275 ( 204.191) Leasehold Equipment (20,585) $ - $ - ( 20,585) Total Accumulated Depreciation (9,888,124) ( 490,097) 887,275 (9,490,946) Capital Assets, net $ 2,626,063 (366,409) $ - $ 2,259,654 Depreciation expense for the year ended September 30, 2014 totaled $490,097 Capital assets are composed of the following at September 30, 2013: Beginning Balance Additions Retirement 2013 Ending Balance Capital Assets Building and Building Improvements $ 9,148,427 $ 1,349 $ - $ 9,149,776 Leasehold Improvements 428,431 $ 678,715 (271,022) 836,124 Equipment 960,530 77,819 $ - 1,038,349 Furniture and Fixtures 220,326 129,131 $ - 349,457 Vehicles 1,112,518 33838,293 (30,915) 1,119,896 Leasehold Equipment 20,585 $ - $ - 20,585 Total Capital Assets 11,890,817 925,307 (301,937) 12,514,187 Accumulated Depreciation Building and Building Improvements (7,461,054) (231,573) $ - (7,692,627) Leasehold Improvements (139,584) (42,316) 113,762 (68,138) Equipment (773,673) (77,168) $ - (850,841) Furniture and Fixtures (208,091) (17,323) $ - (225,414) Vehicles (865,698) (195,736) 30,915 (1,030,519) Leasehold Equipment (20,585) $ - $ - (20,585) Total Accumulated Depreciation (9,468,685) (564,116) 144,677 (9,888,124) Capital Assets, net $ 2,422,132 $ 361,191 $ (157,260) $ 2,626,063 Depreciation expense for the year ended September 30, 2013 totaled $564,116. - 25 - NOTE 8 LOANS PAYABLE The Authority entered into an Intermediary Relending Program loan agreement (IRP) with the United States Department of Agriculture Rural Business Cooperative Services on April 21, 1998. This agreement requires the repayment of the approved loan principal of $670,530 to begin after three (3) years in twenty- seven (27) equal annual installments. An interest rate of 1% accrues on the outstanding balance. As of September 30, 2014 and 2013, the outstanding loan balances was $392,155 and $416,726, respectively. As of September 30, 2014, the outstanding loan balance is comprised of the following: Beginning Balance Additions Deductions Ending Balance Due Within One Year Loan Payable $ 392,155 $ - $ (25,370) $ 366,785 $ 24,632 $ 392,155 $ - $ (25,370) $ 366,785 $ 24,632 As of September 30, 2013, the outstanding loan balance is comprised of the following: Beginning Balance Additions Deductions Ending Balance Due Within One Year Loan Payable $ 416,726 $ - $ (24,571) $ 392,155 $ 24,388 $ 416,726 $ - $ (24,571) $ 392,155 $ 24,388 Future minimum payments to the U.S. Department of Agriculture 2015 24,632 2016 24,879 2017 25,127 2018 25,379 2019 25,633 2020 – 2024 132,059 2025 – 2028 109,076 Total $ 366,785 NOTE 9 COMPENSATED ABSENCES Compensated absences balance as of September 30, 2014 and 2013 were $424,539 and $221,898, of which $135,060 and $147,351 respectively are due within a year. - 26 - NOTE 10 LEASES Lessor --- The Authority leased a total of 26 buses to tour bus operators on the island of St. Croix during the year. Out of the 26 buses 13 are operating the other 13 tour buses have technical problems and are not on the road. These leases are for two-year terms, with monthly payments depending on revenues earned from the operation of the buses. The tour bus operators pay the Authority 20% of earned revenue in the months when less than four cruise ships dock at the Frederiksted Pier and 30% when more than four cruise ships dock. Revenue earned from the tour buses in FY 2014 and 2013 was $214,568 and $6,000, respectively. The Authority also leases commercial properties it owns through the Industrial Park Development Corporation. The terms of the leases vary from one to five years, with monthly rent payments dependent on the amount of square footage occupied and the location of the property. Lessee --- The Authority leases office space from January 1, 2013 through