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VIRGIN ISLANDS ECONOMIC DEVELOPMENT AUTHORITY FINANCIAL STATEMENTS AND SUPPLEMENTAL INFORMATION SEPTEMBER 30, 2012 AND 2011 Together With Independent Auditors’ Report BTSMrrH cxo. Certified Public Accountants and Management Consultants VIRGIN ISLANDS ECONOMIC DEVELOPMENT AUTHORITY FINANCIAL STATEMENTS SEPTEMBER 30, 2012 And 2011 TABLE OF CONTENTS Independent Auditors’ Report 1 Management’s Discussion and Analysis 3 Basic Financial Statements: Statements of Net Assets as of September 30, 2012 and 2011 14 Statements of Revenue, Expenses and Changes in Net Assets for September 30, 2012 and 2011 15 Statements of Cash Flows for September 30, 2012 and 2011 16 Notes to Financial Statements 17 Supplementaiy Information: Combining Statement of Net Assets FY 2012 28 Combining Statement of Revenue, Expenses and Changes in Net Assets FY 2012 29 Combining Statement of Net Assets FY 2011 30 Combining Statement of Revenue, Expenses and Changes in Net Assets FY 2011 31 Independent Auditor’s Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards 32 Schedule of Findings and Recommendations 34 Status of Prior Year’s Audit Findings 36 CERTIFIED PUBLIC ACCOUNTANTS AND MANAGEMENT CONSULTANT BrSMiTH Co. INDEPENDENT AUDITORS’ REPORT Board of Directors Virgin Islands Economic Development Authority St. Thomas. U.S. Virgin Islands We have audited the accompanying Statements of Net Assets of the Virgin Islands Economic Development Authority (the Authority) as of and for the years ended September 30, 2012 and 2011, and the related statements of revenues, expenses and changes in net assets and cash flows for the years then ended. The Virgin Islands Economic Development Authority is a discreetly presented component unit of the Government of the U.S. Virgin Islands. These financial statements are the responsibility of the Authority’s management. Our responsibility is to express an opinion 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 of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Authority’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. 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, 2012 and 2011, and the respective changes in net assets and cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with GovernmentAuditing Standards, we have also issued our report dated April 15, 2013, 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 and should be considered in assessing the results of the audits. The Village Mall, Suites 102-1 03 Barron Spot Christiansted, 1JSVI 00823 PHONE 340.692.0071 FAX 340.692.0080 INTERNET www.bertsniithco.com Remit to: P.O. Box 2478 Kingshill, St. Croix, VI 00851 -2478 Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis on pages 3 through 13 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial 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. Our audit was conducted for the purpose of forming an opinion 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. V-L S(..4L £ C..= Washington D.C. April 15, 2013 -2- VIRGIN ISLANTS ECONOMIC DEVELOPMENT AUTHORITY MANAGEMENT’S DISCUSSION AND ANALYSIS REQUIRED SUPPLEMENTAL INFORMATION YEARS ENDED SEPTEMBER 30, 2012 AND 2011 (UNAUDITED) 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, 2012 and 2011. 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 ofNet Assets: 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 assets presented in these statements are displayed as restricted or unrestricted. Statement of Revenue, Expenses and Changes in Net Assets: All of the current year’s revenue and expenses are accounted for in The Statement of Revenue, Expenses and Changes in Net Assets. 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 cost through appropriation and the services it provided. -3- VIRGIN ISLANDS ECONOMIC DEVELOPMENT AUTHORITY MANAGEMENT’S DISCUSSION AND ANALYSIS REQUIRED SUPPLEMENTAL INFORMATION YEARS ENDED SEPTEMBER 30, 2012 AND 2011 (UNAUDITED) 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 2012 • The Authority’s net assets 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. -4- VIRGIN ISLANDS ECONOMIC DEVELOPMENT AUTHORITY MANAGEMENT’S DISCUSSION AND ANALYSIS REQUIRED SUPPLEMENTAL INFORMATION YEARS ENDED SEPTEMBER 30, 2012 AN1 2011 (UNAUDITED) IV. CONDENSED FINANcIAL INFORMATION Condensed Statements of Net Assets 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 Assets 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 Assets $16,776,124 $17,156,864 (380,740) 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 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. -5- VIRGIN ISLANDS ECONOMIC DEVELOPMENT AUTHORITY MANAGEMENT’S DISCUSSION AND ANALYSIS REQUIRED SUPPLEMENTAL INFORMATION YEARS ENDED SEPTEMBER 30, 2012 AND 2011 (UNAUDITED) 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. 