Marinemax Inc 8-K/A, filed Nov 8, 2022
Marinemax Inc (HZO)
About this 8-K/A
Marinemax Inc filed this 8-K/A on November 8, 2022, reporting on events of October 3, 2022.
Items reported
- Item 9.01: Financial statements and exhibits
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Amendment No. 1)
CURRENT REPORT
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Introductory Note
As previously announced, on August 8, 2022, MarineMax, Inc., a Florida corporation (“MarineMax” or the “Company”), and its wholly-owned subsidiary, MarineMax East, Inc., a Delaware corporation (the “Buyer”) entered into a Securities Purchase Agreement (the “Purchase Agreement”) with Island Marina Holdings LLC, a Delaware limited liability company, and Island Marinas Subsidiary Corp., a Delaware corporation (together, the “Sellers”), pursuant to which the Buyer agreed, subject to specified terms and conditions, to purchase all of the outstanding membership interest units of Island Global Yachting LLC, a Delaware limited liability company, and, as part of the overall transaction, the outstanding membership interest of Island Gardens Deep Harbour, LLC, a Delaware limited liability company (the “Transaction”). The Transaction closed on October 3, 2022, effective as of October 1, 2022. The Transaction was consummated for an aggregate cash purchase price of $480 million in cash, subject to customary purchase price adjustments set forth in the Purchase Agreement, with an additional potential payment of up to $100 million in cash two years after closing, subject to the achievement of certain performance metrics set forth in the Purchase Agreement.
On October 4, 2022 the Company filed a Current Report on Form 8-K (the “Initial Form 8-K”) with the Securities and Exchange Commission (the “SEC”) disclosing that it had consummated the Transaction and that the financial statements required by Item 9.01(a) and the pro forma financial information required by the Item 9.01(b) of the Current Report on Form 8-K would be filed by amendment. This Amendment No. 1 to Current Report on Form 8-K (this “Amended Form 8-K”) amends the Initial Form 8-K solely to provide the required financial statements and pro forma financial information.
This Amended Form 8-K should be read in conjunction with the Initial Form 8-K and the Company’s other filings with the SEC. Except as stated in this Amended Form 8-K, this Amended Form 8-K does not reflect events occurring after the filing of the Initial Form 8-K with the SEC on October 4, 2022 and no attempt has been made in this Amended Form 8-K to modify or update other disclosures as presented in the Initial Form 8-K.
| Item 9.01 | Financial Statements and Exhibits. |
(a) Financial statements of business acquired.
The audited Consolidated Balance Sheets of Island Global Yachting LLC and its subsidiaries (collectively, “IGY”) as of December 31, 2021 and 2020, the audited Consolidated Statements of Operations of IGY for the years ended December 31, 2021 and 2020, the audited Consolidated Statements of Comprehensive Income (Loss) of IGY for the years ended December 31, 2021 and 2020, the audited Consolidated Statements of Members’ Equity of IGY for the years ended December 31, 2021 and 2020, the audited Consolidated Statements of Cash Flows of IGY for the years ended December 31, 2021 and 2020, and the notes related to such audited consolidated financial statements (collectively, the “Audited Consolidated Financial Statements of IGY”) are filed as Exhibit 99.1. The Audited Consolidated Financial Statements of IGY are incorporated in this Item 9.01(a) by reference.
The audited Balance Sheets of Island Gardens Deep Harbour, LLC (“IGDH”) as of December 31, 2021 and 2020, the audited Statements of Operations of IGDH for the years ended December 31, 2021 and 2020, the audited Statements of Changes in Member’s Equity of IGDH for the years ended December 31, 2021 and 2020, the audited Statements of Cash Flows of IGDH for the years ended December 31, 2021 and 2020, and the notes related to such audited financial statements (collectively, the “Audited Financial Statements of IGDH”) are filed as Exhibit 99.2. The Audited Financial Statements of IGDH are incorporated in this Item 9.01(a) by reference.
The unaudited Combined Condensed Balance Sheets of IGY and IGDH (collectively, “IGY Marinas”) as of June 30, 2022 and December 31, 2021, the unaudited Combined Condensed Statements of Operations of IGY Marinas for the six months ended June 30, 2022 and June 30, 2021, the unaudited Combined Condensed Statements of Comprehensive Income (Loss) of IGY Marinas for the six months ended June 30, 2022 and June 30, 2021, the unaudited Combined Condensed Statements of Members’ Equity of IGY Marinas for the six months ended June 30, 2022 and June 30, 2021, the unaudited Combined Condensed Statements of Cash Flows of IGY Marinas for the six months ended June 30, 2022 and June 30, 2021, and the notes related to such unaudited combined condensed financial
statements (collectively, the “Unaudited Combined Condensed Financial Statements of IGY Marinas”), are filed as Exhibit 99.3. The Unaudited Combined Condensed Financial Statements of IGY Marinas are incorporated this Item 9.01(a) by reference.
(b) Pro forma financial information.
The unaudited Condensed Combined Pro Forma Balance Sheet of the Company and IGY Marinas as of June 30, 2022, the unaudited Condensed Combined Pro Forma Statement of Operations of the Company and IGY Marinas for the nine months ended June 30, 2022, the unaudited Condensed Combined Pro Forma Statement of Operations of the Company and IGY Marinas for the fiscal year ended September 30, 2021, and the notes related to such unaudited condensed combined pro forma financial statements (collectively, the “Pro Forma Financial Statements”), are filed as Exhibit 99.4 and are incorporated in this Item 9.01(b) by reference.
The pro forma financial information included in this Amended Form 8-K has been presented for informational purposes only and is not necessarily indicative of the combined financial position or results of operations that would have been realized had the Transaction occurred as of the dates indicated, nor is it meant to be indicative of any anticipated combined financial position or future results of operations that the Company will experience after the Transaction.
(d) Exhibits.
| Exhibit No. | Description | |
| 23.1 | Consent of Scott and Company LLC | |
| 23.2 | Consent of SuggsJohnson, LLC | |
| 99.1 | Audited Consolidated Financial Statements of IGY. | |
| 99.2 | Audited Financial Statements of IGDH. | |
| 99.3 | Unaudited Combined Condensed Financial Statements of IGY Marinas. | |
| 99.4 | Pro Forma Financial Statements. | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) | |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| MarineMax, Inc. | ||||||
| By: | /s/ Michael H. McLamb Name: Michael H. McLamb | |||||
| November 7, 2022 | ||||||
Exhibit 23.1
| Consent RE: | Form 8k/A – Acquisition of Island Global Yachting LLC and Subsidiaries by MarineMax, Inc. |
In connection with the 8k/A:
We consent to the use of our Independent Auditor’s Report dated June 21, 2022, except for note 17, which is dated September 27, 2022, with respect to the consolidated financial statements of lsland Global Yachting LLC and Subsidiaries included in this Form 8-K/A of MarineMax, Inc. and incorporated herein by reference.
/s/ Scott and Company LLC
November 7, 2022
Columbia, South Carolina
| 1441 Main Street, Suite 800 | PHONE: (803) 256-6021 | FAX: (803) 256-8346 | Post Office Box 8388 | ||
| Columbia, South Carolina 29201 | www.scottandco.com | Columbia, South Carolina 29202 | ||
Exhibit 23.2
CONSENT OF INDEPENDENT AUDITOR
We consent to the use of our Independent Auditors’ Report dated March 29, 2022, except for note 8, which is dated November 1, 2022, with respect to the financial statements of Island Gardens Deep Harbour, LLC, included in this Form 8-K/A of MarineMax, Inc. and incorporated herein by reference.
/s/ SuggsJohnson, LLC
Anderson, South Carolina
November 4, 2022
Exhibit 99.1
Island Global Yachting LLC and Subsidiaries
Consolidated Financial Statements
for the years ended December 31, 2021 and 2020
(With Independent Auditor’s Report Thereon)
Contents
| Page(s) | ||||
| Independent Auditor’s Report |
1-2 | |||
| Consolidated Financial Statements: |
||||
| Consolidated Balance Sheets |
3 | |||
| Consolidated Statements of Operations |
4 | |||
| Consolidated Statements of Comprehensive Income (Loss) |
5 | |||
| Consolidated Statements of Members’ Equity |
6 | |||
| Consolidated Statements of Cash Flows |
7-9 | |||
| Notes to Consolidated Financial Statements |
10-39 | |||
Independent Auditor’s Report
To the Members
Island Global Yachting LLC and Subsidiaries:
Opinion
We have audited the accompanying consolidated financial statements of Island Global Yachting LLC and Subsidiaries (the “Company”), which comprise the consolidated balance sheets as of December 31, 2021 and 2020, and the related consolidated statements of operations, comprehensive income (loss), changes in members’ equity, and cash flows for the years then ended and the related notes to the consolidated financial statements.
In our opinion, based on our audits and the reports of the other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of lsland Global Yachting LLC and Subsidiaries as of December 31, 2021 and 2020, 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.