December 31, 2017 for office and common area spaces with increase in rent on the 2nd and 4th anniversaries equal to the percentage of the cost of living increase for the preceding year, based upon the Consumer Price Index (CPI-U) as published by the U.S. Department of Labor Bureau of Labor Statistics. In addition, the Industrial Park buildings are located on parcels of lease land. The land is rented under a thirty (30) year term lease which expires May 2013. Two additional ten year option periods are available to the Industrial Park with the rental amounts based upon the Bureau of Labor Statistics’ Consumer Price Index. Rent expense for the years ending September 30, 2014 and 2013 were $272,450 and $298,870, respectively. The aggregate lease commitment for the Authority is as follows as of September 30, 2014: 2015 166,600 2016 166,600 2017 166,600 Oct. 2017 – Dec. 2017 41,650 Total $ 541,450 NOTE 11 DEFERRED REVENUE Current Deferred Revenue: Represent grant funds received in fiscal year 2012 from the United States Department of Treasury for the State Small Business Credit Initiative. The amount not expended as of the fiscal year end has been reflected in the financial statement as current deferred revenue in the amount of $4,190,312 and $4,252,932 for fiscal year 2014 and 2013, respectively. Noncurrent Deferred Revenue: In October 2009, the Virgin Islands Public Finance Authority (VIPFA) issued $87 million in bonds of which $5 million was allotted to the Authority. These funds are to be utilized for developmental loan programs and are drawn down from VIPFA as loans are issued. Out of the noncurrent deferred revenue reflected in the financial statements $1,000,000 represents advanced funds received from VIPFA in fiscal year 2009. The deferred revenue will be relieved as additional loans are made in the future. - 27 - NOTE 12 RETIREMENT PLAN The Government Employees Retirement System of the Virgin Islands (GERS) is a cost sharing, multiple employer public employee retirement system, established by the Government of the Virgin Islands to provide retirement, death and disability benefits to its employees. The Authority’s part-time employees who at the time of employment are under age 55 years with one year of government service are eligible to participate in the system. The Authority’s required contribution was 17.5% of the member’s annual salary. Member contributions were 8% of annual salary. The Authority’s contribution to the retirement plan was $403,626, $355,306 and $351,103 for fiscal years 2014, 2013 and 2012, respectively. The financial report of the retirement system can be obtained from the Government Employees’ Retirement System, 3438 Kronprindens Gade, Saint Thomas, Virgin Islands, 00802. NOTE 13 COMMITMENTS AND CONTINGENCIES In the normal course of business, the Authority has various outstanding commitments at September 30, 2014 and 2013 which includes outstanding loan commitments in the process of being approved by the Board of Directors which are not reflected on the statement of net assets. The Authority asserts that there have not been any material claims, suits or complaints filed nor are any pending against the Authority. In the opinion of management, all other matters which are asserted or unasserted are without merit and would not have a significant effect on the financial position or results of operations if they were disposed of unfavorably. NOTE 14 RISK MANAGEMENT The Authority is exposed to various risks of loss related to torts; theft of, damage to and destruction of assets; and natural disasters for which the Authority has commercial insurance coverage. Annual premium payments are made in proportion to the anticipated exposure to the liability losses assessed. NOTE 15 TOUR BUS PROGRAM