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VIRGIN ISLANDS ECONOMIC DEVELOPMENT AUTHORITY FINANCIAL STATEMENTS AND SUPPLEMENTAL INFORMATION FISCAL YEAR ENDED SEPTEMBER 30, 2013 AND 2012 Together With Independent Auditor’s Report Certified Public Accountants and Management Consultants VIRGIN ISLANDS ECONOMIC DEVELOPMENT AUTHORITY FINANCIAL STATEMENTS SEPTEMBER 30, 2013 AND 2012 TABLE OF CONTENTS Independent Auditor’s Report ............................................................................................................................. 1 Management’s Discussion and Analysis ........................................................................................................... 4 Basic Financial Statements: Statements of Net Position as of September 30, 2013 and 2012 ................................................................ 16 Statements of Revenue, Expenses and Changes in Net Position for September 30, 2013 and 2012 ........ 17 Statements of Cash Flows for September 30, 2013 and 2012 .................................................................... 18 Notes to Financial Statements ..................................................................................................................... 19 Supplementary Information: Combining Statement of Net Position FY 2013 ......................................................................................... 29 Combining Statement of Revenue, Expenses and Changes in Net Position FY 2013 .............................. 30 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, 2013 and 2012, 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 audit. 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 of 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 controls 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. CERTIFIED PUBliC ACCOUNTANTS AND MANAGEMENT CONSUlTANTS BERTSMITH ·.·,./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 pos1t1on 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, 2013 and 2012, 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 audit. 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 of 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 controls 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. I O'JO Vermont /\venue, N.VV. ·:· Suite <)20 ·:· VVashington, D.C. 20005 ·:· PHONE 102.393.560o ·:· FAX 201.393 .. S6oB ·:· INTERNET www.bertsmithco.com We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. 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, 2013 and 2012, 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 Accounting principles generally accepted in the United States of America require that the management's discussion and analysis on pages 4 through 15 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Government 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 opm10n 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 financial 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 June 2, 2014, 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. Washington D.C. June 2, 2014 r VIRGIN ISLANDS ECONOMIC DEVELOPMENT AUTHORITY MANAGEMENT’S DISCUSSION AND ANALYSIS REQUIRED SUPPLEMENTAL INFORMATION YEARS ENDED SEPTEMBER 30, 2013 AND 2012 (UNAUDITED) - 4 - I. INTRODUCTION The Virgin Islands Economic Development Authority (the Authority) was created on December 21, 2000 to assume, integrate and unify the functions of the Government Development Bank, the Economic Development Commission, the Industrial Park Development Corporation, the Small Business Development Agency, and more recently, the Enterprise Zone Commission, the Tax Increment Financing and Economic Development Management (hereinafter referred to as GDB, EDC, IPDC, SBDA, EZC, TIF, and EDM respectively) under one executive board in order to achieve maximum efficiency, streamline operations, and develop comprehensive programs to promote and enhance the economic development of the Territory. The Authority accomplishes its mission by: (1) attracting or luring investors from the mainland to establish or relocate their businesses to the Virgin Islands, and (2) providing financial assistance through its lending arms (GDB and SBDA) to emerging and established businesses in the territory. 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, 2013 and September 30, 2012. 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 are displayed as restricted or unrestricted.  Statement of Revenue, Expenses and Changes in Net Position: All of the current year’s revenue 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) - 5 -  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 2013 • The Authority’s net position were $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, 2013 AND 2012 (UNAUDITED) - 6 - IV. 