We did not audit the 2021 or 2020 financial statements of Cabo Marina, S. DE R.L. DE C.V., and Subsidiary and certain other related entities (“Cabo Marina”), a consolidated subsidiary, which statements reflect total assets of $12,432,810 and $17,553,465 as of December 31, 2021 and 2020, and total revenues of $19,302,281 and $14,014,151 for the years then ended. Those statements were audited by other auditors, whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for Cabo Marina as of December 31, 2021 and 2020, and for the years then ended, is based solely on the report of the other auditors.
We did not audit the 2021 balance sheet of Marina di Portisco S.R.L. (“Portisco Marina”), a consolidated subsidiary, which statement reflects total assets of $14,234,040 as of December 31, 2021. That statement was audited by other auditors, whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for Portisco Marina as of December 31, 2021, is based solely on the report of the other auditors. We audited the opening balance sheet as of the purchase date of October 21, 2021 and operations from October 21, 2021 through December 31, 2021.
Basis for Opinion
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are required to be independent of the Company and to meet our other ethical responsibilities in accordance with the relevant ethical requirements relating to our audits. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
| 1441 Main Street, Suite 800 | PHONE: (803) 256-6021 | FAX: (803) 256-8346 | Post Office Box 8388 | ||
| Columbia, South Carolina 29201 | www.scottandco.com | Columbia, South Carolina 29202 | ||
Responsibilities of Management for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the consolidated financial statements are available to be issued.
Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with generally accepted auditing standards will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the consolidated financial statements.
In performing an audit in accordance with generally accepted auditing standards, we:
| • | Exercise professional judgment and maintain professional skepticism throughout the audit. |
| • | Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. |
| • | Obtain an understanding of internal control relevant to the audit 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 Company’s internal control. Accordingly, no such opinion is expressed. |
| • | Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the consolidated financial statements. |
| • | Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for a reasonable period of time. |
We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control related matters that we identified during the audit.
Columbia, South Carolina
June 21, 2022, except for note 17,
which is dated September 27, 2022
2
Island Global Yachting LLC and Subsidiaries
Consolidated Balance Sheets
as of December 31,
| 2021 | 2020 | |||||||
| Assets |
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| Current assets: |
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| Cash and cash equivalents |
$ | 25,717,054 | $ | 27,055,958 | ||||
| Accounts receivable, net of allowance of $1,312,093 and $743,416 at December 31, 2021 and 2020, respectively |
9,076,425 | 6,222,853 | ||||||
| Prepaid expenses |
2,874,830 | 3,722,711 | ||||||
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| Total current assets |
37,668,309 | 37,001,522 | ||||||
| Equity method investments |
6,747,553 | 9,039,923 | ||||||
| Property, plant and equipment, net of accumulated depreciation of $73,991,120 and $64,214,123 at December 31 2021 and 2020, respectively |
118,055,243 | 93,752,468 | ||||||
| Goodwill and other intangible assets, net of accumulated amortization of $10,623,985 and $9,944,294 at December 31, 2021 and 2020, respectively |
20,058,388 | 13,936,913 | ||||||
| Other long-term assets |
2,112,117 | 2,351,455 | ||||||
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| Total assets |
$ | 184,641,610 | $ | 156,082,281 | ||||
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| Liabilities and Members’ Equity |
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| Current liabilities: |
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| Notes payable, current portion |
$ | 14,868,971 | $ | 3,204,852 | ||||
| Accounts payable |
4,274,371 | 2,815,548 | ||||||
| Accrued expenses |
6,616,111 | 4,134,397 | ||||||
| Contract liabilities |
7,628,697 | 4,551,695 | ||||||
| Customer deposits |
385,091 | — | ||||||
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| Total current liabilities |
33,773,241 | 14,706,492 | ||||||
| Notes payable, non-current |
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| Principal amount |
38,987,426 | 52,652,203 | ||||||
| Less unamortized deferred financing costs |
(716,163 | ) | (905,180 | ) | ||||
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| Notes payable, net of unamortized deferred financing costs |
38,271,263 | 51,747,023 | ||||||
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| Deferred lease obligation |
13,949,303 | 13,225,021 | ||||||
| Deferred tax liabilities, net |
14,317,491 | 16,058,029 | ||||||
| Other long-term liabilities |
3,431,414 | 2,318,490 | ||||||
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| Total liabilities |
103,742,712 | 98,055,055 | ||||||
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| Members’ equity |
76,451,708 | 54,220,910 | ||||||
| Accumulated other comprehensive loss |
(556,595 | ) | (85,591 | ) | ||||
| Noncontrolling interests in consolidated subsidiaries |
5,003,785 | 3,891,907 | ||||||
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| Total members’ equity |
80,898,898 | 58,027,226 | ||||||
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| Total liabilities and members’ equity |
$ | 184,641,610 | $ | 156,082,281 | ||||
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The accompanying notes are an integral part of these consolidated financial statements.
3
Island Global Yachting LLC and Subsidiaries
Consolidated Statements of Operations
for the years ended December 31,
| 2021 | 2020 | |||||||
| Revenue |
$ | 65,453,885 | $ | 52,423,902 | ||||
| Cost of sales, excluding depreciation and amortization expense |
22,626,777 | 16,211,004 | ||||||
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| Gross profit |
42,827,108 | 36,212,898 | ||||||
| Selling, general and administrative expenses |
43,093,965 | 39,673,515 | ||||||
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| Operating loss |
(266,857 | ) | (3,460,617 | ) | ||||
| Other income (expense): |
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| Interest income |
15,101 | 46,222 | ||||||
| Foreign exchange loss |
(642,138 | ) | (14,035 | ) | ||||
| Gain on extinguishment of debt |
1,387,800 | — | ||||||
| Gain on sale of discontinued operations |
5,066,109 | — | ||||||
| Interest expense |
(4,687,024 | ) | (3,375,661 | ) | ||||
| Other nonoperating |
(21,347 | ) | 2,433 | |||||
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| Income (loss) before income tax expense |
851,644 | (6,801,658 | ) | |||||
| Income tax expense |
(373,737 | ) | (429,165 | ) | ||||
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| Net income (loss) from continuing operations |
477,907 | (7,230,823 | ) | |||||
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| Net income from discontinued operations |
178,045 | 1,061,840 | ||||||
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| Net income (loss) |
655,952 | (6,168,983 | ) | |||||
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| Net loss attributable to the noncontrolling interests |
(321,204 | ) | (732,058 | ) | ||||
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| Net income (loss) attributable to Island Global Yachting LLC and Subsidiaries |
$ | 977,156 | $ | (5,436,925 | ) | |||
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The accompanying notes are an integral part of these consolidated financial statements.
4
Island Global Yachting LLC and Subsidiaries
Consolidated Statements of Comprehensive Income (Loss)
for the years ended December 31,
| 2021 | 2020 | |||||||
| Net income (loss) attributable to Island Global Yachting LLC and Subsidiaries |
$ | 977,156 | $ | (5,436,925 | ) | |||
| Other comprehensive loss, net of tax: |
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| Change in foreign currency translation adjustments |
(471,004 | ) | (84,302 | ) | ||||
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| Other comprehensive loss |
(471,004 | ) | (84,302 | ) | ||||
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| Comprehensive income (loss) attributable to Island Global Yachting LLC and Subsidiaries |
$ | 506,152 | $ | (5,521,227 | ) | |||
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The accompanying notes are an integral part of these consolidated financial statements.