On September 7, 2014 the Economic Development Authority through the Virgin Islands Department of Property and Procurement sold all 26 buses on public auction at St. Croix for $71,900. The Authority received the proceeds in fiscal year 2015 NOTE 16 SUBSEQUENT EVENTS The Authority has evaluated subsequent events through May 22, 2015, which is the date the financial statements were available to be issued. Management is not aware of any facts or circumstances that require disclosure in the financial statements for the year ended September 30, 2014. SUPPLEMENTARY INFORMATION - 28 - VIRGIN ISLANDS ECONOMIC DEVELOPMEN TAUTHORITY COMBINING SCHEDULE OF NET POSITION FOR THE YEARS ENDED SEPTEMBER 30, 2014 AND 2013 ASSETS GDB EDM EDC SBDA IPDC IRP EZC USE TIF SSBCI STEP INCUBATOR Tour Bus Eliminations 2014 2013 Variance Current Assets: Cash and Cash Equivalents - 1,451,221 915,888 650 153,463 - - - - - 75,639 3,001 8,623 - 2,608,485 2,669,360 (60,875) Investments - - - - 184,821 - - 22,027 - - - - - - 206,848 769,091 (562,243) Accounts Receivable, net 414,985 58,760 459,138 2,285 48,063 - 40 - - 9,186 80,052 158,448 75,670 - 1,306,627 1,560,761 (254,134) Due from Other Fund 2,352,132 449,361 851,423 273,709 3,038 - - - - - 34,870 - - (3,964,533) - - - Prepaid & Other Assets - 51,677 - - 9,744 - - - - - - - 404 - 61,825 82,299 (20,474) ` - Total Current Assets 2,767,117 2,011,019 2,226,449 276,644 399,129 - 40 22,027 - 9,186 190,561 161,449 84,697 (3,964,533) 4,183,785 5,081,511 (897,726) Non-Current Assets Loan Receivable, net 2,792,462 - - 378,609 - 168,239 - 350,654 - - - - - - 3,689,964 3,544,477 145,487 Restricted Cash & Cash Equivalents 2,664,130 1,000,000 - 1,408,494 - 119,468 8,039 185,737 - 2,166,327 - - - - 7,552,195 7,864,742 (312,547) Restricted Investments 2,665,338 - - - - - - - 2,030,474 - - - - 4,695,812 2,675,301 2,020,511 Total Non-Current Assets 8,121,930 1,000,000 - 1,787,103 - 287,707 8,039 536,391 - 4,196,801 - - - - 15,937,971 14,084,520 1,853,451 Capital Assets, net 17,944 868,756 46,136 111,760 1,213,263 - - - - - 1,795 - - - 2,259,654 2,626,063 (366,409) Total Assets 10,906,991 $ 3,879,775 $ 2,272,585 $ 2,175,507 $ 1,612,392 $ 287,707 $ 8,079 $ 558,418 $ - $ 4,205,987 $ 192,356 $ 161,449 $ 84,697 $ (3,964,533) $ 22,381,410 $ 21,792,094 $ 589,316 $ LIABILITIES Current Liabilities Accounts Payable 46,937 472,715 26,072 - 26,386 - - 500.00 - 4,006 4,820 - 264 - 581,700 640,601 (58,901) Accrued Expenses - 92,151 - - 6,384 - - - - - 6,145 - - - 104,680 330,976 (226,296) Compensated Absences - Current - 123,277 - - 11,783 - - - - - - - - - 135,060 147,351 (12,291) Interest Payable 18,245 - - - - 2,393 - - - - - - - - 20,638 19,987 651 Due to Other Fund - 3,379,928 10 - 112,507 - - - 7,596 - 163,378 214,126 86,988 (3,964,533) - - - Deferred Revenue - - - - - - 8,037 - - 4,182,275 - - - - 4,190,312 4,252,932 (62,620) Long-Term Debt - Current - - - - - 24,632 - - - - - - - - 24,632 24,388 244 Total Current Liabilities 65,182 4,068,071 26,082 - 157,060 27,025 8,037 500 7,596 4,186,281 174,343 214,126 87,252 (3,964,533) 5,057,022 5,416,235 (359,213) Non-Current Liabilities Compensated Absences - 250,489 - - 38,990 - - - - - - - - - 289,479 74,547 214,932 Revolving Funds - - - 400,000 - - - - - - - - - - 400,000 - 400,000 Deferred Revenue 1,000,000 - - - - - - - - - - - - - 1,000,000 1,009,937 (9,937) Security Deposit - - - - 44,099 - - - - - - - - - 44,099 39,865 4,234 Long-Term Debt - - - - - 342,153 - - - - - - - - 342,153 367,767 (25,614) - Total Non-Current Liabilities 1,000,000 250,489 - 400,000 83,089 342,153 - - - - - - - - 2,075,731 1,492,116 583,615 Total Liabilities 1,065,182 4,318,560 26,082 400,000 240,149 369,178 8,037 500 7,596 4,186,281 174,343 214,126 87,252 (3,964,533) 7,132,753 6,908,351 