EFTA01078597.pdf

IGY-AYH St. Thomas Holdings, LLC (A Limited Liability Company) Financial Statements for the years ended December 31, 2015 and 2014 (With Independent Auditor's Report Thereon) EFTA01078597  Contents Pages) Independent Auditor's Report 1-2 Financial Statements: Balance Sheets 3 Statements of Operations 4 Statements of Changes in Members' Equity 5 Statements of Cash Rows 6 Notes to Financial Statements 7-15 EFTA01078598 SCOTT OMPANY • •Fl n•nr 00000 ge accounipag firm COLUMBIA • GREENVILLE Independent Auditor's Report The Members IGY-AYH St. Thomas Holdings, LLC (A Limited Liability Company): We have audited the accompanying financial statements of IGY-AYH St. Thomas Holdings, LLC (the "Company"), which comprise the balance sheets as of December 31, 2015 and 2014, and the related statements of operations, changes in members' equity, and cash flows for the years then ended and the related notes to the financial statements. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United Sates of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility 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. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Scott •nd Company LLC CERTIFIED PUBLIC ACCOUNTANTS EFTA01078599 Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of IGY-AYH St. Thomas Holdings, LLC as of December 31, 2015 and 2014, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Scott ag4 eatiall At Greenville, South Carolina March 23, 2016 2 EFTA01078600  IGY-AYH St. Thomas Holdings, LLC (A Limited Liability Company) Balance Sheets as of December 31, 2015 2014 Assets Current assets: Restricted cash $ 2,664,705 $ 1,856,705 Accounts receivable, net of allowance of $73,378 and $84,482 in 2015 and 2014, respectively 189,713 216,059 Inventories 47,162 82,679 Prepaid expenses and other current assets 254,142 257,469 Total current assets 3,155,722 2,412,912 Land 1,847,000 1,847,000 Property and equipment, net 14,307,838 14,977,203 Deferred financing costs, net 53,209 85,153 Deferred rent receivables, net of commissions 243,755 89,986 Intangible assets, net 253,699 357,802 Total assets $ 19,861,223 $ 19,770,056 Liabilities and Members' Equity Current liabilities: Accounts payable $ 41,655 $ 91,133 Accrued expenses 200,587 201,910 Customer deposits 332,597 277,410 Deferred revenue 14,577 3,299 Due to Parent 92,233 82,816 Current maturities of note payable 405,000 373,500 Total current liabilities 1,086,649 1,030,068 Note payable, less current maturities 12,508,200 12,913,200 Asset retirement obligation 624,217 594,492 Total liabilities 14,219,066 14,537,760 Members' equity 5,642,157 5,232,296 Total liabilities and members' equity $ 19,861,223 $ 19,770,056 The accompanying notes are an integralpart ofthesefinancial statements. 3 EFTA01078601  IGY-AYH St. Thomas Holdings, LLC (A Limited Liability Company) Statements of Operations for the years ended December 31, 2015 2014 Revenues: Marina facilities $ 4,025,997 $ 4,825,916 Upland facilities 2,392,469 2,784,901 Total revenues 6,418,466 7,610,817 Costs and expenses: Personnel 1,139,792 1,069,840 Fuel 1,138,295 1,938,634 Depreciation and amortization 979,664 959,742 Utilities 779,910 1,230,878 Management fee 320,924 410,051 Insurance 320,383 327,649 Gross receipt and property taxes 260,942 174,533 Rent 150,750 159,123 Credit card commissions 129,556 141,985 Professional fees 125,746 179,619 Repairs and maintenance 103,725 101,145 Advertising and marketing 45,170 50,979 Supplies 44,138 52,236 Bad debt (recoveries) expense (8,356) 70,982 Other 167,969 41,354 Total costs and expenses 5,698,608 6,908,750 Operating income 719,858 702,067 Other expenses (income): Interest expense 286,401 352,386 Amortization of deferred financing costs 31,944 31,944 Interest income (8,348) (35,368) Net income $ 409,861 $ 353,105 The accompanying notes are an integralpart ofthesefinancial statements. 4 EFTA01078602  IGY-AYH St. Thomas Holdings, LLC (A Limited Liability Company) Statements of Changes in Members' Equity Balance at December 31, 2013 $ 4,879,191 Net income 353,105 Balance at December 31, 2014 5,232,296 Net income 409,861 Balance at December 31, 2015 $ 5,642,157 The accompanying notes are an integralpart ofthesefinancial statements. EFTA01078603  IGY-AYH St. Thomas Holdings, LLC (A Limited Liability Company) Statements of Cash Flows for the years ended December 31, 2015 2014 Cash flows from operating activities: Net income $ 409,861 $ 353,105 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization expense 979,664 959,742 Amortization of deferred financing costs 31,944 31,944 Accretion of asset retirement obligation 29,725 28,309 Decrease in provision for doubtful accounts (11,104) (135,110) Changes in operating assets and liabilities: Accounts receivable 37,450 168,821 Prepaid expenses and