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, 2013 AND 2012 (UNAUDITED) - 7 - 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, 2013 AND 2012 (UNAUDITED) - 8 - 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 Nonoperating 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 last 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 for 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 collaboration efforts with the EDC beneficiaries to ensure comply with rules and regulation. − 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 this fiscal year compared to last 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 marine economic development initiative. VIRGIN ISLANDS ECONOMIC DEVELOPMENT AUTHORITY MANAGEMENT’S DISCUSSION AND ANALYSIS (Continued) REQUIRED SUPPLEMENTAL INFORMATION YEARS ENDED SEPTEMBER 30, 2013 AND 2012 (UNAUDITED) - 9 - − 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. V. CAPITAL ASSETS The Authority’s capital assets as of September 30, 2013 and 2012 are $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, 2013 AND 2012 (UNAUDITED) - 10 - VI. FINANCIAL HIGHLIGHTS 2012 • The Authority’s net position were $16,776,124 in fiscal year 2012, which represents a decrease of $380,740 or 2% compared to fiscal year 2011. • Total assets exceeded total liabilities by $16,776,124 in fiscal year 2012 compared to $17,156,864 in fiscal year 2011. • Operating revenues for the Authority were $6,168,962 in fiscal year 2012, which reflects a decrease of $2,336,408 or 27% compared to fiscal year 2011. • Operating expenses were $6,582,952 in fiscal year 2012, which reflects a decrease of $559,604 compared to fiscal year 2011. • Appropriations totaling $4,686,135 received from the Government of the Virgin Islands in fiscal year 2012 were $75,712 or 2% higher than in fiscal year 2011. In addition, the Authority received $78,990 from the Virgin Islands Public Finance Authority pursuant to Act No. 7081 issued by the Legislature of the Virgin Islands. VII. CONDENSED FINANCIAL INFORMATION Condensed Statements of Net Position as of September 30, 2012 and 2011 2012 2011 Variances Current Assets $ 5,527,254 $ 5,112,042 $ 415,212 Noncurrent Assets 15,355,225 11,522,990 3,832,235 Capital Assets, net 2,422,132 2,915,699 (493,567) Total Assets 23,304,611 19,550,731 3,753,880 Current Liabilities 4,887,887 727,272 4,160,615 Noncurrent Liabilities 1,640,600 1,666,595 (25,995) Total Liabilities 6,528,487 2,393,867 4,134,620 Net Position Invested in Capital Assets, net of related debt 2,422,132 2,882,725 (460,593) Restricted 14,524,049 10,522,990 4,001,059 Unrestricted (170,057) 3,751,149 (3,921,206) Total Net Position $16,776,124 $17,156,864 $ (380,740) VIRGIN ISLANDS ECONOMIC DEVELOPMENT AUTHORITY MANAGEMENT’S DISCUSSION AND ANALYSIS (Continued) REQUIRED SUPPLEMENTAL INFORMATION YEARS ENDED SEPTEMBER 30, 2013 AND 2012 (UNAUDITED) - 11 - Current Assets • Current assets increased by $415,212 or 8% in fiscal year 2012 compared to fiscal year 2011. This includes an increase in cash and cash equivalents of $485,654 or 14% due to funds received for the Small State Business Credit Initiative (SSBCI) and State Trade Export (STEP) programs. Additionally, a substantial sum was received from two EDC beneficiaries for non-compliance. Accounts receivables decreased by $231,869 or 16% due to the write off of outstanding rent receivable and amending the lease agreement for one of the tenants located in the Industrial Park, plus $135,190 allowance for uncollectible for the year. There was a decrease of $8,800 or 10% in prepaid and other assets; however, there was an improvement in the collection of fees assessed on EDC beneficiaries during the year. Noncurrent Assets • Noncurrent assets increased by $3,832,235 or 33% in fiscal year 2012 compared to fiscal year 2011 due to an increase in restricted cash and cash equivalent of $3,696,925 or 91%. The SSBCI program accounts for a substantial portion of the increase. There was an increase of $118,347 or 2% in loan receivables as management continues to aggressively market, expand and increase its loan portfolio through its many lending programs. The increase of $16,963 or 1% in restricted investments represents SSBCI funds used to collateralized loans to qualified bank customers. Capital Assets • The decrease in total capital assets of $493,567 or 17% as compared to last year was due to fiscal year 2012 depreciation taken on the Authority’s buildings, vehicles and equipment. Current Liabilities • The Authority’s current liabilities increased in fiscal year 2012 by $4,160,615 or 572% compared to fiscal year 2011 due to the net effect of the following: − Deferred revenues of $4,310,883 consisting of $18,961 for the Savanne Historic Walk Tour grant and $4,291,922 for the State Small Business Credit Initiative (SSBCI) programs. − An increase in accounts payable of $41,550 or 