5
Island Global Yachting LLC and Subsidiaries
Consolidated Statements of Members’ Equity
| Class A Members |
Class B Members |
Series A Preferred |
Series A-2 Preferred |
Receivable from Parent (IGY LP) |
Members’ Equity | Accumulated Other Comprehensive Loss |
Noncontrolling Interest |
Total | ||||||||||||||||||||||||||||
| Balance at December 31, 2019 |
$ | (67,494,115 | ) | $ | 120,372,404 | $ | 28,749,533 | $ | — | $ | (22,277,065 | ) | $ | 59,350,757 | $ | (1,289 | ) | $ | 5,123,814 | $ | 64,473,282 | |||||||||||||||
| Share-based compensation |
— | 307,078 | — | — | — | 307,078 | — | 45,900 | 352,978 | |||||||||||||||||||||||||||
| Currency translation adjustment |
— | — | — | — | — | — | (84,302 | ) | — | (84,302 | ) | |||||||||||||||||||||||||
| Net loss attributable to noncontrolling interests |
— | — | — | — | — | — | — | (732,058 | ) | (732,058 | ) | |||||||||||||||||||||||||
| Other activities of noncontrolling interests, net |
— | — | — | — | — | — | — | (545,749 | ) | (545,749 | ) | |||||||||||||||||||||||||
| Net (loss) income |
(3,218,166 | ) | (4,518,722 | ) | 2,299,963 | — | — | (5,436,925 | ) | — | — | (5,436,925 | ) | |||||||||||||||||||||||
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| Balance at December 31, 2020 |
$ | (70,712,281 | ) | $ | 116,160,760 | $ | 31,049,496 | $ | — | $ | (22,277,065 | ) | $ | 54,220,910 | $ | (85,591 | ) | $ | 3,891,907 | $ | 58,027,226 | |||||||||||||||
| Share-based compensation |
— | 307,078 | — | — | — | 307,078 | — | — | 307,078 | |||||||||||||||||||||||||||
| Capital contribution |
— | — | — | 27,000,000 | — | 27,000,000 | — | — | 27,000,000 | |||||||||||||||||||||||||||
| Dividends paid |
— | — | (2,619,496 | ) | — | — | (2,619,496 | ) | — | — | (2,619,496 | ) | ||||||||||||||||||||||||
| Purchase of noncontrolling interest of American Yacht Harbor |
(1,428,350 | ) | (2,005,590 | ) | — | — | — | (3,433,940 | ) | — | (1,166,060 | ) | (4,600,000 | ) | ||||||||||||||||||||||
| Currency translation adjustment |
— | — | — | — | — | — | (471,004 | ) | — | (471,004 | ) | |||||||||||||||||||||||||
| Net loss attributable to noncontrolling interests |
— | — | — | — | — | — | — | (321,204 | ) | (321,204 | ) | |||||||||||||||||||||||||
| Other activities of noncontrolling interests, net |
— | — | — | — | — | — | — | 2,599,142 | 2,599,142 | |||||||||||||||||||||||||||
| Net (loss) income |
(763,654 | ) | (1,069,554 | ) | 2,301,432 | 508,932 | — | 977,156 | — | — | 977,156 | |||||||||||||||||||||||||
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| Balance at December 31, 2021 |
$ | (72,904,285 | ) | $ | 113,392,694 | $ | 30,731,432 | $ | 27,508,932 | $ | (22,277,065 | ) | $ | 76,451,708 | $ | (556,595 | ) | $ | 5,003,785 | $ | 80,898,898 | |||||||||||||||
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The accompanying notes are an integral part of these consolidated financial statements.
6
Island Global Yachting LLC and Subsidiaries
Consolidated Statements of Cash Flows
for the years ended December 31,
| 2021 | 2020 | |||||||
| Cash flows from operating activities: |
||||||||
| Net income (loss) |
$ | 655,952 | $ | (6,168,983 | ) | |||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
||||||||
| Depreciation, amortization, and accretion expense |
6,447,341 | 5,997,279 | ||||||
| Provision for doubtful accounts |
(432,356 | ) | 75,028 | |||||
| Amortization of deferred financing costs |
695,098 | 277,719 | ||||||
| Gain on disposal of property and equipment |
(454,344 | ) | — | |||||
| Loss on sale of equity method investment |
— | 54,339 | ||||||
| Share-based compensation |
203,803 | 352,978 | ||||||
| Equity method investment losses |
795,260 | 485,292 | ||||||
| Gain on extinguishment of debt |
(1,387,800 | ) | — | |||||
| Gain on sale of Applied Technology and Management Inc. |
(5,066,109 | ) | — | |||||
| Increase in deferred lease obligation |
767,220 | 818,516 | ||||||
| Deferred income tax benefit |
(2,363,812 | ) | (787,575 | ) | ||||
| Unrealized loss (gain) on foreign exchange |
333,806 | (296,308 | ) | |||||
| Changes in operating assets and liabilities: |
||||||||
| Accounts receivable |
(2,053,847 | ) | 2,622,370 | |||||
| Unbilled revenue |
(118,557 | ) | 4,234 | |||||
| Prepaid expenses and other current assets |
769,566 | 337,317 | ||||||
| Other assets |
197,903 | 713,334 | ||||||
| Accounts payable, accrued expenses, and other current liabilities |
2,598,340 | (668,764 | ) | |||||
| Customer deposits and other noncurrent liabilities |
1,060,986 | (321,579 | ) | |||||
| Deferred revenue |
(97,183 | ) | (177,921 | ) | ||||
|
|
|
|
|
|||||
| Net cash provided by operating activities |
2,551,267 | 3,317,276 | ||||||
|
|
|
|
|
|||||
| Cash flows from investing activities: |
||||||||
| Purchase of property and equipment |
(3,024,426 | ) | (1,873,876 | ) | ||||
| Purchase of Marina di Portisco, net of cash acquired |
(23,411,655 | ) | — | |||||
| Purchase of noncontrolling interests of American Yacht Harbor |
(4,600,000 | ) | — | |||||
| Purchase of Fairport Yacht Support LLC, net of cash acquired |
(5,108,252 | ) | — | |||||
| Proceeds from sale of Applied Technology & Management Inc, net of cash sold |
4,783,612 | — | ||||||
| Proceeds from sale of property and equipment |
609,592 | — | ||||||
| Purchase of equity method investment |
(732,199 | ) | (8,278,031 | ) | ||||
| Distributions received from equity method investments |
2,229,309 | — | ||||||
| Proceeds from sale of equity method investment |
— | 2,679,582 | ||||||
| Issuance of notes receivable |
— | (75,000 | ) | |||||
| Receipt of payments on notes receivable |
— | 251,923 | ||||||
|
|
|
|
|
|||||
| Net cash used in investing activities |
(29,254,019 | ) | (7,295,402 | ) | ||||
|
|
|
|
|
|||||
The accompanying notes are an integral part of these consolidated financial statements.
7
Island Global Yachting LLC and Subsidiaries
Consolidated Statements of Cash Flows (Continued)
for the years ended December 31,
| 2021 | 2020 | |||||||
| Cash flows from financing activities: |
||||||||
| Principal payments on notes payable |
(17,100,611 | ) | (7,586,218 | ) | ||||
| Proceeds from notes payable |
16,000,000 | 22,887,800 | ||||||
| Proceeds from notes payable to related party |
1,583,301 | — | ||||||
| Capital contribution from members |
27,000,000 | — | ||||||
| Noncontrolling interest contribution |
1,134,438 | — | ||||||
| Payment of deferred financing costs |
(506,081 | ) | (1,028,599 | ) | ||||
| Distribution to member |
(2,619,496 | ) | — | |||||
| Distribution to noncontrolling interest |
— | (545,749 | ) | |||||
|
|
|
|
|
|||||
| Net cash provided by financing activities |
25,491,551 | 13,727,234 | ||||||
|
|
|
|
|
|||||
| Currency translation on cash balance |
(127,703 | ) | 52,223 | |||||
|
|
|
|
|
|||||
| Net (decrease) increase in cash and cash equivalents and restricted cash |
(1,338,904 | ) | 9,801,331 | |||||
| Cash and cash equivalents and restricted cash, at beginning of year |
27,055,958 | 17,254,627 | ||||||
|
|
|
|
|
|||||
| Cash and cash equivalents and restricted cash, at end of year |
$ | 25,717,054 | $ | 27,055,958 | ||||
|
|
|
|
|
|||||
The accompanying notes are an integral part of these consolidated financial statements.
8
Island Global Yachting LLC and Subsidiaries
Consolidated Statements of Cash Flows (Continued)
for the years ended December 31,
| 2021 | 2020 | |||||||
| Reconciliation of cash, cash equivalents, and restricted cash reflected in the consolidated statements of cash flows to the consolidated balance sheets: |
||||||||
| Cash and cash equivalents per the consolidated balance sheets |
$ | 23,340,309 | $ | 26,681,143 | ||||
| Restricted cash per the consolidated balance sheets |
2,376,745 | 374,815 | ||||||
|
|
|
|
|
|||||
| Total cash, cash equivalents, and restricted cash per the consolidated statements of cash flows |
$ | 25,717,054 | $ | 27,055,958 | ||||
|
|
|
|
|
|||||
| Supplemental disclosure of cash flow information: |
||||||||
| Cash paid for interest |
$ | 3,871,699 | $ | 2,947,741 | ||||
|
|
|
|
|
|||||
| Cash paid for income taxes |
$ | 1,113,654 | $ | 1,053,582 | ||||
|
|
|
|
|
|||||
The accompanying notes are an integral part of these consolidated financial statements.
9
Island Global Yachting LLC and Subsidiaries
Notes to Consolidated Financial Statements
Note 1. Summary of Significant Accounting Policies
Description of Business and Organization – Island Global Yachting LLC (“IGY” or the “Company”), was registered as a Delaware LLC on August 7, 2020. IGY was previously registered as Island Global Yachting Ltd., a Cayman Islands exempted company which was formed as a subsidiary of Island Global Yachting L.P. (“IGYl” or the “Parent”), a Delaware limited partnership, formerly a Cayman Islands exempted limited partnership, in October 2005. The Company was capitalized with additional equity from five partnerships: Island Global Yachting II L.P. (“IGY2”), a Delaware limited partnership, Island Global Yachting III L.P. (“IGY3”), a Delaware limited partnership, Island Global Yachting IV L.P. (“IGY4”), a Delaware limited partnership, formerly a Cayman Islands exempted limited partnership, Island Global Yachting VI L.P. (“IGY6”), a Delaware limited partnership and Island Global Yachting VII L.P. (“IGY7”), a Delaware limited partnership. Each of IGY2, IGY3, and IGY4 is a holder of Class B shares in IGY. IGY6 holds Series A Preferred Shares that are convertible into Class A Shares of IGY. IGY7 holds Series A-2 Preferred Shares that are convertible into Class A Shares of IGY. See Note 14 for further details on the IGY equity structure.