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 Assets Net Assets 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 Assets Unrestricted Net Assets The Authority’s total net assets at September 30, 2012 were $16,776,124, due mainly to a reduction in revenues in Fiscal Year 2012, total net assets decreased by $380,740 or 2% compared to September 30, 2011. -6- VIRGIN ISLANDS ECONOMIC DEVELOPMENT AUTHORITY MANAGEMENT’S DISCUSSION AND ANALYSIS REQUIRED SUPPLEMENTAL INFORMATION YEARS ENDED SEPTEMBER 30, 2012 AND 2011 (UNAUDITED) V. CONDENSED STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS 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 Assets (380,740) 1,380,366 (1,761,106) Net Assets, Beginning of the Year 17,156,864 15,776,498 1,380,366 Net Assets, 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 lease agreement by 50% on one of the tenants. 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 confirm management 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. -7- VIRGIN ISLANDS ECONOMIC DEVELOPMENT AUTHORITY MANAGEMENT’S DISCUSSION AND ANALYSIS REQUIRED SUPPLEMENTAL INFORMATION YEARS ENDED SEPTEMBER 30, 2012 AND 2011 (UNAUDITED) 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 expense and finance charges of $2,989 or 31% as the Authority continues to pay down its outstanding debts. VI. 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 VII. FINANCIAL HIGHLIGHTS 2011 • The Authority’s net assets were $17,156,864 in Fiscal Year 2011, which represents an increase of $1,380,366 or 9% compared to Fiscal Year 2010. • Total assets exceeded total liabilities by $17,156,864 in Fiscal Year 2011 compared to $15,776,498 in Fiscal Year 2010. • Operating revenues for the Authority were $8,505,370 in Fiscal Year 2011, which reflects an increase of $266,189 or 3% over Fiscal Year 2010. • Operating expenses were $7,142,556 in Fiscal Year 2011, which reflects an increase of $35,664 over Fiscal Year 2010. • Appropriations totaling $4,610,423 received from the Government of the Virgin Islands in Fiscal Year 2011 was $169,905 or 4% less than in Fiscal Year 2010.In addition, the Authority received. -8- VIRGIN ISLANDS ECONOMIC DEVELOPMENT AUTHORITY MANAGEMENT’S DISCUSSION AND ANALYSIS REQUIRED SUPPLEMENTAL INFORMATION YEARS ENDED SEPTEMBER 30, 2012 AND 2011 (UNAUDITED) $2,174,310 from the Virgin Islands Public Finance Authority pursuant to Act No. 7081 issued by the Legislature of the Virgin Islands. VIII. CONDENSED STATEMENTS OF NET ASSETS AS OF SEPTEMBER 30, 2011 AND 2010 2011 $ 5,112,042 11,522,990 2,915,699 19,550,731 727,272 1,666,595 2,393,867 2,882,725 10,522,990 3,751,149 $ 17,156,864 Current assets increased by $608,888 or 14% in Fiscal Year 2011 compared to Fiscal Year 2010. The cumulative effect included the conversion of a certificate of deposit to cash thereby reducing investments by $107,909 or 37% which contributed to an increase in unrestricted cash of $187,720 or 6%. Accounts Receivables consist mainly of compliance, penalty and late reporting fees that were assessed on EDC beneficiaries and rent revenues generated from tenants located in the Industrial Park Corporation (IPDC). The total accounts receivables increased by $521,829 or 54% due to beneficiaries and tenants experiencing financial hardships in this economic hard time. There was an increase of $7,248 or 9% in prepaid and other assets during the year which was due to an advance payment made by the Authority to one of its vendor. Noncurrent Assets Noncurrent assets increased by $1,348,726 or 13% in Fiscal Year 2011 compared to Fiscal Year 2010. This was due partly to an increase of $614.745 or 18% in restricted cash for Performance Bonding and Loan Programs. Additionally, loans receivable increased by $1,274,355 or 36% which reflects the Authority’s aggressive approach to promoting its various loan programs during tough economic times. Restricted investments decreased by $540,374 or 17% due to the conversion of certificates of deposit to cash that were set aside for loans and performance bonding Current Assets Noncurrent Assets Capital Assets, net Total Assets Current Liabilities Noncurrent Liabilities Total Liabilities Net Assets Invested in Capital Assets, net of related debt Restricted Unrestricted Total Net Assets Current Assets 2010 Variances $ 4,503,154 608,888 10,174,264 1,348,726 3,302,096 (386,397) 17,979,514 1,571,217 600,443 126,829 1,602,573 64,022 2,203,016 190,851 3,222,832 (340,107) 9,714,631 808,359 2,839,035 912,114 $15,776,498 1,380,366 -9- VIRGIN ISLANDS ECONOMIC DEVELOPMENT AUTHORITY MANAGEMENT’S DISCUSSION AND ANALYSIS REQUIRED SUPPLEMENTAL INFORMATION YEARS ENDED SEPTEMBER 30, 2012 AND 2011 (UNAUDITED) Capita! Assets Total capital assets decreased by $386,397 or 12% in Fiscal Year 2011, due to primarily the net effect of equipment and furniture purchased during the year and depreciation expenses of the Authority’s vehicles, equipment and buildings. Current Liabilities The Authority’s current liabilities increased in Fiscal Year 2011 by $126,829 or 21% compared to Fiscal Year 2010 due to the net effect of the following: • An increase in accounts payable and accrued expenses of $119,028 or 118%, and $96,915 or 43%, respectively, that represented various obligations, including contractual agreements that were incurred, but were not paid by the end of the fiscal year; • A decrease of $74,338 or 40% in the current portion of compensated absences due to management enforcing its vacation policy; • A decrease of $214 or 1% in interest payable as principal balances