19%, representing various obligations, including contractual agreements that were incurred, but were not paid by the end of the fiscal year. − A decrease in accrued expenses of $165,195 or 51% due to the Authority paid off some of the outstanding obligations within the year. − A decrease in long-term debt-current of $31,319 or 56% was due to the Authority paying-off its note on the office building on St. Croix, in addition to paying down on its outstanding IRP loan. VIRGIN ISLANDS ECONOMIC DEVELOPMENT AUTHORITY MANAGEMENT’S DISCUSSION AND ANALYSIS (Continued) REQUIRED SUPPLEMENTAL INFORMATION YEARS ENDED SEPTEMBER 30, 2013 AND 2012 (UNAUDITED) - 12 - Noncurrent Liabilities • Noncurrent liabilities decreased in fiscal year 2012 by $25,995 or 2% compared to fiscal year 2011 due to: − An increase in compensated absences of $16,199 or 8% due to accrued leave earned by employees completing probation and employees who accrued vacation time, but have not used them by the end of the fiscal year. − A decrease in the IRP loan principal balance of $24,983 or 6% as the Authority continues to make payments on its long term debt. 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, 2012 were $16,776,124, due mainly to a reduction in revenues in fiscal year 2012, total net position decreased by $380,740 or 2% compared to September 30, 2011. Condensed Statements of Revenues, Expenses and Changes in Net Position for the Years Ended September 30, 2012 and 2011 2012 2011 Variances Operating Revenues $ 6,168,962 $ 8,505,370 $ (2,336,408) Operating Expenses (6,582,952) (7,142,556) 559,604 Operating Income (413,990) 1,362,814 (1,776,804) Net Nonoperating Revenues 33,250 17,552 15,698 Change in Net Position (380,740) 1,380,366 (1,761,106) Net Position, Beginning of the Year 17,156,864 15,776,498 1,380,366 Net Position, End of the Year $ 16,776,124 $ 17,156,864 $ (380,740) Revenues • Operating revenues decreased by $2,336,408 or 27% in fiscal year 2012 over the prior fiscal year due mainly to a $2,095,320 or 96% decrease in PFA revenues. However, Government appropriations increased by $75,712 or 2%. In addition, interest received from loans increased by $39,092 or 18% due to the aggressive steps taken by management to improve collections on outstanding loans. Rental income decreased by $83,322 or 17%, due mainly to an amendment of a lease agreement by 50% for one of the Industrial Park tenants. VIRGIN ISLANDS ECONOMIC DEVELOPMENT AUTHORITY MANAGEMENT’S DISCUSSION AND ANALYSIS (Continued) REQUIRED SUPPLEMENTAL INFORMATION YEARS ENDED SEPTEMBER 30, 2013 AND 2012 (UNAUDITED) - 13 - There was also a decrease in application and processing fees of $96,881 or 16% due to a reduction in the number of loans approved and processed during the year. Penalties assessed on EDC beneficiaries totaling $21,450 was 79% less than in the previous year due to a reclassification in how penalties assessed on EDC beneficiaries are reported. Operating Expenses • Operating expenses in the aggregate decreased by $559,604 or 8% in fiscal year 2012 compared to fiscal year 2011. This year’s reduction in operating expenses is in line with management’s plan to reduce cost and improve operational efficiency. Due to employee resignations and the elimination of vacancies as part of a government-wide austerity plan, personnel service costs were decreased by $374,266 or 11%. There was a decrease of $39,061 or 31% in advertising cost as the firm that was hired to do lead generation work was also used to market the EDC program. The cost for professional services was reduced by $172,942 or 23% as contractual agreements were not renewed. Administrative expenses decreased by $17,322 or 2% and confirmed management’s commitment to reduce overall costs. There was an increase of $21,137 or 14% in travel and per diem to support the objective of attracting more international investors to the Territory. Bad debt increased by $16,114 or 2% which is consistent with management’s goal of reducing the level of accounts deemed uncollectible; and additionally, there was a $15,581 or 3% increase in depreciation due to the acquisition of assets that were capitalized during the fiscal year. Non-operating Revenues and Expenses • Total net non-operating revenues increased by $15,698 or 89% in fiscal year 2012 despite a reduction of $46,645 or 62% in interest income due to the maturity of certain certificates of deposits that were invested until needed. There was an increase in other income due to amounts received in bad debt recoveries and a gain on sale of an asset. There was a reduction in interest expenses and finance charges of $2,989 or 31% as the Authority continues to pay down its outstanding debts. VIII. CAPITAL ASSETS The Authority’s capital assets as of September 30, 2012 and 2011 are $2,422,132 and $2,915,699 (net of accumulated depreciation). The capital assets addition during the fiscal year included equipment and furniture. 