other current assets 3,327 6,943 Inventories 35,517 6,629 Deferred rent receivables, net of commissions (153,769) (52,058) Accounts payable (49,478) 803 Accrued expenses (1,323) 6,082 Customer deposits 55,187 (108,100) Deferred revenue 11,278 3,299 Due to Parent 9,417 40,717 Net cash provided by operating activities 1,387,696 1,311,126 Cash flows used in investing activities: Purchases of property and equipment (206,196) (346,421) Net cash used in investing activities (206,196) (346,421) Cash flows used in financing activities: Principal payments on note payable (373,500) (346,200) Net cash used in financing activities (373,500) (346,200) Net increase in restricted cash 808,000 618,505 Restricted cash at beginning of year 1,856,705 1,238,200 Restricted cash at end of year $ 2 664 705 $ 1,856,705 Supplemental disclosure of cash flow information: Cash paid for interest $ 286,401 $ 353,311 The accompanying notes are an integralpan ofthesefinancial statements. 6 EFTA01078604  IGY-AYH St. Thomas Holdings, LLC Notes to Financial Statements Note 1. Summary of Significant Accounting Policies Description of Business and Organization • IGY-AYH St. Thomas Holdings, LLC ("AYH" or the "Company") was formed as an indirect wholly owned subsidiary of Island Global Yachting Ltd. ("IGY" or the "Parent") on December 5, 2006. The Company had no activities until its January 18, 2007 acquisition of American Yacht Harbor. The Company is primarily engaged in the business of owning and operating a marina and commercial retail facility located in St. Thomas, United States Virgin Islands ("USVI"). It is comprised of a 109-slip marina and seven buildings with 47,344 square feet of rentable retail space. AYH is managed by IGY. The marina is located on 3.2 acres of submerged land leased from the St. Thomas Department of Planning and Natural Resources ("DPNR"). The retail complex is located on 2.12 acres of adjacent waterfront land. On May 29, 2007, a 50% passive member interest in the Company was sold to an outside investor. The Company is controlled by the Parent and the members' liability is limited to their respective capital investments in the Company. Restricted Cash • At various times throughout the year, the Company maintains cash balances in excess of federally insured limits. The Company's management believes it mitigates custodial risk by banking with major financial institutions. As of December 31, 2015 and 2014, $2,664,705 and $1,856,705, respectively, of the Company's cash is restricted under the terms of its loan agreement (See Note 5). These cash balances are restricted from withdrawal by the lender and serve as collateral for the outstanding loan but are released to the Company daily for use in operations provided that no event of default exists under the loan agreement. Accounts Receivable - Accounts receivable are recorded at the invoiced amount and interest can be charged on some past due balances in accordance with local statutes and contractual arrangements with customers. Amounts collected on accounts receivable are included in net cash flows from operating activities in the statements of cash flows. The allowance for doubtful accounts is management's best estimate of the amount of probable credit losses in the Company's existing accounts receivable. The Company determines the allowance based on specific account analysis. Past-due balances over 90 days and over specified amounts are reviewed individually for collectability. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company does not have any off-balance-sheet credit exposure related to its customers. As of December 31, 2015 and 2014, substantially all of the Company's accounts receivable serves as collateral for the loan outstanding. Inventories - Inventories, which consist primarily of fuel, are stated at the lower of cost or market. Cost is determined using the first-in, first-out ("FIFO") method for all inventories. Prepaid Expenses and Other Current Assets • Prepaid expenses and other current assets consist primarily of prepaid insurance and security deposits. Land - The Company owns 2.12 acres of waterfront land in St. Thomas, USVI, which it carries at cost and leases 3.2 acres of submerged land from the DPNR. Property and Equipment - Property and equipment are stated at cost. Depreciation on property and equipment is calculated using the straight-line method over the estimated useful lives of the assets. The estimated useful lives of the Company's assets are as follows: 7 EFTA01078605  IGY-AYH St. Thomas Holdings, LLC Notes to Financial Statements Note 1. Summary of Significant Accounting Policies (continued) Property and Equipment (continued) — Buildings 40 years Marina building and structure 20 years Equipment 3-7 years Vehicles 5 years Furniture and fixtures 5-10 years Deferred Financing