on outstanding long term debts were reduced; and • A decrease in current long-term debt of $14,562 or 21% due to principal payments made on outstanding debts. Noncurrent Liabilities Noncurrent liabilities increased in Fiscal Year 2011 by $64,022 or 4% compared to Fiscal Year 2010, as a result of the following: • An increase of $104,590 or 110% in compensated absences resulting from leave accruals for employees who completed their probationary period during this fiscal year plus the incremental increase in accrued leave value as a result of salary increases for unionized employees. • A decrease of $55,112 or 12% in long term debt due to principal payments on the outstanding debts. Net Assets Net assets represent residual interest in the Authority’s assets and liabilities after all liabilities are deducted for reporting purposes they are divided into three major components: Invested in Capital Assets Restricted Net Assets Unrestricted Net Assets The Authority’s total net assets increased by $1,380,366 or 8% in Fiscal Year 2011 compared to Fiscal Year 2010 due to revenues surpassing expenses. - 10 - VIRGIN ISLANDS ECONOMIC DEVELOPMENT AUTHORITY MANAGEMENT’S DISCUSSION AND ANALYSIS REQUIRED SUPPLEMENTAL INFORMATION YEARS ENDED SEPTEMBER 30, 2012 AND 2011 (UNAUDITED) IX. CONDENSED STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS FOR THE YEARS ENDED SEPTEMBER 30, 2011 AND 2010 2011 2010 Variances Operating Revenues $ 8,505,370 $ 8,239,181 266,189 Operating Expenses (7,142,556) (7,106,892) (35,664) Operating Income 1,362,814 1,132,289 230,525 Nonoperating Revenues 17,552 56,787 (39,235) Change in Net Assets 1,380,366 1,189,076 191,290 Net Assets, Beginning of the Year 15,776,498 14,587,422 1,189,076 Net Assets, End of the Year $ 17,156,864 $15,776,498 1,380,366 Revenues Operating revenues increased by $266,189 or 3% in Fiscal Year 2011 over the prior fiscal year was a result of increases in application and processing fees and interest income. These increases were due to the large number of loans processed and approved. Similarly, drawdowns received from Public Finance Authority (PFA) were increased as the demand for loans and performance bonding financing was at an all-time high. Government appropriations and rental income decreased by 4% and 8%, respectively, which was attributable to continuing adverse economic conditions. Operating Expenses Total operating expenses in the aggregate increased by $35,664 or .005% in Fiscal Year 2011. This included $138,497 in grant expenditures which was off-set by an equal amount in grant revenues. Depreciation increased by $4,512 due to acquisition of EDC enhancement modules that were capitalized during the fiscal year. The cost for professional services increased by $456,492 or 154% as a result of accelerated marketing initiatives intended to lure investors to the Territory. The $60,155 or 2% decrease in personnel service costs reduction was a result of two (2) employees resigning to take positions at another government department. Other expense decreases were in advertising expense by $43,510 or 26%; travel and per diem were curtailed by $85,134 or 36% and other administrative expenses by $143,374 or 14%. These decreases were as a result of the Authority instituting cost reduction measures, shifting its priorities, and making better use of limited resources. Nonoperating Revenues and Expenses Total net non-operating revenues decreased by $39,235 or 69% in Fiscal Year 2011. This included a $53,274 or 41% decrease in interest income due to the Authority converting certificate of deposits held as short-term investments to cash. There was also a decrease in interest expense and finance charges of $4,790 or 33% as the Authority continues to pay down its outstanding debts. -11 - VIRGIN ISLANDS ECONOMIC DEVELOPMENT AUTHORITY MANAGEMENT’S DISCUSSION AND ANALYSIS REQUIRED SUPPLEMENTAL INFORMATION YEARS ENDED SEPTEMBER 30, 2012 AND 2011 (UNAUDITED) X. CAPITAL ASSETS The Authority’s capital assets as of September 30, 2011 and 2010 are $2,915,699 and $3,302,096 (net of accumulated depreciation). The capital assets addition during the fiscal year included equipment and furniture. 2011 2010 Building & Building Improvements $ 9,148,427 $ 9,148,427 Leasehold Improvements 428,431 428,431 Equipment 920,660 787,494 Furniture &Fixture 216,817 215,017 Vehicles 1,135,018 1,135,018 Leasehold Equipment 20,585 20,585 Total Costs 11,869,938 11,734,972 Less: Accumulated Depreciation (8,954,239) (8,432,876) Net Capital Assets $ 2,915,699 $ 3,302,096 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. - 12 - VIRGIN ISLANT)S ECONOMIC DEVELOPMENT AUTHORITY MANAGEMENT’S DISCUSSION AND ANALYSIS REQUIRED SUPPLEMENTAL INFORMATION YEARS ENDED SEPTEMBER 30, 2012 AND 2011 (UNAUDITED) 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. 