2012 2011 Building & Building Improvements $ 9,148,427 $ 9,148,427 Leasehold Improvements 428,431 428,431 Equipment 960,530 920,660 Furniture & Fixture 220,326 216,817 Vehicles 1,112,518 1,135,018 Leasehold Equipment 20,585 20,585 Total Costs 11,890,817 11,869,938 Less: Accumulated Depreciation (9,468,685) (8,954,239) Net Capital Assets $ 2,422,132 $ 2,915,699 VIRGIN ISLANDS ECONOMIC DEVELOPMENT AUTHORITY MANAGEMENT’S DISCUSSION AND ANALYSIS (Continued) REQUIRED SUPPLEMENTAL INFORMATION YEARS ENDED SEPTEMBER 30, 2013 AND 2012 (UNAUDITED) - 14 - PROGRAMS Enterprise Zone Program – This program offers incentives for businesses to invest in severely economically depressed areas in St. Thomas and St. Croix. The program provides tax credits to businesses, which provide employment to residents of the designated areas. During the audit period, the Enterprise Zone managed the Scrape and Paint Program on both islands and the Board-Up Program on St. Thomas. Both programs were funded by local sub-grants from Federal funds. Tax-Incentive Program – This five (5) year 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 Government Development Bank. Performance Bonding Program – As a new initiative of the Lending Unit, this program started towards the latter part of 2010. It secures the link between local contractors, the Department of Property and Procurement, local banking institutions, and sureties licensed in the Virgin Islands. The program allows local contractors to participate in capital development projects by providing payment and performance bonding. Tour Bus Program – Cruise lines requested “tour type” buses as a condition to making St. Croix a “port of call.” As a result, financing was obtained in the amount of $1,000,000 from the PFA to purchase twenty-six (26) tour buses. Due to this initiative, this effort was considered an investment in the St. Croix economy. Energy Loan and Rebate Program – The Authority serves as a loan processing agent for the Virgin Islands Energy Office in collaboration with the Virgin Islands Water and Power Authority. The Authority processes loan applications, issues loan and rebate checks, and maintains customers’ loan balances and files. These transactions are not reflected in the financial statements of the Authority. Department of Agriculture Loan Program – The Authority serves as a loan processing agent for the Virgin Islands Department of Agriculture pursuant to a memorandum of understanding between the parties. The Authority processes loan applications, issues loan checks and maintains customers’ loan balances and files. 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 in the amount of $13.1M to support loan enhancements and performance bonding in partnership with local banks. Borrowers who otherwise qualify to receive a business loan can be eligible to receive collateral support from this program. State Trade Export (STEP) Program – The Authority was awarded $489,646 in Federal funds to assist and encourage small local manufacturers to increase exports and promote trade. VIRGIN ISLANDS ECONOMIC DEVELOPMENT AUTHORITY MANAGEMENT’S DISCUSSION AND ANALYSIS (Continued) REQUIRED SUPPLEMENTAL INFORMATION YEARS ENDED SEPTEMBER 30, 2013 AND 2012 (UNAUDITED) - 15 - 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. Post-Disaster Relief Revolving Loan – The Department of Commerce’s Economic Development Administration (EDA) awarded $2,000,000 in Federal funds to support VIEDA Post – Disaster Relief Revolving Loan Fund (RLF) focusing on natural disaster resiliency and economic diversification. The Federal funding is matched by $400,000 or 20% local contribution. Request for Information – This financial report is designed to provide a general overview of the Authority’s finances for all 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. - 16 - VIRGIN ISLANDS ECONOMIC DEVELOPMENT AUTHORITY STATEMENTS OF NET POSITION AS OF SEPTEMBER 30, 2013 AND 2012 2013 2012 ASSETS Current Assets: Cash and Cash Equivalents $ 2,669,360 $ 3,848,247 Investments 769,091 352,088 Receivable, net 1,560,761 1,250,549 Prepaid and Other Assets 82,299 76,370 Total Current Assets 5,081,511 5,527,254 Noncurrent Assets: Restricted Cash and Cash Equivalents 7,864,742 7,758,907 Restricted Investments 2,675,301 2,641,563 Restricted Loans Receivable, net 3,544,477 4,954,755 Total Noncurrent Assets 14,084,520 15,355,225 Capital Assets, net 2,626,063 2,422,132 Total Assets $ 21,792,094 $ 23,304,611 LIABILITIES Current Liabilities: Accounts Payable $ 640,601 $ 261,208 Accrued Expenses 330,976 156,202 Compensated Absences, current 147,351 115,352 Interest Payable 19,987 20,095 Deferred Revenue 4,252,932 4,310,883 Loan Payable, current 24,388 24,147 Total Current Liabilities 5,416,235 