Costs - Costs incurred to obtain financing are being amortized using the straight-line method, which approximates the effective-interest method, over the term of the related debt. Deferred financing costs at December 31, 2015 and 2014 of $53,209 and $85,153 are net of accumulated amortization of $262,754 and $230,810, respectively. Intangible Assets - In accordance with the provisions of ASC subtopic 350-30, General Intangibles Other Than Goodwill, intangible assets determined to have a definite life are amortized using the straight- line method over the useful life. Costs incurred to renew or extend intangible assets are capitalized and amortized over the extended useful life. Impairment of Long-Lived Assets - In accordance with ASC topic 360, Property, Plant and Equipment, long-lived assets, such as land, property and equipment, and intangible assets subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of would be separately presented in the balance sheets and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated. For the years ended December 31, 2015 and 2014, the Company determined that it did not have an impairment loss relating to its land, property and equipment, or intangible assets. Deferred Revenue - The Company receives payment in advance of performing the services related to renting boat slips and dockage space. These amounts are shown on the balance sheets as deferred revenue and are recognized as revenue when the Company performs the services. Customer Deposits - The Company receives deposits from its retail tenants in accordance with the lease agreements. It also receives deposits from customers for slip rentals. These deposits are accounted for as customer deposits in the balance sheet. Revenues related to these deposits are recognized when earned. Income Taxes - The Company is not subject to U.S. federal and state income taxes as the tax effects of the Company's activities are reported directly by the members on their respective income tax returns. The Company is required to pay USVI withholding taxes on behalf of all non-USVI members. Management of the Company has decided that Financial Accounting Standards Board ("FASIn Accounting Standards Codification ("ASC") topic 740, Income Taxes, which relates to uncertain tax positions, does not have a material effect on the financial statements. 8 EFTA01078606  IGY-AYH St. Thomas Holdings, LLC Notes to Financial Statements Note 1. Summary of Significant Accounting Policies (continued) Revenue Recognition - Revenues are recognized primarily at the time services are performed or products are sold and consist of amounts earned from marina and upland operations. Revenues from leases are recognized over the term of the lease. The Company recognizes minimum rental starting when possession is taken. When a lease contains a predetermined fixed escalation of the minimum rental, the Company recognizes the related rental income on a straight-line basis and records the difference between the recognized rent income and the amount billed and collectable under the lease as straight-line rent receivable. Any lease commission payable, as discussed in Note 2, related to these leases is recognized on a straight- line basis as a reduction of revenue. These amounts are classified as deferred rent receivable, net of commissions on the balance sheet. The Company is also required to pay a gross receipts tax on certain revenue producing activities. These taxes are presented in costs and expenses on the Statements of Operations while revenues are presented at a gross amount not reduced by these taxes. Advertising and Marketing Costs - Advertising and marketing costs are expensed as incurred. Advertising and marketing costs amounted to $45,170 and $50,979 for the years ended December 31, 2015 and 2014, respectively. Major Maintenance Activities - The Company incurs maintenance costs on all its major property and equipment. Repair and maintenance costs are expensed as incurred. Commitments and Contingencies - Liabilities for loss contingencies, including environmental remediation costs not within the scope of ASC topic 410, "Asset Retirement and Environmental Obligations", arising from claims, assessments, litigation, fines and penalties, and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment and/or remediation can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred. Use of Estimates The preparation of financial statements requires management of the Company to make a number of estimates and assumptions relating to the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Significant items subject to such estimates and assumptions include the allowance for doubtful accounts and the useful lives of land, property and equipment, intangible assets, and the liability for asset retirement obligation. Actual results could differ from those estimates. Fair Value Measurements - ASC subtopic 820.10, "Fair Value Measurement", defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC subtopic 820.10 also establishes a framework for measuring fair value and expands disclosures about fair value measurements. The Company applies the provisions of ASC subtopic 820-10 to fair value measurements of nonfinancial assets and nonfinancial liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis. The Company currently has no assets or liabilities carried at fair value in the financial statements. 