IGY conducts its business primarily through its subsidiaries, Island Global Yachting Services Ltd. (“IGYS”) and Island Global Yachting Facilities Ltd. (“IGYF”). Prior to the sale of ATM in 2021, IGYS and its subsidiaries provided marina design and development services, marina and property management services, and environmental, water resources, and coastal engineering services. IGYF, through its various operating subsidiaries, acquires and holds direct and indirect interests (including controlling and noncontrolling interests) in luxury marina and related upland facilities in key yachting and nautical tourism areas around the world.
In 2021 and 2020, IGY’s operations were conducted primarily in the Caribbean, the United States of America, Mexico, and Europe.
Principles of Consolidation – The consolidated financial statements include the financial statements of IGY and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. The Company accounts for the portion of a subsidiary that is not owned as noncontrolling interests. Noncontrolling interests in an acquired enterprise are reported in the consolidated financial statements at the fair value of the net assets acquired by the Company at the date of acquisition, depending on the nature of the acquisition, plus the cumulative allocation of net income (loss) from that date forward to the noncontrolling interests based on its ownership percentage.
In addition, the Company evaluates its relationships with other entities to identify whether they are variable interest entities as defined by the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) section 810-10-50, Consolidations, and to assess whether it is the primary beneficiary of such entities. If the determination is made that the Company is the primary beneficiary, then that entity is included in the consolidated financial statements in accordance with ASC section 810-10-50. As of December 31, 2021, and 2020, the Company did not have any variable interest entities of which it was the primary beneficiary.
Cash and Cash Equivalents and Restricted Cash – For purposes of the consolidated statements of cash flows, the Company considers liquid investments with original maturities of three months or less to be cash equivalents. At various times throughout the year, the Company maintains cash balances in excess of insured limits. The Company’s management believes it mitigates custodial risk by banking with major financial institutions.
As of December 31, 2021 and 2020, $2,376,745 and $374,815 of the Company’s cash is restricted, respectively. Restricted cash consists primarily of amounts contained within accounts that can only be used for specific purposes in accordance with debt and lease covenants.
10
Island Global Yachting LLC and Subsidiaries
Notes to Consolidated Financial Statements
Note 1. Summary of Significant Accounting Policies (continued)
Cash and Cash Equivalents and Restricted Cash (continued) – Approximately $10,470,000 and $11,630,000 of unrestricted cash and cash equivalents were pledged as collateral under the Company’s loan agreements as of December 31, 2021 and 2020, respectively.
Prepaid Expenses and Other Current Assets – Prepaid expenses and other current assets consist primarily of prepaid rent and insurance, inventory, and security deposits.
Equity Method Investments – The Company accounts for its investments in partnership or membership interests using the equity method. Investments accounted for under the equity method generally represent an investment of 20% - 50%. The investment is adjusted for income or loss allocations and the receipt of distributions of capital. The Company’s investments in affiliated companies, discussed in Note 8, generated losses of $795,260 and $485,292 for the years ended December 31, 2021 and 2020, respectively.
Land – The Company owns land and submerged land at marinas in the Caribbean, Italy and Mexico. Land is carried at original cost or at its fair value on the date of acquisition if acquired in a business combination, net of impairment losses.
Beneficial Leasehold Interest Intangible Assets – The Company holds long-term leases (beneficial leasehold interest intangible assets) for land and submerged land at various marina sites. These lease terms were favorable compared to pricing of market transactions at the time of acquisition and therefore represented an intangible asset. These assets are recorded at their original cost or at their fair value on the date of acquisition if acquired in a business combination, net of impairment losses, less amortization expense using the straight-line method over the shorter of the lease term or estimated useful life of the asset.
Property and Equipment – Property and equipment are stated at cost or at their fair value on the date of acquisition, if acquired in a business purchase combination, net of accumulated depreciation and impairment losses. Depreciation on property and equipment is calculated on the straight-line method over the estimated useful lives of the assets. The estimated useful lives of the Company’s assets are as follows:
| Buildings |
30-55 years | |
| Marina buildings and structures |
15-40 years | |
| Equipment |
3-10 years | |
| Vehicles |
5 years | |
| Furniture and fixtures |
5-10 years |
For projects under development, the Company capitalizes all direct costs related to the acquisition, development, and construction of the project, including interest, property taxes, and amortization of deferred financing costs as well as indirect costs, such as allocations of wages and expenses of employees of certain affiliates under common control that clearly and directly relate to the project. Upon completion of the project, assets are placed into service and depreciated over their estimated useful lives.
11
Island Global Yachting LLC and Subsidiaries
Notes to Consolidated Financial Statements
Note 1. Summary of Significant Accounting Policies (continued)
Property and Equipment (continued) – Leasehold improvements are amortized using the straight-line method over the shorter of the lease term or estimated useful life of the asset. The Company may provide a lessee with an allowance for construction of leasehold improvements. Leasehold improvements are capitalized as part of the building, recorded as tenant improvements, and depreciated over the shorter of the useful life of the improvements or the lease term.
Impairment of Long-Lived Assets – In accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) topic 360, Property, Plant and Equipment, long-lived assets, such as land and property and equipment 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. The fair value of the asset is calculated by discounting the future estimated undiscounted cash flows using an interest rate relevant to the industry and economic conditions. For the year ended December 31, 2018, the Company’s management considered whether cash flow reductions due to Hurricanes Irma and Maria were temporary in nature or permanent reductions in cash flow. Based on reconstruction of the Company’s property and surrounding area as well as the indicators of a market recovery of St. Thomas and St. Maarten, as a whole, management believed that the reduction in cash flows generated by its long-lived assets was temporary. Therefore, an impairment analysis was determined not to be necessary. Management evaluated this assessment as of December 31, 2019 and based on the pace of a market recovery of St. Thomas and St. Maarten, no impairment analysis was deemed necessary. Therefore, for the years ended December 31, 2021 and 2020, the Company determined that it did not have an impairment loss relating to its property and equipment or intangible assets.
Goodwill – The Company accounts for goodwill in accordance with FASB ASC topic 350, Intangibles — Goodwill and Other (“ASC 350”). For business combinations, the excess of the purchase price over the estimated fair value of net assets acquired in a business combination is recorded as goodwill. In accordance with ASC 350, the Company tests goodwill for impairment at least annually and whenever events or changes in circumstances indicate that the carrying value may not be recoverable. If the carrying amount of a reporting unit’s goodwill exceeds its fair value, the Company recognizes an impairment loss in accordance with ASC 350. Based upon the Company’s most recent analysis, management determined that it is not “more likely than not” that the fair values of its reporting units are less than their carrying values. As a result, the Company was not required to perform a quantitative goodwill impairment test. As the goodwill was related to an acquisition which occurred during 2021, there was no goodwill balance in 2020. See Note 15 for further information.
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, 2021 and 2020 of $716,163 and $905,180 are net of accumulated amortization of $2,330,279 and $2,809,695, respectively, and the amounts are deducted from the liability to which they relate in the accompanying consolidated balance sheets.
12
Island Global Yachting LLC and Subsidiaries
Notes to Consolidated Financial Statements
Note 1. Summary of Significant Accounting Policies (continued)
Other Assets – Other assets consist of utility and operating lease security deposits, deferred contract costs and straight-line rent receivables. Deferred contract costs represent amounts paid for the rights to receive future revenues and are amortized over the life of the contract on a straight-line basis. The amortization of these costs is recorded as a reduction of revenues. The weighted average remaining life was approximately 9 years remaining as of December 31, 2021. See table below for detail of other assets at December 31, 2021 and 2020:
| 2021 | 2020 | |||||||
| Security deposits |
$ | 960,158 | $ | 1,019,841 | ||||
| Deferred contract costs |
1,139,846 | 1,330,263 | ||||||
| Other assets |
12,113 | 1,351 | ||||||
|
|
|
|
|
|||||
| Total other assets |
$ | 2,112,117 | $ | 2,351,455 | ||||
|
|
|
|
|
|||||
Members’ Equity – The Company has purchased limited partnership units of its Parent and members to effect an indirect repurchase of its own shares. The Company accounts for those in a manner similar to treasury stock as the amounts repurchased are treated as a reduction to Members’ Equity. Those shares are not considered to be outstanding for the Company’s Parent or other members of the Company as it is the Company’s intention to retire the shares.
Revenue Recognition – The Company’s revenues are primarily comprised of services provided by IGYS and rentals and services provided by IGYF. IGYS provides engineering, development, and marina management services. IGYF revenues are primarily derived from ownership of marina and upland facilities. Revenue is recognized when control of the promised goods or services is transferred to the customer in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services.