4,887,887 Noncurrent Liabilities: Compensated Absences 74,547 216,284 Security Deposits 39,865 31,737 Deferred Revenue 1,009,937 1,000,000 Loan Payable 367,767 392,579 Total Noncurrent Liabilities 1,492,116 1,640,600 Total Liabilities 6,908,351 6,528,487 Net Position: Invested in Capital Assets, net of related debt 2,626,063 2,422,132 Restricted Net Position 13,647,640 14,524,049 Unrestricted Net Position (1,389,960) (170,057) Total Net Position $ 14,883,743 $ 16,776,124 The accompanying notes are an integral part of these financial statements. - 17 - VIRGIN ISLANDS ECONOMIC DEVELOPMENT AUTHORITY STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET POSITION FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 2013 AND 2012 2013 2012 Operating Revenues: Government Appropriation $ 4,481,814 $ 4,686,135 Allocation of Bond Proceeds 4,184 78,990 Application and Processing Fees 961,607 524,071 Rental Income 412,611 409,214 Interest Income from Loans 226,732 261,195 Grant Revenue 697,240 129,251 Penalties - 21,450 Other Operating Revenue 37,777 58,656 Total Operating Revenues 6,821,965 6,168,962 Operating Expenses: Personnel Costs 3,327,222 3,042,214 Occupancy 300,842 298,870 Advertising 197,523 85,798 Professional Services 1,193,402 579,265 Travel 105,415 169,677 Other Administrative Expenses 1,118,648 876,442 Program Cost 696,642 129,251 Bad Debt 1,111,144 864,491 Total Operating Expenses 8,050,838 6,046,008 (Loss) or Income From Operations Before Depreciation (1,228,873) 122,954 Depreciation 564,116 536,944 Loss on Assets/Termination of Lease 157,259 - Operating Loss (1,950,248) (413,990) Non-operating Revenues (Expenses): Interest Income 20,364 29,119 Other Income 41,287 10,675 Interest Expenses and Finance Charges (3,784) (6,544) Total Non-operating Revenues (Expenses) 57,867 33,250 Change In Net Position (1,892,381) (380,740) Net Position Beginning of Year 16,776,124 17,156,864 Net Position End of Year $ 14,883,743 $ 16,776,124 The accompanying notes are an integral part of these financial statements. - 18 - VIRGIN ISLANDS ECONOMIC DEVELOPMENT AUTHORITY STATEMENTS OF CASH FLOWS FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 2013 AND 2012 The accompanying notes are an integral part of these financial statements. 2013 2012 Cash Flows from Operating Activities Cash Received from Primary Government and Allocation of Bond Proceeds $ 4,404,911 $ 4,845,794 Cash Received from Application and Processing 767,374 497,806 Cash Received from Tenants 444,926 339,637 Cash Received from Loan Repayments 838,998 724,771 Cash Received from Other Operating Income 264,509 340,659 Cash Received from Federal Government 484,576 4,434,060 Cash Paid for Grant Program (696,642) (129,251) Cash Paid for Goods and Services (2,367,701) (2,125,000) Cash Paid to Employee for Services (3,436,960) (3,021,216) Loan Disbursements (434,291) (1,471,062) Net Cash Provided by Operating Activities 269,700 4,436,198 Cash Flows from Noncapital Financing Activities Other Income 41,287 10,675 Interest Expense and Finance Charges (3,784) (6,544) Net Cash Provided by Noncapital Financing Activities 37,503 4,131 Cash Flows from Capital and Related Financing Activities Note Principal Payments (24,572) (56,302) Acquisition of Property and Equipment (925,306) (43,377) Net Cash Used in Capital and Related Financing Activities (949,878) (99,679) Cash Flows from Investing Activities Interest Income 20,364 29,119 Net Purchase (Sale) of Investments (450,741) (187,190) Net Cash Provided by (Used in) Investing Activities (430,377) (158,071) Net Decrease/Increase in Cash and Cash Equivalents (1,073,052) 4,182,579 Cash and Cash Equivalents, Beginning of Year 11,607,154 7,424,575 Cash and Cash Equivalents, End of Year $ 10,534,102 $ 11,607,154 Reconciliation of Operating Income to Net Cash Used in Operating Activities: Operating Income $ (1,950,248) $ (413,990) Adjustments to Reconcile Operating Income to Net Cash Provided by Operating Activities: Depreciation Expense 564,116 536,944 Bad Debt Expense 1,111,144 864,491 Loss on Assets/Termination of Lease 157,259 - (Increase) in Accounts Receivable (415,784) (4,036) (Increase) Decrease in Prepaid Expenses (5,929) 8,800 Decrease (Increase) in Loans Receivable 404,706 (746,933) Increase (Decrease) in Accounts Payable and Accrued Expenses 554,168 (123,645) (Decrease) Increase in Compensated Absences (109,738) 20,998 (Decrease) Increase in Deferred Revenue (48,014) 4,296,339 Increase (Decrease) in Security Deposit 8,128 (2,667) (Decrease) in Interest Payable (108) (103) Net Cash Provided by Operating Activities $ 269,700 $ 4,436,198 - 19 - VIRGIN ISLANDS ECONOMIC DEVELOPMENT AUTHORITY NOTES TO THE FINANCIAL STATEMENTS FOR THE YEARS ENDED SEPTEMBER 30, 2013 AND 2012 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, 2013 and 2012, the Authority received in appropriations