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. - 13 - VIRGIN ISLANDS ECONOMIC DEVELOPMENT AUTHORITY STATEMENTS OF NET ASSETS AS OF SEPTEMBER 30, 2012 AND 2011 2012 2011 ASSETS Current Assets: Cash and Cash Equivalents $ 3,848,247 $ 3,362,593 Investments 352,088 181,861 Receivable, net 1,250,549 1,482,418 Prepaid and Other Assets 76,370 85,170 Total Current Assets 5,527,254 5,112,042 Noncurrent Assets: Restricted Cash and Cash Equivalents 7,758,907 4,061,982 Restricted Investments 2,641,563 2,624,600 Restricted Loans Receivable, net 4,954,755 4,836,408 Total Noncurrent Assets 15,355,225 11,522,990 Capital Assets, net 2,422,132 2,915,699 Total Assets $23,304,611 $19,550,731 LIABILITIES Current Liabilities: Accounts Payable $ 261,208 $ 219,658 Accrued Expenses 156,202 321,397 Compensated Absences, current 115,352 110,553 Interest Payable 20,095 20,198 Deferred Revenue 4,310,883 - Loan Payable, current 24,147 55,466 Total Current Liabilities 4,887,887 727,272 Noncurrent Liabilities: Compensated Absences 216,284 200,085 Security Deposits 31,737 34,404 Deferred Revenue 1,000,000 1,014,544 Loan Payable 392,579 417,562 Total Noncurrent Liabilities 1,640,600 1,666,595 Total Liabilities 6,528,487 2,393,867 Net Assets: Invested in Capital Assets, net of related debt 2,422,132 2,882,725 Restricted Net Assets 14,524,049 10,522,990 Unrestricted Net Assets (170,057) 3,751,149 Total Net Assets $16,776,124 $17,156,864 The accompanying notes are an integral part of thesefinancial statements. - 14 - VIRGIN ISLANDS ECONOMIC DEVELOPMENT AUTHORITY STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 2012 AND 2011 2012 2011 Operating Revenues: Government Appropriation $ 4,686,135 $ 4,610,423 Allocation of Bond Proceeds 78,990 2,174,310 Application and Processing Fees 524,071 620,952 Rental Income 409,214 492,536 Interest Income from Loans 261,195 222,103 Grant Revenue 129,251 138,497 Penalties 21,450 100,285 Other Operating Revenue 58,656 146,264 Total Operating Revenues 6,168,962 8,505,370 Operating Expenses: Personnel Costs 3,042,214 3,416,480 Occupancy 298,870 298,469 Advertising 85,798 124,859 Professional Services 579,265 752,207 Travel 169,677 148,540 Other Administrative Expenses 876,442 893,764 Program Cost 129,251 138,497 Bad Debt 864,491 848,377 Total Operating Expenses 6,046,008 6,621,193 Income From Operations Before Depreciation 122,954 1,884,177 Depreciation 536,944 521,363 Operating Income (413,990) 1,362,814 Non-operating Revenues (Expenses): Interest Income 29,119 75,764 Scholarship Payments - (43,360) Other Income (Expenses) 10,675 (5,319) Interest Expenses and Finance Charges (6,544) (9,533) Total Nonoperating Revenues (Expenses) 33,250 17,552 Change In Net Assets (380,740) 1,380,366 Net Assets Beginning of Year 17,156,864 15,776,498 Net Assets End of Year $16,776,124 $17,156,864 The accompanying notes are an integralpart of thesefinancial statements. - 15 - VIRGIN ISLANDS ECONOMIC DEVELOPMENT AUTHORITY STATEMENTS OF CASH FLOWS FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 2012 AND 2011 2012 2011 Cash Flows from Operating Activities Cash Received from Primary Government and Allocation of Bond Proceeds $ 4,845,794 $ 6,784,733 Cash Received from Application and Processing 497,806 620,026 Cash Received from Tenants 339,637 337,247 Cash Received from Loan Repayments 724,771 512,549 Cash Received from Other Operating Income 340,659 170,768 Cash Received from Federal Government 4,434,060 138,497 Cash Paid for Grant Program (129,251) (138,497) Cash Paid for Goods and Services (2,125,000) (2,009,357) Cash Paid to Employee for Services (3,021,216) (3,386,228) Loan Disbursements (1,471,062) (2,688,468) Net Cash Provided by Operating Activities 4,436,198 341,270 Cash Flows from Noncapital Financing Activities Scholarship payments - (43,360) Other Income 10,675 (5,319) Interest Expense and Finance Charges (6,544) (9,533) Net Cash Used in Noncapital Financing Activities 4,131 (58,212) Cash Flows from Capital and Related Financing Activities Note Principal Payments (56,302) (69,674) Acquisition of Property and Equipment (43,377) (134,966) Net Cash Used in Capital and Related Financing Activities (99,679) (204,640) Cash Flows from Investing Activities Interest Income 29,119 75,764 Net Purchase (Sale) of Investments (187,190) 648,283 Net Cash Provided by (Used in) Investing Activities (158,071) 724,047 Net Increase in Cash and Cash Equivalents 4,182,579 802,465 Cash and Cash Equivalents, Beginning of Year 7,424,575 6,622,110 Cash and Cash Equivalents, End of Year $ 11,607,154 $ 7,424,575 Reconciliation of Operating Income to Net Cash Used in Operating Activities: Operating Income $ (413,990) $ 1,362,814 Adjustments to Reconcile Operating Income to Net Cash Provided by Operating Activities: Depreciation Expense 536,944 521,363 Bad Debt Expense 864,491 848,377 (Increase) in Accounts Receivable (4,036) (626,359) Decrease (Increase) in Prepaid Expenses 8,800 (7,248) (Increase) in Loans Receivable (746,933) (2,018,203) (Decrease) Increase in Accounts Payable and Accrued Expenses (123,645) 215,944 Increase in Compensated Absences 20,998 30,252 Increase in Deferred Revenue 4,296,339 14,544 Decrease in Security Deposit (2,667) - Decrease in Due to Other Funds (103) (214) Net Cash Provided by Operating Activities $ 4,436,198 $ 341,270 The accompanying notes are an integralpart of thesefinancial statements. - 16- VIRGIN ISLANDS ECONOMIC DEVELOPMENT AUTHORITY NOTES TO THE FINANCIAL STATEMENTS FOR THE YEARS ENDED SEPTEMBER 30, 2012 AND 2011 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization: 