Engineering revenues – Revenues consist of professional engineering services. The Company’s services are sold principally on a time and material basis or in some cases at a fixed price. Time and material projects are distinguished from fixed-price agreements in that the price of the services are quoted based on days incurred on the project or some other measure of time such as hours, weeks, or months. Fixed-price agreements are defined as any agreements entered into for a predetermined total price regardless of the number of days actually needed to complete the project or any agreements entered into on a time and materials basis that have a cap. Revenue is recognized when effort is expended on a contract or reimbursable expenses are incurred with profit being recognized as the difference between total estimated revenue and estimated costs to complete. The input method is used for revenue recognized over time, which measures the efforts expended to satisfy the obligation.
Performance obligations – A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account in ASC 606. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The majority of contracts have multiple performance obligations due to the contract covering multiple phases of the project lifecycle. For contracts with multiple performance obligations, the transaction price is allocated to each performance obligation using the best estimate of the standalone selling price of each distinct good or service in the contract.
13
Island Global Yachting LLC and Subsidiaries
Notes to Consolidated Financial Statements
Note 1. Summary of Significant Accounting Policies (continued)
Revenue Recognition (continued) – Performance obligations (continued) – The primary method used to estimate standalone selling price is the expected cost plus a margin approach, under which the expected costs of satisfying a performance obligation are forecasted and then an appropriate margin for that distinct good or service is added. Some engineering contracts have the price of each phase of work included as part of the contract. These prices are used to recognize revenue based on the effort put into each phase of the contract.
Contract Modifications – Contract modifications are routine in the performance of engineering contracts. Contracts are often modified to account for changes in contract specifications or requirements. In most instances, contract modifications are for goods or services that are not distinct, and, therefore, are accounted for as part of the existing contract.
Contract Balances – The timing of revenue recognition, billings, and cash collections results in billed accounts receivable, unbilled receivables (contract assets), and customer advances and deposits (contract liabilities) on the consolidated balance sheet. Generally, billing occurs subsequent to revenue recognition, resulting in contract assets. However, advances or deposits are often received from customers, before revenue is recognized, resulting in contract liabilities. These assets and liabilities are reported on the consolidated balance sheet on a contract-by-contract basis at the end of each reporting period.
Losses on fixed-price projects are recognized during the period in which the loss first becomes evident and a contract liability is recorded. Project losses are determined to be the amount by which the estimated total costs of the project exceed the total fixed price per the agreement. Customer billings in excess of revenues earned are recorded as deferred revenues (contract liability) in the accompanying consolidated balance sheets.
Unbilled Revenue – Unbilled receivables represent revenue recognized on long-term contracts (contract costs and estimated profits) less associated advances and progress billings. These amounts will be billed in accordance with the agreed-upon contractual terms or upon achievement of contractual milestones.
Development and marina management revenues – The Company has agreements in place with marinas to provide development and management services. Performance obligations include managing the operations of the marina and providing marketing and training. Revenue is recognized as the services are performed. In addition, certain agreements include incentives based on marina performance, which are recognized in the period earned. Payment terms are based on each agreement and typically align with when services are provided.
Yacht management services revenue – The Company has agreements in place with yacht customers to provide management services. Performance obligations include managing the finances and administrative functions of yacht customers. Revenue is recognized as the services are performed. Payment terms are based on each agreement and typically align with when services are provided.
14
Island Global Yachting LLC and Subsidiaries
Notes to Consolidated Financial Statements
Note 1. Summary of Significant Accounting Policies (continued)
Revenue Recognition (continued) – Marina revenues – Marina revenues primarily consist of slip rentals, fuel and utility sales, and other ancillary goods and services related to the marina property. Performance obligations include making the slips available and providing fuel, utilities, goods and services. Revenue is recognized when slips are occupied or fuel, utilities, goods, and services have been delivered or rendered, respectively. Payment terms typically align with when the goods and services are provided.
For billings that are made in advance and non-cancellable deposits for slip rentals, any amounts that have been billed or collected for which the slip has not yet been occupied, are recorded as deferred revenue or customer deposits (contract liabilities) until the slip has been occupied.
Upland revenues – Upland revenues primarily consist of building and facility rentals under lease agreements (which do not fall under the guidance of ASC 606 and are discussed later in Note 1 and further in Note 5), common area charges, utility sales, food and beverage sales and other ancillary goods and services related to the upland property. Performance obligations include performing common area maintenance and providing utilities, food and beverages, and other ancillary goods and services. Revenue is recognized when common area maintenance, utilities, goods, and services have been delivered or rendered. Payment terms typically align with when the goods and services are provided.
Accounts receivable – Accounts receivable represent amounts due from development and management agreements and marina and upland customers. Payment terms for development and management agreements are based on the agreements. Marina customers are generally required to pay upon departure from the marina. Upland customers have payment terms that coincide with their lease agreements. Based on historical experience and specific identification of customer balances, management has recorded an allowance for doubtful accounts of $1,312,093 and $743,416 at December 31, 2021 and 2020, respectively. Of the Company’s accounts receivable, $5,438,179 and $3,716,694 of net accounts receivable served as collateral for the notes payable and credit facilities at December 31, 2021 and 2020, respectively. Most customer agreements have payment terms that allow varying interest amounts to be charged to the customer if payment is not received by the due date. Amounts charged under these provisions are recorded as interest income on the consolidated statements of operations.
Judgments – For engineering contracts, estimates are based on various assumptions to project the outcome of future events that often span several months to in excess of a year. These assumptions include labor productivity and availability, the complexity of the work to be performed, the cost and availability of materials, the performance of subcontractors, and the availability and timing of funding from the customer. As a significant change in one or more of these estimates could affect contracts’ profitability, contracts and estimates are reviewed and updated regularly. Adjustments in estimated profit on contracts are recognized under the cumulative catch-up method. Under this method, the impact of the adjustment on profit recorded to date on a contract is recognized in the period the adjustment is identified. Revenue and profit in future periods of contract performance are recognized using the adjusted estimate. If at any time the estimate of contract profitability indicates an anticipated loss on the contract, the total loss is recognized in the period it is identified.
Several factors are considered in determining that control transfers to the customer upon use of slips at the marina, or when fuel, utilities, goods, and other ancillary goods and services are provided to the customer. These factors include a present right to payment and that the customer has assumed the risks and rewards of ownership at the time the slip, goods, or services are provided.
15
Island Global Yachting LLC and Subsidiaries
Notes to Consolidated Financial Statements
Note 1. Summary of Significant Accounting Policies (continued)
Revenue Recognition (continued) – Economic factors – Marina and upland revenue can be impacted by overall economic conditions, as there can be changes to marina visits and upland rentals during periods with poor economic conditions. The weather may also negatively impact marina and upland revenue, as the marinas and shops are located in areas that are subject to tropical storms. Revenue from management agreements is impacted by the performance of each marina under agreement and therefore would also be impacted by overall economic and weather conditions. Engineering revenues could be impacted by these economic and weather conditions, also.
Sales and Gross Receipts Taxes – These taxes are presented within non-income taxes on the consolidated 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 and amounted to $1,200,293 and $434,041 for the years ended December 31, 2021 and 2020, respectively.
Rent Expense and Deferred Lease Obligation – The Company leases land, submerged land, and office space. Minimum rental expenses are recognized over the term of the lease. The Company recognizes minimum rent starting when possession of the property is taken. When a lease contains a predetermined fixed escalation of the minimum rent, the Company recognizes the related rent expense on a straight-line basis and records the difference between the recognized rent expense and the amounts payable under the lease as deferred lease obligation.
Income Taxes – The Company is not subject to U.S. federal or state income taxes as the tax effects of the Company’s activities are reported directly by the members on their respective income tax returns, but certain of the Company’s subsidiaries are subject to income taxes. The Company’s management believes that the part of ASC subtopic 740-10, Income Taxes, which relates to uncertain tax positions, does not have a material effect on the Company’s consolidated financial statements. The tax years 2019 through 2021 are open to examination by the applicable taxing authorities.
Certain of the Company’s subsidiaries are taxable corporations operating in U.S. and foreign jurisdictions that impose income taxes. For these subsidiaries, income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
The Company is a withholding agent for U.S. federal tax purposes with respect to its foreign members. As a result, the Company makes periodic U.S. federal tax payments, to the extent the Company earns income during a period, on behalf of its foreign members to satisfy this withholding obligation and file related annual information tax returns with the Internal Revenue Service (“IRS”). Any U.S. withholding payments made on behalf of a foreign member is a cash distribution to such member. Should the Company under withhold on its foreign members’ distributive share of the Company’s income, the Company and its Parent may become liable for such under withholding.
Major Maintenance Activities – The Company incurs maintenance costs for all its major property and equipment. Repair and maintenance costs are expensed as incurred.
16
Island Global Yachting LLC and Subsidiaries
Notes to Consolidated Financial Statements
Note 1. Summary of Significant Accounting Policies (continued)
Commitments and Contingencies – During the course of its operations, the Company is subject to various legal claims. Management reviews the validity of such claims and acts accordingly. 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.