9 EFTA01078607  IGY-AYH St. Thomas Holdings, LLC Notes to Financial Statements Note 1. Summary of Significant Accounting Policies (continued) Recently Issued Accounting Standards — In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-02, "Leases (Topic 842)," which is required to be implemented for fiscal periods beginning after December 15, 2019. The provisions of the ASU seek to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and by disclosing key information about leasing arrangements. ASU 2016- 02 requires that a lessee will be required to recognize assets and liabilities for all leases with lease terms of more than 12 months. Additionally, the ASU will require disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases, including qualitative and quantitative requirements. Lessor accounting will remain largely unchanged except for changes to align lessor accounting with ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)" discussed below. The Company is currently evaluating the effect of this ASU on its financial statements. As part of its simplification initiative, in April 2015, the FASB issued ASU 2015-03, "Interest— Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs". The ASU requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. This ASU will become effective for the Company for fiscal years beginning after December 15, 2015 and it does not expect a material impact on its financial statements when this ASU is implemented. In August 2014, the FASB ASU 2014-15, "Disclosures of Uncertainties about an Entity's Ability to Continue as a Going Concern," which is effective for nonpublic companies for fiscal periods beginning after December 15, 2016. This ASU will require management to assess an organization's ability to continue as a going concern by incorporating and expanding upon certain principles that currently exist in United States auditing standards. This ASU defines substantial doubt to continue as a going concern and sets forth principles for considering the effect of management's plans, mandates certain disclosures, and requires an assessment period of a year after the date the financial statements are issued or are available to be issued. The Company does not anticipate a material impact on its financial statements when this ASU is implemented. In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)," which can be implemented by nonpublic companies for fiscal periods beginning after December 15, 2016 at the earliest and for fiscal periods beginning after December 15, 2018 at the latest. The provisions of the ASU aim to remove inconsistencies and weaknesses in revenue requirements and improve comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets. This ASU will supersede the existing Topic 605, Revenue Recognition. The Company does not anticipate a material impact on its financial statements when this ASU is implemented. 10 EFTA01078608  IGY-AYH St. Thomas Holdings, LLC Notes to Financial Statements Note 2. Related•Party Transactions The following is a summary of related party transactions for the years ended December 31, 2015 and 2014: 2015 2014 Included in revenues: Marina facilities revenue earned from passive member $ 115,153 $ 152,820 Upland facilities revenue earned from passive member 133,379 139,451 Included in costs and expenses: Management fees incurred to My 320,924 410,051 The Company earns marina revenue from six slips leased by a passive member and its affiliates on an annual basis at a 10% discount and fuel sales to the passive member and its affiliates at a 20% discount. The Company also leases two office spaces totaling approximately 3,200 square feet to the passive member. Management fees incurred to IGY were 5% of revenues for the year ended December 31, 2015. During the year ended December 31, 2014, management fees were renegotiated and reduced. Management fees incurred to IGY were 7.5% of revenues for the period January 1, 2014 through February 28, 2014 and were 5% of revenues for the period March 1, 2014 through December 31, 2015. The initial term of the management agreement ends on December 31, 2016 and is renewable for two five year terms. Due to Parent, payable on a monthly basis, of $92,233 and $82,816 