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, 2012 and 2011, the Authority received in appropriations totaling $4,686,135 and $4,610,423 from the Government of the Virgin Islands, together with $78,990 and $2,174,310 in transfers from the Virgin Islands Public Finance Authority pursuant to Act No. 7081; and $1,443,631 and 1,747,722 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. - 17 - NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 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, 2012 and 2011, the Authority maintained eleven (11) and nine (9) 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. - 18 - NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) • 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. • 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. Cash and Cash Equivalents: All cash 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 3-5 Years Furniture and Fixtures 3-5 Years Vehicles 5 Years Buildings and Leasehold Improvements 5-27 Years - 19- NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 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 payor salary rates in effect at the statements of net assets date. Net Assets: Net assets are classified in the following three components: Invested in capital assets, net of related debt — These consist of all capital assets, net of accumulated depreciation and reduced by outstanding debt that is attributable to the acquisition, construction and improvement of those assets. Restricted net assets — These result when constraints placed on net assets’ use are either externally imposed by creditors, grantors, contributors, and the like, or imposed by law through constitutional provisions or enabling legislation. Unrestricted net assets — These consist of nets assets, which do not meet the definition of the two preceding categories. Unrestricted net assets often times can be designated to indicate that management does not consider them to be available for general operations; these designations can be removed or modified. 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 and disclosures of contingent 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. NOTE 2 CASH AND CASH EQUIVALENTS Cash and cash equivalents consisted of the following at September 30, 2012 and 2011: Unrestricted Restricted Total 2012 Cash and Cash Equivalents $3,848,247 $7,758,907 $11,607,154 Unrestricted Restricted Total 2011 Cash and Cash Equivalents $3,362,593 $4,061,982 $7,424,575 Custodial Risk 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, 2012 and 2011, accounts at each financial institution were insured by the Federal Deposit Insurance Corporation up to $250,000. Cash in excess of this limit are $14,995,392 and $11,443,902 respectively, and are fully collateralized. - 20 - NOTE 2 CASH AND CASH EQUIVALENTS (Continued) Restricted Cash and Cash Equivalents The restricted cash and cash equivalents at September 30, 2012 and 2011 consist of the following: 2012 2011 Micro Credit Loan Program $1,002,097 $1,444,859 Farmers and Fishermen Loan Fund 261,960 240,586 Frederiksted Revolving Loan Fund 261,363 260,647 Performance Bonding Loan Fund 1,404,059 1,388,833 Intermediary Relending Loan Fund 211,058 249,322 SBDA Revolving Loan Fund 411,697 342,266 SBDA Administration Loan Fund I 12,215 57,592 SBDA Administration Loan Fund II 115,053 77,836 SSBCI Grant 4,060,444 - Historic Grant 18,961 - Board Up Grant - 41 $7,758,907 $4,061,982 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, 2012 and 2011 were comprised of certificate of deposits totaling $2,993,651 and $2,806,461, respectively. Balances in excess of $250,000 maintained in depository institution are collateralized. Investments as of September 30, 2012 and 2011 are as follows: FY 2012 Investment Maturities Less than Investment Type Fair Value lyear 1 - 5 years Certificate of Deposits $2.993.651 $ 2.824.826 $168,825 FY 2011 Investment Maturities Less than Investment Type Fair Value lyear 1 - 5 years Certificate of Deposits $2.806.461 $ 2.806.461 - 21 - NOTE 4 RESTRICTED NET ASSETS The restricted net assets at September 30, 2012 and 2011 consist of the following: 2012 2011 Micro Credit Loan Program $ 2,091,722 $ 2,675,389 GDB Funds — Start Up 2,641,563 2,624,600 Farmers and Fishermen Loan Fund 308,883 305,506 Frederiksted Revolving Loan Fund 261,341 260,625 Performance Bonding Loan Fund 3,334,836 2,962,524 Intermediary Relending Loan Fund 353,101 445,297 SBDA Revolving Loan Fund 821,812 802,796 SBDA Administration Loan Fund I 212,024 197,893 SBDA Administration Loan Fund II 250,537 248,319 SSBCI Grant 4,229,269 - Historic Walk Grant 18,961 - Board Up Grant - 41 $ 14,524,049 $10,522,990 NOTE 5 LOANS RECEIVABLE Loans receivable at as of September 30, 2012 and 2011 are as follows: 2012 2011 Loan Principal $ 12,655,441 $11,955,730 Allowance for Doubtful Accounts (7,700,686) (7,119,322) Net Loans Receivable $ 4,954,755 $ 4,836,408 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 2012 and 2011 were $628,586 and $743,848 respectively. NOTE 6 RECEIVABLES 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. - 22 - NOTE 6 RECEIVABLES (Continued) The receivable balances as of September 