224,402 NET POSITION Invested in Capital Assets, net of Debt 17,944 868,756 46,136 111,760 1,213,263 - - - - - 1,795 - - - 2,259,654 2,626,063 (366,409) Restricted Net Position 7,121,929 1,000,000 - 1,787,103 - (79,079) 8,039 536,391 - 3,179,540 - - - - 13,553,923 13,647,640 (93,717) Unrestricted Net Position 2,701,936 (2,307,541) 2,200,367 (123,356) 158,979 (2,392) (7,997) 21,527 (7,596) (3,159,833) 16,218 (52,677) (2,555) - (564,920) (1,389,960) 825,040 Total Net Position 9,841,809 $ (438,785) $ 2,246,503 $ 1,775,507 $ 1,372,242 $ (81,471) $ 42 $ 557,918 $ (7,596) $ 19,707 $ 18,013 $ (52,677) $ (2,555) $ - $ 15,248,657 $ 14,883,743 $ 364,914 $ - 29 - VIRGIN ISLANDS ECONOMIC DEVELOPMENT AUTHORITY COMBINING SCHEDULE OF REVENUES, EXPENSES AND CHANGES IN NET POSITION FOR THE YEARS ENDED SEPTEMBER 30, 2014 AND 2013 GDB EDM EDC SBDA IPDC IRP EZC USE TIF SSBCI STEP INCUBATOR Tour Bus 2014 2013 Operating Revenues Application and Processing Fees 3,785 $ 22,410 $ 639,000 $ $ - $ - $ - $ - - $ - $ - $ - - $ - 665,195 $ 961,607 $ Interest from Loans 110,377 - - 25,183 - 3,069 - 24,284 - - - - - 162,913 226,732 Rental Income - - - - 471,761 - - - - - - 3,000 - 474,761 412,611 Grant Revenue - - - - - - 49,001 - - 53,115 173,657 263,988 - 539,761 697,240 Government Appropriation 55,832 4,627,312 104,995 18,332 - - 49,518 - - - - - - 4,855,989 4,481,814 PFA Bonds (1,945) - - - - - - - - - - - - (1,945) 4,184 Penalties - - 88,607 - - - - - - - - - - 88,607 - Other Operating Income 244,129 - - 1,755.16 34,579 276 - - - - - - 214,568 495,307 37,777 Total Revenue 412,178 4,649,722 832,602 45,270 506,340 3,345 98,519 24,284 - 53,115 173,657 266,988 214,568 7,280,588 6,821,965 Operating Expenses Personnel Costs - 3,068,930 - - 294,401 - - - - - - 23,600 - 3,386,931 3,327,222 Occupancy - 232,065 - - 40,386 - - - - - - - - 272,451 300,842 Advertising - 238,310 - - - - - - - - - 3,040 - 241,350 197,523 Professional Services - 782,075 3,452 - 3,512 - - - - - - 21,490 - 810,529 1,193,402 Travel and Per Diem - 93,445 - - 1,835 - - - - - - 0 - 95,280 105,415 Other Administrative Expenses 211 744,742 25,000 9,176 133,955 102 - 1,264 - - - 7,547 289,023 1,211,020 1,118,648 Grant Expenditure - - - - - - 49,001 - - 53,115 173,657 263,988 - 539,761 696,642 Bad Debt - - 10,500 98,799 (26,425) 50,990 - - - - - - - 133,864 1,111,144 Total Operating Expenses 211 5,159,567 38,952 107,975 447,664 51,092 49,001 1,264 - 53,115 173,657 319,665 289,023 6,691,186 8,050,838 Operating Income or (Loss) Before Depreciaiton 411,967 (509,845) 793,650 (62,705) 58,676 (47,747) 49,518 23,020 - - - (52,677) (74,455) 589,402 (1,228,873) Depreciation 65,780 142,980 31,335 10,780 238,025 - - - - - 1,197 - - 490,097 564,116 Loss on Assets/termination of Lease - - - - - - - - - - - - - - 157,259 Operating Income or (Loss) 346,187 (652,825) 762,315 (73,485) (179,349) (47,747) 49,518 23,020 - - (1,197) (52,677) (74,455) 99,305 (1,950,248) Other Revenues/(Expenses) Interest Income 13,233 40,863 - 880 948 - - - - 13,612 - - - 69,536 20,364 Other Income - 77,420 - 24,605 - - - 24,193 - - 1,700 - 71,900 199,818 41,287 Interest Expense and Finance Charges - - - - - (3,745) - - - - - - - (3,745) (3,784) Total Other Revenues/(Expenses) 13,233 118,283 - 25,485 948 (3,745) - 24,193 - 13,612 1,700 - 71,900 265,609 57,867 Changes in Net Position 359,420 (534,542) 762,315 (48,000) (178,401) (51,492) 49,518 47,213 - 13,612 503 (52,677) (2,555) 364,914 (1,892,381) Net Position, Beginning of Year 9,482,389 95,757 1,484,188 1,823,507 1,550,643 (29,979) (49,476) 510,705 (7,596) 6,095 17,510 - - 14,883,743 16,776,124 . . . . Net Position, End of Year 9,841,809 (438,785) 2,246,503 1,775,507 1,372,242 (81,471) 42 557,918 (7,596) 19,707 18,013 (52,677) (2,555) 15,248,657 14,883,743