at December 31, 2015 and 2014, respectively, includes accrued management fees of $25,410 and $52,233 at December 31, 2015 and 2014. Included in accounts receivable are $4,232 and $6,716 due from the passive member as of December 31, 2015 and 2014, respectively. The Company also pays lease commissions to IGY for new leases or extensions of existing leases. These commissions paid represent 5% of the expected total rent revenue under the lease term. The Company paid approximately $145,000 and $74,000 during the years ended December 31, 2015 and 2014 for these commissions. Approximately $59,000 and $21,500 was included in Due to Parent as of December 31, 2015 and 2014, respectively for these commissions. These fees are amortized over the term of each lease as a reduction of rental revenue. Note 3. Intangible Assets The following table presents certain information regarding the Company's intangible assets as of December 31: 2015 Gross Amortization carrying Accumulated Net period amount amortization balance Amortizable intangible assets: Business permit costs 10 years $ 20,390 $ 8,672 $ 11,718 Favorable fuel contract 11.3 years 1,156,000 914,019 241,981 Total $ 1,176,390 $ 922,691 $ 253,699 11 EFTA01078609  IGY-AYH St. Thomas Holdings, LLC Notes to Financial Statements Note 3. Intangible Assets (continued) 2014 Gross Amortization carrying Accumulated Net period amount amortization balance Amortizable intangible assets: Business permit costs 10 years $ 20,390 $ 6,599 $ 13,791 Favorable fuel contract 11.3 years 1,156,000 811,989 344,011 Total $ 1.176,390 $ 818,588 $ 357,802 Amortization expense related to intangible assets was $104,103 for both years ended December 31, 2015 and 2014. The estimated amortization expense for the next five years is approximately $104,000 per year for two years and $40,000 in the third year, and $2,000 in the fourth and fifth years. Business permits will need to be renewed in approximately six years. Note 4. Property and Equipment Property and equipment consisted of the following at December 31: 2015 2014 Buildings $ 18,135,811 $ 18,014,440 Marina structure and equipment 4,201,154 4,188,522 Other equipment 419,655 375,305 Construction in progress 27,843 — Total property and equipment 22,784,463 22,578,267 Accumulated depreciation (8,476,625) (7,601,064) Property and equipment, net $ 14,307,838 $ 14,977,203 Depreciation expense related to property and equipment was $875,561 and $855,639 for the years ended December 31, 2015 and 2014, respectively. The Company leases commercial real estate to third parties, except as described in Note 2, which is included in buildings in the schedule above, that had a gross book value of $12,868,991 for both years ended December 31, 2015 and December 31, 2014, respectively, and accumulated depreciation of $4,436,003 and $3,986,614 at December 31, 2015 and 2014, respectively (see Note 6). Note 5. Note Payable The Company obtained a $15,300,000 loan facility from a bank on August 23, 2007. Interest accrues at LIBOR plus 2.00% to LIBOR plus 2.75% based on the debt service coverage ratio of the Company. Principal and interest are due monthly and the loan matures on September I, 2017. At December 31, 2015 and 2014, the principal amount outstanding under the loan was $12,913,200 and $13,286,700, respectively. The interest rate in effect at December 31, 2015 was 2.24% (calculated based on a blended LIBOR rate of 0.24% plus 2.00%). The interest rate in effect at December 31, 2014 was 2.58% (calculated based on a blended LIBOR rate of 0.23% plus 2.35%). 12 EFTA01078610  IGY-AYH St. Thomas Holdings, LLC Notes to Financial Statements Note 5. Note Payable (continued) The loan is collateralized by the real property and improvements thereon, the Company's rights under its retail leases, certain cash accounts, and accounts receivable of the Company. As part of a security agreement with the bank, the bank has required that certain cash accounts of the Company be pledged to the bank. This amount is shown as restricted cash on the balance sheets in the amount of $2,664,705 and $1,856,705 at December 31, 2015 and 2014, respectively. The terms of the loan contain certain financial covenants, negative covenants, and other terms and conditions customarily found in loan agreements of this type, principally the Company must not incur additional indebtedness unless permitted in the loan agreement. The Company has materially complied with the financial and negative covenants and terms and conditions. Future payments of the balance outstanding on December 31, 2015 are due as follows: Year ending December 31,: 2016 $ 405,000 2017 12,508,200 Total $ 12,913,200 Note 6. Lease Agreements Coastal Zone Management ("CZM") Permits - The Company is party to two CZM permits with the DPNR. These permits provide the Company the use