30, 2011. Receivables Allowance Receivables, net Due from Vendor $ 87,265 $ - $ 87,265 Interest Receivable 6,276 6,276 Performance Bonding Receivable 925,993 925,993 Rent Receivable 374,188 (135,219) 238,969 EDC Fees & Charges 443,351 (249,451) 193,900 Tax Increment Financing Fund 30,015 - 30,015 Total $1,867,088 $ (384,670) $ 1,482,418 Total provision for uncollectible accounts during Fiscal Year 2011 was $104,529. NOTE 7 CAPITAL ASSETS Capital assets are composed of the following at September 30, 2012 and 2011: 2012 Beginning Retiremen Ending Balance Additions t 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 11,890,81 Total Capital Assets 11,869,938 43,379 (22,500) 7 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. - 23 - NOTE 7 CAPITAL ASSETS (Continued) Beginning 2011 Balance Additions Ending Balance Capital Assets Building and Building Improvements $ 9,148,427 $ - S9,148,427 Leasehold Improvements 428,431 - 428,431 Equipment 787,494 133,166 920,660 494niture and Fixtures 215,017 1,800 216,817 Vehicles 1,135,018 - 1,135,018 Leasehold Equipment 20.585 - 20,585 Total Capital Assets 11,734.972 134,966 11,869,938 Accumulated Depreciation Building and Building Improvements (6,996,662) (232,770) (7,229,432) Leasehold Improvements (110,062) (14,761) (124,823) Equipment (644,290) (55,403) (699,693) Furniture and Fixtures (181,321) (13,632) (194,953) Vehicles (479,956) (204,797) (684,753) Leasehold Equipment (20,585) - (20,585) Total Accumulated Depreciation (8,432,876) (521,363) (8,954,239) Capital Assets, net $ 3,302,096 $ (386,397) $ 2,915,699 The related depreciation expense for the year ended September 30, 2011 totaled $521,363. 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, 2012 and 2011, the outstanding loan balance was $416,726 and $440,054 respectively. The Industrial Park Development Corporation (IPDC) through the Virgin Islands Economic Development Authority issued a note in the amount of $350,000, on May 22, 2002, with an interest rate of 8% to Blak Corporation. The loan is to be repaid in 120 equal monthly installment of $4,246. At September 30, 2012 and 2011, the outstanding loan balance was $0 and $32,974 respectively. As of September 30, 2012, the debts are composed of the following: Due Beginning Ending Within Balance Additions Deductions Balance 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 - 24 - NOTE 8 LOANS PAYABLE (Continued) As of September 30, 2011, the debts are composed of the following: Due Beginning Ending Within Balance Additions Deductions Balance One Year Loan Payable $ 463,439 $ - $ (23,385) $ 440,054 $ 22,492 Note Payable 79,263 - (46,289) 32,974 32,974 $ 542,702 $ - $ (69,674) $ 473,028 $ 55,466 Future minimum payments to the U.S. Department of Agriculture 2013 $ 24,147 2014 24,388 2015 24,632 2016 24,879 2017 25,127 2018—2022 129,457 2023—2027 136,060 2028 - 2029 28,036 Total $ 416,726 NOTE 9 COMPENSATED ABSENCES Compensated absences balance as of September 30, 2012 and 2011 were $331,636 and $310,638, of which $115,352 and $110,553, respectively are due within a year. 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 14 are operating the other 12 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 2012 and 2011 was $0 and $10,045, 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. Minimum non-cancelable lease payments to be received are as follows: 2013 $ 126,698 2014-2022 377,666 Total $ 504,364 - 25 - NOTE 10 LEASES (Continued) Lessee --- The Authority leases office space on a month to month basis for $17,568 per month, however the Authority signed a lease agreement from January 1, 2013 through December 31, 2017 for office and common area spaces with increase in rent on the 2’ and 4 th anniversaries equal to the percentage of the cost of living increase for the preceding year, base 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, 2012 and 2011 were $298,870 and $298,469 respectively. The aggregate lease commitment for the Authority is as follows as of September 30, 2012: 2013 $ 95,141 2014 166,600 2015 166,600 2016 166,600 2017 166,600 Oct. 2017 - Dec. 2017 41,650 Total $ 803.191 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 $4,310,883. 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. The noncurrent deferred revenue represents advanced funds received from VIPFA in fiscal year 2009. The deferred revenue will be relieved as additional loans are made in the future. 