totaling $4,481,813 and $4,686,135 from the Government of the Virgin Islands, together with $4,184 and $78,990 in transfers from the Virgin Islands Public Finance Authority pursuant to Act No. 7081; and $2,397,619 and 1,443,631 of revenue earned from its various revenue-generating sources, respectively. • 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) Statement No. 20, Accounting and Financial Reporting for Proprietary Funds and Other Governmental Entities That Use Proprietary Fund Accounting, the Authority applies only 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) - 20 - • 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, 2013 and 2012, the Authority maintained twelve (12) and eleven (11) major funds, respectively, or activities which constitute a major transaction 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) - 21 - − 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: 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) - 22 - • 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 include 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, 2013 and 2012: Unrestricted Restricted Total 2013 Cash and Cash Equivalents $2,669,360 $7,864,742 $10,534,102 Unrestricted Restricted Total 2012 Cash and Cash Equivalents $3,848,247 $7,758,907 $11,607,154 Custodial Risk is the risk that in the event of bank failure the Authority’s deposits may not be return 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, 2013 and 2012, accounts at each financial institution were insured by the Federal Deposit Insurance Corporation up to $250,000. Cash in excess of this limit are $15,595,308 and $14,995,392, respectively, and are fully collateralized. Restricted Cash and Cash Equivalents. The restricted cash and cash equivalents at September 30, 2013 and 2012 consist of the following: 2013 2012 Micro Credit Loan Program $1,290,480 $1,002,097 Farmers and Fishermen Loan Fund 280,779 261,960 Frederiksted Revolving Loan Fund 264,001 261,363 Performance Bonding Loan Fund 1,792,645 1,404.,059 Intermediary Relending Loan Fund 201,992 211,058 SBDA Revolving Loan Fund 385,593 411,697 SBDA Administration Loan Fund I 43,834 12,215 SBDA Administration Loan Fund II 43,310 115,053 SSBCI Grant 3,543,541 4,060,444 Historic Grant 18,567 18,961 $7,864,742 $7,758,907 Note 2 – Cash and Cash Equivalents (Continued) - 23 - 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, 2013 and 2012 were comprised of certificate of deposits totaling $3,444,392 and $2,993,651, respectively. Balances in excess of $250,000 maintained in depository institution are collateralized. Investments as of September 30, 2013 and 2012 are as follows: 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 FY 2012 Investment Maturities Investment Type Fair Value Less than 1 Year 1-5 Years Certificate of Deposits $2,993,651 $2,824,826 $ 168,825 NOTE 4 RESTRICTED NET POSITION FOR LOAN PROGRAMS AND OTHER FUNDS The restricted net position at September 30, 2013 and 2012 consist of the following: 2013 2012 Micro Credit Loan Program $ 2,078,220 $ 2,091,722 GDB Funds – Start Up 2,653,417 2,641,563 Farmers and Fishermen Loan Fund 310,672 308,883 Frederiksted Revolving Loan Fund 264,001 261,341 Performance Bonding Loan Fund 2,479,975 3,334,836 Intermediary Relending Loan Fund 363,917 353,101 SBDA Revolving Loan Fund 861,504 821,812 SBDA Administration Loan Fund I 236,402 212,024 SBDA Administration Loan Fund II 252,419 250,537 SSBCI Grant 4,128,548 4,229,269 Historic Walk Grant 18,565 18,961 $ 13,647,640 $14,524,049 NOTE 5 LOANS RECEIVABLE Loans receivable at as of September 30, 2013 and 2012 are as follows: 2013 2012 Loan Principal $ 9,596,574 $ 12,655,441 Allowance for Doubtful Accounts (6,052,097) (7,700,686) Net Loans Receivable $ 3,544,477 $ 4,954,755 Note 5 – Loans Receivable (Continued) - 24 - The loans bear interest rates ranging from 4% to 12%. The allowance includes majority of the SBDA loans which were assumed by the Authority at its inception; the additional allowances recorded in fiscal year 2013 and 2012 were $1,065,645 and $628,586, respectively. NOTE 6 RECEIVABLES 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. The receivable balances as of September 30, 2012: Receivables Allowance Receivables, net Due from Vendor $ 3,972 $ - $ 3,972 Interest Receivable 3,243 - 3,243 Performance Bonding Receivable 910,646 - 910,646 Rent Receivable 330,240 (173,928) 156,312 EDC Fees & Charges 469,616 (350,166) 119,450 Grant Receivable – Board Up & Scrap 1,717 - 1,717 Tax Increment Financing Fund 30,015 - 30,015 Economic Development Management 18,637 - 18,637 STEP Grant 6,557 - 6,557 Total $ 1,774,643 $ (524,094) $ 1,250,549 Total provision for uncollectible accounts during fiscal year 2012 was $235,905. - 25 - NOTE 7 CAPITAL ASSETS Capital assets are composed of the following at September 30, 2013 