Share-Based Compensation – The Company records stock-based compensation in accordance with ASC topic 718, Compensation – Stock Compensation. This statement requires that all stock-based compensation be recognized at fair value of the award. The Company recognizes compensation costs for awards with performance conditions when the achievement of the performance condition is considered probable. See Note 11 for further details.
Foreign Currency – As required in ASC subtopic 830-20, Foreign Currency Matters, management evaluates various factors in determining the functional currency of its subsidiaries, including the currency of its revenues, labor and material components, and the overall economic environment in which the subsidiary operates. Exchange gains and losses for transactions that are denominated in a currency other than a subsidiary’s functional currency are recognized in the consolidated statements of operations. The U.S. dollar is the functional currency used in the consolidated financial statements. Certain subsidiaries maintain their books and records in a local currency other than the U.S. dollar, primarily Euros, which is the subsidiaries’ functional currency. As such, the financial statements of these subsidiaries are translated to the Company’s functional currency and any adjustments resulting from the translation are recorded in a separate component of accumulated other comprehensive income in members’ equity.
Use of Estimates – The preparation of the consolidated 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant items subject to such estimates and assumptions include the fair value of land, property and equipment, investments in affiliated companies, assets held for sale, casualty losses recorded on capital assets, and valuation allowances for receivables, and deferred income tax assets. 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 consolidated financial statements on a recurring or nonrecurring basis. The Company currently has no assets or liabilities carried at fair value on a recurring basis in the consolidated financial statements.
Reclassifications – Certain amounts have been reclassified in the 2021 and 2020 consolidated balance sheets and consolidated statements of operations due to a management decision to change the presentation, primarily to condense its consolidated statements of operations. There was no impact on net income, gross profit, or members’ equity as a result of these reclassifications.
17
Island Global Yachting LLC and Subsidiaries
Notes to Consolidated Financial Statements
Note 1. Summary of Significant Accounting Policies (continued)
Recently Issued Accounting Standards Not Yet Adopted – In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which is required to be implemented for fiscal periods beginning after December 15, 2021. 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). The Company is currently evaluating the effect of the required implementation of this ASU on its consolidated financial statements.
Note 2. Accounts Receivable and Revenue
The following table shows the Company’s revenue disaggregated between revenue from contracts with customers and other revenue.
| Year ended December 31, | 2021 | 2020 | ||||||
| Upland leases |
$ | 7,131,932 | $ | 5,636,468 | ||||
| Upland utilities |
2,829,108 | 2,159,882 | ||||||
| Revenue from contracts with customers |
55,492,845 | 44,627,552 | ||||||
|
|
|
|
|
|||||
| Total revenue |
$ | 65,453,885 | $ | 52,423,902 | ||||
|
|
|
|
|
|||||
The following table shows the Company’s revenue from contracts with customers disaggregated into categories that depict the nature of the revenue.
| Year ended December 31, | 2021 | 2020 | ||||||
| Marina revenue |
$ | 45,212,116 | $ | 37,405,095 | ||||
| Professional services |
4,261,777 | 2,104,468 | ||||||
| Other |
6,018,952 | 5,117,989 | ||||||
|
|
|
|
|
|||||
| Total revenue from contracts with customers |
$ | 55,492,845 | $ | 44,627,552 | ||||
|
|
|
|
|
|||||
The Company’s revenues from contracts with customers were recognized as follows according to timing of the transfer of goods or services:
| Year ended December 31, | 2021 | 2020 | ||||||
| Revenue recognized at a point in time |
$ | 30,611,236 | $ | 30,249,321 | ||||
| Revenue recognized over time |
24,881,609 | 14,378,231 | ||||||
|
|
|
|
|
|||||
| Total revenue from contacts with customers |
$ | 55,492,845 | $ | 44,627,552 | ||||
|
|
|
|
|
|||||
18
Island Global Yachting LLC and Subsidiaries
Notes to Consolidated Financial Statements
Note 2. Accounts Receivable and Revenue (continued)
Contract assets and liabilities arising from contracts with customers consist of the following:
| Year ended December 31, | 2021 | 2020 | ||||||
| Contract assets: |
||||||||
| Accounts receivable |
$ | 8,927,665 | $ | 5,506,330 | ||||
| Unbilled revenue |
148,760 | 716,523 | ||||||
|
|
|
|
|
|||||
| Total contract assets |
$ | 9,076,425 | $ | 6,222,853 | ||||
|
|
|
|
|
|||||
| Contract liabilities: |
||||||||
| Deferred revenue |
$ | 2,728,551 | $ | 545,196 | ||||
| Customer deposits |
4,900,146 | 4,006,499 | ||||||
|
|
|
|
|
|||||
| Total contract liabilities |
$ | 7,628,697 | $ | 4,551,695 | ||||
|
|
|
|
|
|||||
Note 3. Related-Party Transactions
The following is a summary of revenues and income earned and fees incurred for the years ended December 31:
| Included in revenues | 2021 | 2020 | ||||||
| Management fees paid by affiliate |
$ | 419,196 | $ | 150,865 | ||||
| Acquisition fee received from IG Holdings LLC |
— | 412,000 | ||||||
| Refinance fee received from IG Holdings LLC |
120,000 | — | ||||||
| Included in costs and expenses | 2021 | 2020 | ||||||
| Asset management fees paid to IGYD |
$ | (463,861 | ) | $ | 1,212,628 | |||
| Acquisition fee paid to IGYD |
— | 73,569 | ||||||
| Agent fee paid to Anubis Securities LLC |
— | 540,000 | ||||||
| Personnel and overhead costs paid by affiliates |
(232,182 | ) | (376,810 | ) | ||||
| Personnel and overhead costs paid to affiliates |
1,101,576 | 912,359 | ||||||
Fees paid or payable to Island Global Yachting Directives LLC (“IGYD”), an affiliate of the Company’s Parent, are all pursuant to the relevant partnership agreements of certain shareholders of the Company and the subscription and shareholder agreements between each such partnership and the Company. Generally, these amounts are payable quarterly.
During 2020, IGY paid a $540,000 placement agent fee to Anubis Securities LLC, an affiliate of IGYD, in connection with the IG Holdings LLC equity raise. Additionally, IGY paid IGYD a $73,569 acquisition fee related to the real estate acquisition of Island Gardens Deep Harbour LLC made by IG Holdings LLC. IGY’s wholly owned subsidiary IG Directives LLC, received a fee of $412,000 from IG Holdings LLC related to the acquisition of Island Gardens Deep Harbour LLC. IG Directives LLC is the general partner for IG Holdings LLC. During 2021, IG Directives LLC received a fee of $120,000 from IG Holdings LLC related to the refinance of debt of Island Gardens Deep Harbour LLC. See Note 8 for additional details on this investment.
19
Island Global Yachting LLC and Subsidiaries
Notes to Consolidated Financial Statements
Note 3. Related-Party Transactions (continued)
Personnel and overhead costs were included in the consolidated statements of operations and are reimbursement charges at cost from IGYD and its affiliates relating to non-IGY employees who performed services for the Company for the years ended December 31, 2021 and 2020. In addition, IGYD and its affiliates and from IG Holdings LLC and its affiliate reimbursed the Company for personnel and overhead costs. The amounts are generally paid monthly.
In November 2007, IGY1 executed a $5,500,000 note payable on demand in favor of IGY to enable IGY1 to meet its obligation under the letter of credit posted in favor of the lender on the construction loan facility for Yacht Haven USVI. Through 2008, $4,004,432 had been advanced to IGY1. No additional advances have been made through December 31, 2021. The receivable from the Parent is secured by a security interest in, lien on, and right of setoff against all IGY shares owned by the Parent, together with all dividends and distributions thereon and all proceeds thereof. Interest is payable quarterly on the principal amount (including interest permitted by IGY to be added to principal) at 18% per annum. In 2017, the note payable was modified to suspend the accrual of interest until the occurrence of a termination event as defined by the agreement. Therefore, there was no interest accrued on this note for the years ended December 31, 2021 and 2020. The amount receivable from the Parent was $22,277,065 at December 31, 2021 and 2020 and is reflected as a reduction of members’ equity in the accompanying consolidated financial statements.
Note 4. Beneficial Leasehold Interest Intangible Assets
Beneficial leasehold interest intangible assets consisted of the following at December 31:
| 2021 | 2020 | |||||||
| Beneficial leasehold interest intangible assets |
$ | 23,881,207 | $ | 23,881,207 | ||||
| Accumulated amortization, beneficial leasehold interest intangible assets |
(10,623,985 | ) | (9,944,294 | ) | ||||
|
|
|
|
|
|||||
| Beneficial leasehold interest intangible assets, net |
$ | 13,257,222 | $ | 13,936,913 | ||||
|
|
|
|
|
|||||
Amortization expense related to these beneficial leasehold intangible assets in 2021 and 2020 was $679,691 and $680,739, respectively. Future annual amortization expense for the next five years will be $679,691.
The Company has several land and submerged land leases that expire through 2093 and, in most cases, provide for renewal options. Generally, the Company is required to pay real estate taxes (where not subject to abatement) and maintain insurance on its leased property. Minimum rent payments under these operating leases are recognized on a straight-line basis over the terms of the leases, including any periods of free rent and expected renewal periods. Total expenses associated with these leases were $2,251,734 and $2,067,489 in 2021 and 2020, respectively.