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 $351,103, $386,303 and $439,444 for fiscal years 2012, 2011 and 2010, 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. - 26 - NOTE 13 COMMITMENTS AND CONTINGENCIES In the normal course of business, the Authority has various outstanding commitments at September 30, 2012 and 2011 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 faces 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 April 15, 2013, the date which the financial statements were available to be issued. - 27 - SUPPLEMENTARY INFORMATION VIRGIN ISLANDS ECONOMIC DEVELOPMENT AUTHORITY COMBINING STATEMENT OF NET ASSETS FOR THE YEAR ENDED SEPTEMBER 30, 2012 ASSETS GDB EDM EDC SBDA IPDC IRP EZC EDA TIF SSBCI STEP OflSet 2012 Current Assets: Cash and Cash Equivalents $ 1,645,132 $ 464,162 $ 1,291,136 $ 274,359 $ 61,787 $ - $ - $ - $ 404 $ 85,097 $ 26,170 $ - $ 3,848,247 Investments - - - - 183,263 - - - - 168,825 - - 352,088 Accounts Receivable, net 916,652 18,637 119,450 558 156,517 - 1,717 - 30,015 446 6,557 - 1,250,549 Due from Other Fund 66,045 8,224 - - - - - - - - - (74,269) - Prepaid & Other Assets 41,847 20,178 - - 7,073 7272 - - - - - - - 76,370 Total Current Assets 2,669,676 511201 1,410,586 281,990 408,839 - 1.717 - 30,419 254,368 32,727 (74,269) 5,527,254 Non-Current Assets Loan Receivable, net 4,020,401 - - 457,018 - 142,044 - 335292 - - - - 4,954,755 Restricted Cash & Cash Equivalents 2,406,156 - - 935,020 - 211,058 18,961 127,268 - 4,060,444 - - 7,758,907 Restricted Investments 2,641,563 - - - - - - - - - - - 2,641,563 Total Non-Current Assets 9,068,120 - - 1,392,038 - 353,102 18,961 462,560 - 4,060,444 - - 15,355,225 Capital Assets, net 464,067 24,438 107,563 136,216 1,689,848 - - - - - - - 2,422,132 Total Assets $ 12,201,863 $ 535,639 $ 1,518,149 $ 1,810,244 $2,098,687 $ 353,102 $ 20,678 $ 462,560 $ 30,419 $4314812 $ 32,727 $ (74,269) $ 23,304,611 LIAB ILITIES Current Liabilities Accounts Payable $ 89,926 $ 118,387 $ 154 $ 400 $ 14,577 $ - $ - $ 200 $ - $ 22,347 $ 15217 $ - $ 261208 Accrued Expenses 71,919 75,125 - - 9,158 - - - - - - - 156,202 Compensated Absences - Current 3,913 - 50,119 30,661 13,015 - 17,644 - - - - - 115,352 Interest Payable 18245 - - - - 1,850 - - - - - - 20,095 Due to Other Fund - - 700 - 65,569 - - - 8,000 - - (74,269) - Deferred Revenue - - - - - - 18,961 - - 4291.922 - - 4,310,883 Long-Term Debt - Current - - - - - 24,147 - - - - - - 24,147 Total Current Liabilities 184,003 193,512 50,973 31,061 102,319 25,997 36,605 200 8,000 4,314,269 15,217 (74269) 4,887,887 Non-Current Liabilities Compensated Absences 5,521 - 112,105 42,933 25,642 - 30,083 - - - - - 216,284 Deferred Revenue 1,000,000 - - - - - - - - - - - 1,000,000 Security Deposit - - - - 31,737 - - - - - - - 31,737 Long-Term Debt - - - - 392,579 - - - - - - 392,579 Total Non-Current Liabilities 1,005,521 - 112,105 42,933 57,379 392,579 30,083 - - - - - 1,640,600 Total Liabilities 1,189,524 193,512 163,078 73,994 159,698 418,576 66,688 200 8,000 4314,269 15217 (74,269) 6,528,487 NET ASSETS Invested in Capital Assets, net of Debt 464,067 24,438 107,563 136,216 1,689,848 - - - - - - 2,422,132 Restricted Net Assets 8,068,120 - - 1,392,037 - 353,102 18,961 462,560 - 4,229,269 - - 14,524,049 Unrestricted Net Assets 2,480,152 317,689 1.247,508 207,997 249,141 (418,576) (64.971) (200) 22,419 (4.228,726) 17,510 - (170,057) Total Net Assets $ 11,012,339 $ 342,127 $ 1,355,071 $1,736,250 $1,938,989 $ (65,474) $ (46,010) $ 462360 $ 22.419 $ 543 $ 17,510 $ - $16,776,124 - 28 - VIRGIN ISLANDS ECONOMIC DEVELOPMENT AUTHORITY COMBINING STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS FOR THE YEAR ENDED SEPTEMBER 30, 2012 GDB EDM EDC SBDA IPDC Operating Revenues Application and Processing Fees $ 27.279 $ Interest from Loans 179,645 Rental Income Grant Revenue PFA Bonds Penalties - - Other Operating Income 36,182 - - IRP EZC USE TIF SSBCI STEP 2012 $ $ $ $ $ $ $ $ 524071 - 12,529 - 23.672 - - - 261,195 409,214 - - - - - - 409214 - - 44,072 - - 53,635 31,544 129251 - 13,903 420,572 - - - 20,000 4.686,135 - - - - - - - 78.990 - - - - - - - 21,450 - - - - - 58,656 23.672 Operating Expenses Personnel Costs Occupancy Advertising Professional Services Travel and Per Diem Other Administrative Expenses Grant Expenditure Bad Debt Depreciation Total Operating Expenses 2,490 3,042,214 - - 298,870 85,798 579265 - - 169,677 - - 876,442 53,635 31,544 129,251 - - 864,491 53,635 34,034 6,582,952 Operating Income or (Loss) (765410) 346277 — 434,558 (7,781) (398254) (63,532) 79 22.563 - 0 17,510 (413,990) - 1,091 1,778 - - - - 543 - 29,119 - - - - - 9,100 - - - 10,675 - - (996) (5.032) - (516) - - - (6,544) 1 575 1 091 782 (5 0321 8 584 543 33.250 Changes in Net Assets (739,703) 347,852 434,558 (6.690) (397.472) (68.564) 79 31,147 543 17.510 (380,740) Net Assets, Beginning of Year Net Assets, End of Year 11,752,042 (5,725) 920.513 1,742.940 2,336,461 3,090 (‘16.069) 431213 22.419 - - 17.156,864 S 11.012,339 $ 342,127 $1,355,071 S 1,736250 S 1,938,989 S (65,474) $ (46,010) S 462,360 $ 22,419 S 543 S 17,510 16,776,124 Government Appropriation 121,307 1,924.942 78,990 - $ 494,947 $ 1,845 - 45,349 1.456,598 728,813 21,450 - Total Revenue 443,403 1,924,942 1,972,995 776,007 - 21218 1256 430.432 27.688 464.644 308,830 - 1,332,942 673,533 21,690 238,594 - - 5215 39,484 27,317 11,824 43,493 507,207 3,107 20,150 9,304 133,359 8,430 5220 55,183 658,934 27,028 34,608 528,118 - 236,980 1,087 38,898 15,302 1,208,813 1,578,665 1.538,437 783,788 - 53.635 51.544 6.168.962 311216 13,903 399,300 38.586 - - - - 1,958 - - 5,308 7,319 - 6,045 91,920 - 7,660 - - 44,072 100,715 23.151 135,190 77,317 1,109 Other Revenues/(Expenses) Interest Income 25,707 - Other Income - 1,575 Interest Expense & Finance Charges - - Total Other Revenues/(Expenses) 25,707 — 828.686 91220 464,565 1,109 244,455 - 222 - - - - 536,944 - 29 - VIRGIN ISLANDS ECONOMIC DEVELOPMENT AUTHORITY COMBINING STATEMENT OF NET ASSETS SEPTEMBER 