and 2012: 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. Capital assets are composed of the following at September 30, 2012 and 2011: Beginning Balance Additions Retirement 2012 Ending Balance Capital Assets Building and Building Improvements $ 9,148,427 $ - $ - $ 9,148,427 Leasehold Improvements 428,431 $ - $ - 428,431 Equipment 920,660 39,870 $ - 960,530 Furniture and Fixtures 216,817 3,509 $ - 220,326 Vehicles 1,135,018 $ - (22,500) 1,112,518 Leasehold Equipment 20,585 $ - $ - 20,585 Total Capital Assets 11,869,938 43,379 (22,500) 11,890,817 Accumulated Depreciation Building and Building Improvements (7,229,432) (231,622) $ - (7,461,054) Leasehold Improvements (124,823) (14,761) $ - (139,584) Equipment (699,693) (73,980) $ - (773,673) Furniture and Fixtures (194,953) (13,138) $ - (208,091) Vehicles (684,753) (203,445) 22,500 (865,698) Leasehold Equipment (20,585) $ - $ - (20,585) Total Accumulated Depreciation (8,954,239) (536,946) 22,500 (9,468,685) Capital Assets, net $ 2,915,699 $ (493,567) $ - $ 2,422,132 Depreciation expense for the year ended September 30, 2012 totaled $536,944. - 26 - 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, 2013 and 2012, the outstanding loan balance was $392,155 and $416,726, respectively. As of September 30, 2013, the debts are composed 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 As of September 30, 2012, the debts are composed of the following: Beginning Balance Additions Deductions Ending Balance Due Within One Year Loan Payable $ 440,054 $ - $ (23,328) $ 416,726 $ 24,147 Note Payable 32,974 $ - (32,974) - - $ 473,028 $ - $ (56,302) $ 416,726 $ 24,147 Future minimum payments to the U.S. Department of Agriculture 2014 $ 24,388 2015 24,632 2016 24,879 2017 25,127 2018 25,379 2019 – 2023 130,752 2024 – 2028 136,998 Total $ 392,155 NOTE 9 COMPENSATED ABSENCES Compensated absences balance as of September 30, 2013and 2012 were $221,898 and $331,636, of which $147,351 and $115,352, respectively are due within a year. - 27 - 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 16 are operating the other 10 tour buses have technical problems and are not on the road. These leases are for two-year terms, with monthly payments dependent 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 2013 and 2012 was $6,000 and $-0-, 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, 2013 and 2012 were $298,870 and $298,469, respectively. The aggregate lease commitment for the Authority is as follows as of September 30, 2013: 2014 $ 166,600 2015 166,600 2016 166,600 2017 166,600 Oct. 2017 – Dec. 2017 41,650 Total $ 708,050 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 $4,252,932 and $4,310,883 for fiscal year 2013 and 2012, 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. - 28 - 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 $355,306, $351,103 and $386,303 for fiscal years 2013, 2012 and 2011, 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, 2013 and 2012 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 SUBSEQUENT EVENTS The Authority has evaluated subsequent events through June 12, 2014, the date which 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, 2013. SUPPLEMENTARY INFORMATION - 29 - ASSETS GDB EDM EDC SBDA IPDC IRP EZC USE TIF SSBCI STEP INCUBATORELIMINATIONS 2013 2012 Variance Current Assets: Cash and Cash Equivalents 357,917 473,941 1,303,730 274,359 63,766 - - - 404 110,719 84,524 - - 2,669,360 3,848,247 (1,178,887) Investments - - - - 184,085 - - - - 585,006 - - - 769,091 352,088 417,003 Accounts Receivable, net 912,985 103,930 313,683 19 66,710 - 1,789 - - 3,484 88,969 69,191 - 1,560,761 1,250,549 310,212 Due from Other Fund 2,038,213 166,214 - - 2,647 - - - - - 10,050 - (2,217,124) - - - Prepaid & Other Assets - 63,798 - 8,743 9,758 - - - - - - - - 82,299 76,370 5,929 Total Current Assets 3,309,115 807,883 1,617,413 283,121 326,966 - 1,789 - 404 699,209 183,543 69,191 (2,217,124) 5,081,511 5,527,254 (445,743) Non-Current Assets Loan Receivable, net 2,475,069 - - 505,805 - 161,926 - 401,677 - - - - - 3,544,477 4,954,755 (1,410,278) Restricted Cash & Cash Equivalents 2,083,125 1,000,000 - 930,373 - 201,992 18,567 87,144 - 3,543,541 - - - 7,864,742 7,758,907 105,835 Restricted Investments 2,653,417 - - - - - - 21,884 - - - - - 2,675,301 2,641,563 33,738 Total Non-Current Assets 7,211,611 1,000,000 - 1,436,178 - 363,918 18,567 510,705 - 3,543,541 - - - 14,084,520 15,355,225 (1,270,705) - - Capital Assets, net 83,724 888,048 77,471 122,540 1,451,289 - - - - - 2,991 - - 2,626,063 2,422,132 203,931 Total Assets 10,604,450 2,695,931 1,694,884 1,841,839 1,778,255 363,918 20,356 510,705 404 4,242,750 186,535 69,191 (2,217,124) 21,792,094 23,304,611 (1,512,517) LIABILITIES Current Liabilities Accounts Payable 100,905 294,329 105,686 - 32,420 - 3,549 - - 1,265 102,447 - - 640,601 