of submerged land and upland at the marina site. The permits were negotiated with a fee of $100,000 per year and a term of 20 years. The permits expire in 2032. The Company has the option to renew the permits within 90 days before the permits expire with the renewal terms subject to negotiation. Annual fees incurred under the permits during 2015 and 2014 totaled $100,000 for both years. Marina Management and Marketing Agreement — The Company is party to a Marina Management and Marketing Agreement ("Agreement") with St. Thomas Sport Fishing Center, Inc., which owns a leasehold interest in and is the holder of a CZM permit for submerged lands and a marina dock comprised of 19 slips located seaward of the Company. The Agreement allows the Company to manage and market the submerged lands and dock for a period of 5 years. Non-cancelable payments under the Agreement are $60,000 per year. The Agreement expires in 2020 and will automatically renew for two additional 5 year terms, absent any uncured material default by the Company. Amounts paid under the Agreement are classified as rent expense in the Statement of Operations. Retail Leases - The Company leases its upland building spaces to retail operations under operating leases. The leases have remaining terms of up to 5 years and contain standard renewal options. Base rentals are subject to escalation based upon scheduled rent increases within individual leases. The Company recognized revenue related to these leases of approximately $1,283,204 and $1,376,926 for the years ended December 31, 2015 and 2014, respectively. 13 EFTA01078611  IGY-AYH St. Thomas Holdings, LLC Notes to Financial Statements Note 6. Lease Agreements (continued) A schedule of approximate minimum future base rentals to be received under noncancelable operating leases as of December 31, 2015 is as follows: Year ending December 31,: 2016 $ 1,274,283 2017 998,464 2018 819,537 2019 641,611 2020 119,694 Total $ 3,853,589 The upland facilities revenues include charges to the tenants in addition to base lease payments under the lease agreements, such as utilities and common area charges. These additional charges account for the significant difference between lease related revenue and the amounts reported on the income statements. Note 7. Asset Retirement Obligation The CZM permits that provide the Company use of the submerged land and upland at the marina site require that, upon expiration, the permitted area be restored to its original condition. Upon acquisition of the assets of American Yacht Harbor in 2007, the Company recorded an obligation and corresponding asset of $402,376, in accordance with the provisions of ASC topic 410, "Asset Retirement and Environmental Obligations", for its obligation under these permits. The obligation will increase with annual accretion expense and, ultimately, the obligation will reach approximately $3.4 million in 2050. The following schedule summarizes the Company's asset retirement obligation activity for the years ended December 31, 2015 2014 Balance at beginning of year $ 594,492 $ 566,183 Accretion expense 29,725 28,309 Balance at end of year $ 624,217 $ 594,492 Note 8. Commitments Retirement Plan • The Company sponsors a Simple IRA Plan ("SEP") on behalf of substantially all of its employees as required by the Economic Development Benefits package it was granted by the Economic Development Commission of the USVI. Employees are eligible for the program after one year of service. The Company contributes 3% of employees' gross wages into individual employee accounts and all amounts are immediately vested. Employees are not allowed to contribute to the SEP. The related expense for the years ended December 31, 2015 and 2014 was $14,803 and $22,082, respectively. 14 EFTA01078612  IGY-AYH St. Thomas Holdings, LLC Notes to Financial Statements Note 8. Commitments (continued) Fuel Purchase Contract - The Company is party to a fuel purchase agreement under which it has committed to buy its gasoline and diesel fuel from one vendor at a fixed differential above a common index. The Company is required to purchase a minimum of 65,000 gallons per month of diesel and gasoline combined. There is no limit to the quantity the Company can purchase. The agreement expires May 31, 2018 and the Company can renew for an additional three years, although either party can terminate any time after 2014. During 2015 and 2014, the Company purchased $1,102,778 and $1,930,851, respectively, of fuel under the agreement. Note 9. Subsequent Events The Company has evaluated all events subsequent to the balance sheet date of December 31, 2015, through the date these financial statements are available to be issued, March 23, 2016. Management has determined that there are no subsequent events that require disclosure. 15 EFTA01078613