30, 2011 ASSETS Current Assets: Cash and Cash Equivalents Investments Accounts Receivable, net Due from Other Fund Prepaid & Other Assets Total Current Assets Non-Current Assets: Loan Receivable, net Restricted Cash & Cash Equivalents Restricted Investments Total Non-Current Assets Capital Assets, net Total Assets LIABILITIES Current Liabilities: Accounts Payable Accrued Expenses Compensated Absences - Current Interest Payable Due to Other Fund Loan Payable — Current Total Current Liabilities Non-Current Liabilities: Compensated Absences Security Deposit Deferred Revenue Loan Payable Total Non-Current Liabilities Total Liabilities NET ASSETS Invested in Capital Assets, net of Debt Restricted Net Assets Unrestricted Net Assets Total Net Assets Legend: GDB - Government Development Bank Fund EDM - Economic Development Management EDC - Economic Development Commission SBDA - Small Business Development Agency IPDC - Industrial Park Development Corporation IRP - Intermediarj’ Relending Program EZC - Enterprise Zt,ne Commisoion EDA - Economic Development Authority TIF - Tax Increment Financing GDB EDM EDC SBDA IPDC IRP EZC EDA TIF Off-Set 2011 $ 1,953,075 $ 5,001 $ 973.738 $ 302,659 $ 127,716 $ - $ - $ - $ 404 $ - $ 3,362,593 - - - - 181,861 - - - - - 181,861 1,019,162 - 193.900 - 239,341 - - - 30,015 - 1,482,418 71,639 - 1,225 144 75,792 - - - - (148,800) - 66,405 - 6,847 4,778 7,140 - - - - - 85,170 3,110,281 5,001 1,175,710 307,581 631,850 - - - 30,419 (148.800) 5,112,042 3,804,220 - - 525,428 - 195,975 - 310,785 - - 4,836,408 2,833,692 - - 843,499 - 249,322 41 135,428 - - 4,061,982 2,624,600 - - - - - - - - - 2,624,600 9,262,512 - - 1,368,927 - 445,297 41 446,213 - - 11,522,990 695,135 - 146,461 140,119 1,933,762 - 222 - - - 2,915,699 13,067.928 5,001 1,322,171 1,816,627 2,565,612 445,297 263 446,213 30,419 (148.800) 19,550,731 136,487 10,726 21,783 677 34,985 - - 15,000 - - 219,658 78,516 - 214,448 11,680 9,644 200 6,909 - - - 321.397 3,617 - 52,896 26,287 12,038 - 15,715 - - - 110,553 18,245 - - - - 1,953 - - - - 20,198 74,247 - 874 672 65,007 - - - 8,000 (148,800) - - - - - 32,974 22,492 - - - - 55,466 311,112 10,726 290.001 39,316 154,648 24,645 22,624 15,000 8,000 (148,800) 727,272 4,774 - 111,657 34,371 25,555 - 23,728 - - - 200,085 - - - - 34,404 - - - - - 34,404 1,000,000 - - - 14,544 - - - - - 1,014,544 - - - - - 417,562 - - - - 417,562 1,004,774 - 111,657 34,371 74,503 417,562 23,728 - - - 1,666,595 1,315,886 10,726 401.658 73.687 229.151 442,207 46,352 15,000 8,000 (148,800) 2,393,867 695.135 - 146,461 140,119 1,900,788 - 222 - - - 2,882,725 8,262,512 - - 1,368,927 - 445,297 41 446,213 - - 10,522,990 2,794,395 (5,725) 774,052 233,894 435,673 (442,207) (46,352) (15,000) 22,419 - 3,751,149 $11,752,042 $ (5,725) $ 920,513 $1,742,940 $2,336,461 $ 3,090 $(46,089) $431,213 $ 22,419 $ - $ 17,156,864 - 30 - VIRGIN ISLANDS ECONOMIC DEVELOPMENT AUTHORITY COMBINING STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2011 GOB EDM EDC SBDA IPDC IRP EZC EDA TIF 2011 Operating Revenues Government Appropriation $ 537,469 $ 5,001 $2,257,047 $1,213,089 S - $ 12,389 $ 585,428 $ - $ S 4,610,423 Allocation of Bond Proceeds 2,174,310 - - - - - - - 2,174,310 Application and Processing Fees 119,947 - 495,625 5,180 - - 200 620,952 Rental Income - - - - 492,536 - - - 492,536 Interest from Loans 122,877 - - 46,572 - 25,224 - 27,430 222,103 Grant Revenue - - - - - - 138,497 - 138,497 Penalties - - 100,285 - - - - 100,285 Other Operating Revenue 46,323 - 22,500 40 75,183 2218 - - 146.264 Total Revenues 3,000,926 5,001 2,875,457 1,264,881 567,719 39,831 723,925 27,630 - 8,505,370 Operating Expenses Personnel Costs 236,344 - 1,644,831 772,816 300,920 11,800 449,769 - - 3,416,480 Occupancy 23,472 - 114,377 72,495 38,185 - 49,940 - - 298,469 Advertising 3,923 - 113,207 7,339 - - 390 - - 124,859 Professional Services 188,294 - 494,158 46,274 521 - 9,246 - 13,714 752,207 Travel and Per Diem 49,501 4,419 69,795 16,202 4,505 - 4,118 - - 148,540 Other Administrative Expenses 512,483 6,307 147,715 78,515 90,845 20 57,173 688 18 893,764 Grant Program Costs - - - - - - 138,497 - - 138,497 Bad Debt 285,730 - 81,090 179,952 23.439 45,955 - 232,211 - 848,377 Depreciation 233,152 - 26,253 14,414 246,752 - 792 - - 521,363 Total Operating Expenses 1,532,899 10,726 2,691,426 1,188,007 705,167 57,775 709,925 232,899 13,732 7,142,556 Operating Income (Loss) 1,468,027 (5,725) 184,031 76.874 (137,448) (17,944) 14,000 (205,269) (13,732) 1.362,814 Nonoperating Revenue (Expenses) Interest Income 70,611 - - 2,041 3,112 - - - - 75,764 Scholarships - - (43,360) - - - - - (43.360) Other Income (Expense) - - (7,219) - - - - 1,900 - (5,319) Interest Expense & Finance Charges - - - - (4,668) (4,865) - - ____________ (9,533) Total Nonoperating Revenues (Expenses) 70,611 - (50,579) 2,041 (1,556) (4,865) - 1,900 - 17,552 Change in Net Assets 1,538,638 (5,725) 133,452 78,915 (139,004) (22,809) 14,000 (203.369) (13,732) 1,380,366 Net Assets, Beginning of Year 10,213.404 - 787,061 1,664,025 2,475,465 25,899 (60.089) 634,582 36,151 15.776,498 Net Assets, End of Year $11,752,042 S (5,725) $920,513 $1,742,940 $2,336,461 S 3,090 $ (46,089) $431,213 $22,419 $17,156,864 - 31 -