261,208 379,393 Accrued Expenses - 324,609 - - 6,367 - - - - - - - - 330,976 156,202 174,774 Compensated Absences, Current 3,753 - 84,011 24,079 15,508 - 20,000 - - - - - - 147,351 115,352 31,999 Interest Payable 18,245 - - - - 1,742 - - - - - - - 19,987 20,095 (108) Due to Other Fund - 1,981,236 10 - 92,109 - - - 8,000 - 66,578 69,191 (2,217,124) - - - Deferred Revenue - - - - - - 17,542 - - 4,235,390 - - - 4,252,932 4,310,883 (57,951) Loan Payable, Current - - - - - 24,388 - - - - - - - 24,388 24,147 424 Total Current Liabilities 122,903 2,600,174 189,707 24,079 146,404 26,130 41,091 - 8,000 4,236,655 169,025 69,191 (2,217,124) 5,416,235 4,887,887 528,531 Non-Current Liabilities Compensated Absences (842) - 20,989 (5,747) 31,406 - 28,741 - - - - - - 74,547 216,284 (141,737) Deferred Revenue 1,000,000 - - - 9,937 - - - - - - - - 1,009,937 1,000,000 9,937 Security Deposit - - - - 39,865 - - - - - - - - 39,865 31,737 8,128 Long-Term Debt - - - - - 367,767 - - - - - - - 367,767 392,579 (24,995) Total Non-Current Liabilities 999,158 - 20,989 (5,747) 81,208 367,767 28,741 - - - - - - 1,492,116 1,640,600 (148,667) Total Liabilities 1,122,061 2,600,174 210,696 18,332 227,612 393,897 69,832 - 8,000 4,236,655 169,025 69,191 (2,217,124) 6,908,351 6,528,487 379,864 NET POSITION Invested in Capital Position, net of Debt 83,724 888,048 77,471 122,540 1,451,289 - - - - - 2,991 - - 2,626,063 2,422,132 203,931 Restricted Net Position 7,211,611 - - 1,436,177 - 363,918 18,567 488,821 - 4,128,547 - - - 13,647,640 14,524,049 (876,409) Unrestricted Net Position 2,187,054 (792,291) 1,406,717 264,790 99,354 (393,897) (68,043) 21,884 (7,596) (4,122,452) 14,519 - - (1,389,960) (170,057) (1,219,903) Total Net Position 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 (1,892,381) VIRGIN ISLANDS ECONOMIC DEVELOPMENT AUTHORITY STATEMENT OF NET POSITION FOR THE YEAR ENDED SEPTEMBER 30, 2013 - 30 - GDB EDM EDC SBDA IPDC IRP EZC USE TIF SSBCI STEP INCUBATOR 2,013 2,012 Operating Revenues Application and Processing Fees 1,233 53,749 906,326 - - - - 299 - - - - 961,607 524,071 Interest from Loans 156,260 - - 34,156 - 8,293 - 28,023 - - - - 226,732 261,195 Rental Income - - - - 412,611 - - - - - - - 412,611 409,214 Grant Revenue - - - - - - 24,446 - - 56,533 547,070 69,191 697,240 129,251 Government Appropriation - 3,395,726 413,344 372,884 - 1,089 283,187 - - - - 15,584 4,481,814 4,686,135 PFA Bonds 4,184 - - - - - - - - - - - 4,184 78,990 Penalties - - - - - - - - - - - - - 21,450 Other Operating Income 16,861 - (9,537) - 29,503 950 - - - - - - 37,777 58,656 Total Revenue 178,538 3,449,475 1,310,133 407,040 442,114 10,332 307,633 28,322 - 56,533 547,070 84,775 6,821,965 6,168,962 Operating Expenses Personnel Costs 209,919 1,644,775 670,314 267,676 280,918 1,089 242,506 - - - - 10,025 3,327,222 3,042,214 Occupancy 23,769 238,389 - - 38,684 - - - - - - - 300,842 298,870 Advertising 7,127 125,373 50,638 3,991 - - 8,735 - - - - 1,659 197,523 85,798 Professional Services 57,165 695,075 398,635 13,489 2,687 - 26,351 - - - - - 1,193,402 579,265 Travel and Per Diem 1,191 64,783 23,717 7,000 3,688 - 4,943 - - - - 93 105,415 169,677 Other Administrative Expenses 2,592 889,914 5,164 22,827 189,299 - 4,118 927 - - - 3,807 1,118,648 876,442 Grant Expenditure - - - - - - 24,446 - - 56,533 546,472 69,191 696,642 129,251 Bad Debt 1,039,289 - - (3,681) 75,557 (30,036) - - 30,015 - - - 1,111,144 864,491 Total Operating Expenses 1,341,052 3,658,309 1,148,468 311,302 590,833 (28,947) 311,099 927 30,015 56,533 546,472 84,775 8,050,838 6,046,008 Operating Income or (Loss) Before Depreciatio (1,162,514) (208,834) 161,665 95,738 (148,719) 39,279 (3,466) 27,395 (30,015) - 598 - (1,228,873) 122,954 Depreciation 223,084 52,463 32,548 14,787 240,636 - - - - - 598 - 564,116 536,944 Loss on Assets/Termination of Lease 157,259 - - - - - - - - - - - 157,259 - Operating Income or (Loss) (1,542,857) (261,297) 129,117 80,951 (389,355) 39,279 (3,466) 27,395 (30,015) - - - (1,950,248) (413,990) Other Revenues/(Expenses) Interest Income 12,907 - - 896 1,009 - - - - 5,552 - - 20,364 29,119 Other Income - 14,927 - 5,410 - - - 20,950 - - - - 41,287 10,675 Interest Expense & Finance Charges - - - - - (3,784) - - - - - - (3,784) (6,544) Total Other Revenues/(Expenses) 12,907 14,927 - 6,306 1,009 (3,784) - 20,950 - 5,552 - - 57,867 33,250 Changes in Net Position (1,529,950) (246,370) 129,117 87,257 (388,346) 35,495 (3,466) 48,345 (30,015) 5,552 - - (1,892,381) (380,740) - Net Position, Beginning of Year 11,012,339 342,127 1,355,071 1,736,250 1,938,989 (65,474) (46,010) 462,360 22,419 543 17,510 - 16,776,124 17,156,864 Net Position, End 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 VIRGIN ISLANDS ECONOMIC DEVELOPMENT AUTHORITY COMBINING STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION FOR THE YEAR ENDED SEPTEMBER 30, 2013