20
Island Global Yachting LLC and Subsidiaries
Notes to Consolidated Financial Statements
Note 4. Beneficial Leasehold Interest Intangible Assets (continued)
Total future minimum payments due under land leases as of December 31, 2021 are as follows:
| Year ending December 31: |
||||
| 2022 |
$ | 1,223,050 | ||
| 2023 |
1,229,865 | |||
| 2024 |
1,299,749 | |||
| 2025 |
1,369,633 | |||
| 2026 |
1,389,506 | |||
| Thereafter |
159,112,721 | |||
|
|
|
|||
| Total |
$ | 165,624,524 | ||
|
|
|
A subsidiary of the Company is a lessee to two land leases which have future minimum rents owed under those leases through the 30th year following the year in which the rent level increase becomes effective. These amounts are included in the above schedule. Subsequent to the 30th year, 2039 for one lease and 2040 for the other, future minimum rents will be adjusted to amounts equal to the fair rental value of the leased properties, as determined by qualified appraisers, but under no circumstances will the rents charged be less than 85% or more than 115% of the immediately preceding year’s annual rent. These amounts are not included in the above schedule. Following the determinations of the annual rents for the 30th year, the annual minimum rents will increase based upon the U.S. Consumer Price Index of Labor Statistics for all urban consumers.
Note 5. Leases, excluding land leases
Operating Leases – other than land leases - The Company has several non-cancelable operating leases, primarily for office space. These leases generally contain renewal options for periods ranging up to 10 years and require the Company to pay all executory costs such as maintenance and insurance. Rental expense for operating leases during 2021 and 2020 was $356,234 and $484,109, respectively.
Future estimated minimum lease payments under non-cancelable operating leases (with initial or remaining lease terms in excess of one year) as of December 31, 2021 are:
| Year ending December 31: |
||||
| 2022 |
$ | 5,320 | ||
| 2023 |
— | |||
| 2024 |
— | |||
|
|
|
|||
| Total |
$ | 5,320 | ||
|
|
|
One of the Company’s leases was terminated in 2021 for a fee of $100,000 plus surrender of equipment with a book value of approximately $50,000.
Retail Leases – Subsidiaries of the Company lease upland building spaces to retail tenants under operating leases. The leases contain standard renewal options. Base rentals are subject to escalation based upon scheduled rent increases within individual leases.
21
Island Global Yachting LLC and Subsidiaries
Notes to Consolidated Financial Statements
Note 5. Leases, excluding land leases (continued)
A schedule of estimated minimum future base rentals on non-cancelable operating leases as of December 31, 2021, is as follows:
| Year ending December 31: |
||||
| 2022 |
$ | 6,414,781 | ||
| 2023 |
4,736,726 | |||
| 2024 |
3,526,008 | |||
| 2025 |
2,172,759 | |||
| 2026 |
1,658,007 | |||
|
|
|
|||
| Total |
$ | 18,508,281 | ||
|
|
|
Upland and common area charges, which includes rental income, for the years ended December 31, 2021 and 2020, was $7,131,932 and $5,636,468, respectively.
Note 6. Property and Equipment
Property and equipment consisted of the following at December 31:
| 2021 | 2020 | |||||||
| Buildings |
$ | 46,892,593 | $ | 44,972,803 | ||||
| Marina structures |
98,831,649 | 71,067,419 | ||||||
| Furniture, fixtures and equipment |
22,899,005 | 21,863,641 | ||||||
| Leasehold improvements |
1,878,423 | 1,197,249 | ||||||
| Construction in progress |
4,167,729 | 2,776,490 | ||||||
|
|
|
|
|
|||||
| Total property and equipment |
174,669,399 | 141,877,602 | ||||||
| Accumulated depreciation and amortization |
(73,991,120 | ) | (64,214,123 | ) | ||||
|
|
|
|
|
|||||
| Property and equipment, net |
$ | 100,678,279 | $ | 77,663,479 | ||||
|
|
|
|
|
|||||
Depreciation expense was $5,559,808 and $5,276,530 for the years ended December 31, 2021 and 2020, respectively. The Company leases commercial real estate, primarily to unrelated third parties, that has a gross book value of $29,418,985 and $28,418,464, and accumulated depreciation of $13,622,527 and $12,467,501 at December 31, 2021 and 2020, respectively.
Note 7. Deferred Contract Costs
The following table presents certain information regarding the Company’s deferred contract costs as of December 31, 2021 and 2020, respectively:
| Amortization period |
Gross carrying amount |
Accumulated amortization |
Net balance December 31, 2021 |
|||||||||||||
| Porto Cervo Marina |
7 years | $ | 627,627 | $ | (359,737 | ) | $ | 267,890 | ||||||||
| Red Frog Beach Marina |
14 years | 1,296,561 | (424,605 | ) | 871,956 | |||||||||||
|
|
|
|
|
|
|
|||||||||||
| Total |
$ | 1,924,188 | $ | (784,342 | ) | $ | 1,139,846 | |||||||||
|
|
|
|
|
|
|
|||||||||||
22
Island Global Yachting LLC and Subsidiaries
Notes to Consolidated Financial Statements
Note 7. Deferred Contract Costs (continued)
| Amortization period |
Gross carrying amount |
Accumulated amortization |
Net balance December 31, 2020 |
|||||||||||||
| Porto Cervo Marina |
7 years | $ | 627,627 | $ | (267,889 | ) | $ | 359,738 | ||||||||
| Red Frog Beach Marina |
14 years | 1,296,561 | (326,036 | ) | 970,525 | |||||||||||
|
|
|
|
|
|
|
|||||||||||
| Total |
$ | 1,924,188 | $ | (593,925 | ) | $ | 1,330,263 | |||||||||
|
|
|
|
|
|
|
|||||||||||
The Company’s deferred contract costs arise from payments required to enter into marina management agreements or the payment of key money in relation to marina management agreements. The deferred contract costs are amortized over the life of the underlying contract on a straight-line basis. Deferred contract costs are included in other assets on the consolidated balance sheets.
Note 8. Equity Method Investments
The following table summarizes the activities of the Company’s investments in affiliated companies as of December 31, 2021 and 2020, respectively:
| Beef Island | IG Holdings LLC |
Malaga | Navy Beach | IGY Gestora |
Dockside Management |
Total | ||||||||||||||||||||||
| Balance at December 31, 2019 |
$ | 2,267,265 | $ | — | $ | — | $ | 1,479,919 | $ | — | $ | 233,921 | $ | 3,981,105 | ||||||||||||||
| New investment |
— | 5,500,000 | 143,197 | — | 134,834 | — | 5,778,031 | |||||||||||||||||||||
| Disposal |
— | — | — | — | — | (233,921 | ) | (233,921 | ) | |||||||||||||||||||
| Net loss |
— | (438,048 | ) | — | (44,957 | ) | (2,287 | ) | — | (485,292 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Balance at December 31, 2020 |
$ | 2,267,265 | $ | 5,061,952 | $ | 143,197 | $ | 1,434,962 | $ | 132,547 | $ | — | $ | 9,039,923 | ||||||||||||||
| New investment |
20,630 | — | 425,000 | 245,795 | 40,774 | — | 732,199 | |||||||||||||||||||||
| Distribution |
— | (2,152,858 | ) | — | (76,452 | ) | — | — | (2,229,309 | ) | ||||||||||||||||||
| Net loss |
(20,630 | ) | (91,643 | ) | (323,123 | ) | (186,542 | ) | (173,321 | ) | — | (795,260 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Balance at December 31, 2021 |
$ | 2,267,265 | $ | 2,817,451 | $ | 245,074 | $ | 1,417,763 | $ | — | $ | — | $ | 6,747,553 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
During 2020, $5,500,000 was contributed for 15.71% ownership of IG Holdings LLC. Initially, $8,000,000 was contributed, and $2,500,000 was subsequently sold for total contributions of $5,500,000. During 2019, $1,600,000 was contributed for 35% ownership of Navy Beach. Each of these investments were accounted for using the equity method. Although the ownership percentage for IG Holdings LLC was less than 20%, the equity method was used due to the Company’s ability to exercise influence over the entity.
23
Island Global Yachting LLC and Subsidiaries
Notes to Consolidated Financial Statements
Note 8. Equity Method Investments (continued)
Summarized unaudited financial information for IG Holdings LLC is as follows as of December 31, 2021 and for the year ended December 31, 2021:
| Financial Position: |
||||
| Current assets |
$ | 5,860,757 | ||
| Noncurrent assets |
48,622,283 | |||
|
|
|
|||
| Total assets |
$ | 54,483,040 | ||
|
|
|
|||
| Current liabilities |
2,824,654 | |||
| Noncurrent liabilities |
29,230,785 | |||
|
|
|
|||
| Total liabilities |
32,055,439 | |||
|
|
|
|||
| Members’ equity |
18,149,254 | |||
| Noncontrolling interest |
4,278,347 | |||
|
|
|
|||
| Total equity and noncontrolling interest |
22,427,601 | |||
|
|
|
|||
| Total liabilities, equity and noncontrolling interest |
$ | 54,483,040 | ||
|
|
|
|||
| Results of Operations: |
||||
| Revenues |
$ | 9,126,061 | ||
| Operating costs and expenses |
(8,127,559 | ) | ||
|
|
|
|||
| Income from operations |
998,502 | |||
|
|
|
|||
| Other income (expenses) |
(1,616,123 | ) | ||
|
|
|
|||
| Net loss |
(617,621 | ) | ||
|
|
|
|||
| Net loss attributable to noncontrolling interest |
90,532 | |||
|
|
|
|||
| Net loss attributable to IG Holdings LLC |
$ | (527,089 | ) | |
|
|
|
Operations for the remaining equity method investments were not significant.
Note 9. Notes Payable
Proceeds from notes payable were used to purchase or refinance loans secured by operating marinas, and proceeds from construction loans were used to develop or redevelop marina properties. These property specific notes are secured by the real and personal property of each borrowing entity and, in certain instances, by the borrowing entity’s rights under retail leases and certain cash accounts and accounts receivable of the entity, as well as, the equity in the borrowing entity.
Notes payable consisted of the following at December 31:
| 2021 | 2020 | |||||||
| Rodney Bay Senior Note Payable |
$ | 6,373,393 | $ | 6,749,307 | ||||
| Yacht Haven Grande Note Payable |
13,000,000 | 15,000,000 | ||||||
| Isle de Sol Note Payable |
16,000,000 | 13,887,346 | ||||||
| Cabo Marina Note Payable |
7,254,898 | 7,694,236 | ||||||
| Portisco Note Payable |
487,753 | — | ||||||
| American Yacht Harbor Note Payable |
10,740,353 | 11,138,366 | ||||||
| IGY PPP Loan |
— | 1,387,800 | ||||||
|
|
|
|
|
|||||
| Total Notes Payable |
$ | 53,856,397 | $ | 55,857,055 | ||||
|
|
|
|
|
|||||
24
Island Global Yachting LLC and Subsidiaries
Notes to Consolidated Financial Statements
Note 9. Notes Payable (continued)
Notes payable are presented in the consolidated balance sheets in the following captions:
| 2021 | 2020 | |||||||
| Notes payable, current portion |
$ | 14,868,971 | $ | 3,204,852 | ||||
| Notes payable, excluding current portion |
38,987,426 | 52,652,203 | ||||||
|
|
|
|
|
|||||
| Total Notes Payable |
$ | 53,856,397 | $ | 55,857,055 | ||||
|
|
|
|
|
|||||
Rodney Bay Senior Note Payable – In May 2019, RBM and Planviron (Caribbean Practice) Ltd., (together “RBM Borrowers”) signed a modification of the then existing note payable to a private lender that extended the maturity date to May 1, 2021. The loan modification reduced the interest rate to the greater of 10.5% or the one month LIBOR rate plus eight hundred fifty basis points through the maturity date. A payment of $103,875 was required as a modification fee and was paid on the RBM Borrowers’ behalf by IGY LLC. These costs were recorded as a capital contribution from IGY LLC and an increase to deferred financing costs. These costs are being amortized on the straight line method, which approximates the effective interest method. The unamortized balance of these costs were $64,922 at December 31, 2019. As part of the extinguishment in 2020, noted below, the remaining unamortized costs were written off.
In February 2020, the RBM Borrowers extinguished the previous note payable and issued a new note payable to a financial institution in the amount of $6,500,000. The new note payable matures in January 2030, and bears interest at a floating 90 day LIBOR rate plus 4.75%, and a floor of 6.50% and is payable monthly. The floating 90 day LIBOR rate adjusts every six months. Fixed payments of $74,217 are due monthly which include interest and principal. Issuance costs of approximately $60,000 were incurred in connection with the new note payable. These costs are being amortized on the straight line method, which approximates the effective interest method. The unamortized balance of these costs was $51,887 and $53,847 at December 31, 2021 and 2020, respectively.
Substantially all assets of the RBM Borrowers serve as collateral for the note payable. 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 RBM Borrowers must maintain a debt service ratio and a fixed debt to equity ratio, as defined in the loan agreement.
As a result of uncertainty related to the COVID-19 Pandemic (“COVID-19”), the RBM Borrowers negotiated a modification to the agreement which deferred all payments for a period of seven months and no principal payments would be due before March 2021. As a result of this modification, all deferred payments would be added to the final principal payment at maturity and approximately $290,000 of accrued interest was converted to principal.
The terms of the loan contained certain financial covenants, negative covenants and other terms and conditions customarily found in loan agreements of this type, principally the RBM Borrowers must maintain a debt service ratio, as defined in the loan agreement. The RBM Borrowers materially complied with the financial and negative covenants and terms and conditions.
25
Island Global Yachting LLC and Subsidiaries
Notes to Consolidated Financial Statements
Note 9. Notes Payable (continued)
Yacht Haven Grande Note Payable – On September 29, 2020, Yacht Haven USVI LLC (“YHG”) entered into a note payable with a private lender in the amount of $15,000,000 through Yacht Haven Grande, a subsidiary. The note matures on April 1, 2022 and bears interest of 11%. Interest payments are due monthly, and principal and any remaining interest will be due at maturity. Fees of approximately $300,000 were paid in relation to the note issuance. The YHG loan is guaranteed by the Company.
On March 9, 2022, YHG agreed to a debt modification that extended the maturity date to July 1, 2022. On July 1, 2022, the Company amended the YHG Note Payable, increasing the principal to $18,000,000. The amendments extended the Note’s maturity date to July 1, 2023 and modified the interest rate to a variable rate at US Prime Rate plus 6.75%. Management is confident that it will be able to either refinance or extend the existing debt for greater than a year as the existing debt approaches maturity.
Isle de Sol Note Payable – On January 31, 2013, all previous bank financings entered into by Hop-Inn Enterprises (“IDS”) were extinguished through a loan agreement with a new lender. The 2013 senior loan facility for $16,483,499 is secured by substantially all the assets of IDS and accrued interest at 12.00% per annum. Interest only payments were due monthly and the principal balance was due at maturity. The original maturity date of January 31, 2016 included the option to extend in two twelve month increments to a maturity date no later than January 31, 2018, provided there were no events of default and IDS paid an extension payment of 1% of the outstanding principal balance.
On March 31, 2015, IDS signed a modification of the existing senior loan that reduced the interest rate to 10.5% effective February 1, 2015.
On February 1, 2016, IDS signed a modification of the existing senior loan that extended the maturity date to January 31, 2021. The modification reduced the interest rate to 9% effective February 1, 2016 through January 31, 2018 and the greater of 9% or the one-month LIBOR rate plus six hundred basis points from February 1, 2018 through the maturity date. The modification included principal payments calculated on a twenty-year amortization.
On October 1, 2017, IDS signed a modification of the existing senior loan that eliminated scheduled principal and interest payments on the loan for the months of October, November and December 2017; however, interest still accrued on outstanding principal amounts. Future payments of principal and interest were modified and approximately $61,000 of accrued interest expense was added to the principal balance in February 2018.
As a result of COVID-19, IDS negotiated a debt modification. This modification resulted in IDS being required to make interest-only payments, with seasonal modifiers, to the original maturity date of January 2021. In addition, IDS was given the option to extend the maturity date to January 2022 at an interest rate of 12% with interest-only payments being required.
The balance of the senior loan was $13,887,346 at December 31, 2020.
On January 28, 2021, IDS extinguished the previous note payable through the issuance of a new note payable with a new lender. The 2021 senior loan facility for $16,000,000 is secured by substantially all the assets of IDS and accrues interest at 7.00% per annum until January 28, 2026. From January 28, 2026 through maturity, the interest rate is the greater of 7% or the five year US Treasury rate plus five hundred basis points. Quarterly payments consist of interest only from April 1, 2021 through January 1, 2023. From April 1, 2023 through maturity, quarterly payments consist of interest plus principal based on a 15 year amortization schedule. Deferred financing costs paid as a part of this transaction were approximately $501,829.
26
Island Global Yachting LLC and Subsidiaries
Notes to Consolidated Financial Statements
Note 9. Notes Payable (continued)
The balance of the senior loan facility was $16,000,000 at December 31, 2021.
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 maintain a debt service coverage ratio and debt to equity ratio, as defined in the loan agreement. The Company has materially complied with the financial and negative covenants and terms and conditions.
Cabo Marina Note Payable – On October 29, 2013, Cabo Marina, S. de R.L. de C.V. (“Cabo”) borrowed $17 million from a Mexican bank and the proceeds were used to pay off the previous commercial bank loan. Under this new loan, principal and interest payments are due monthly. The loan had a 5-year term, maturing on October 30, 2018, but principal payments due were based on a 7-year amortization schedule and interest accrued at LIBOR plus 4.43%. Deferred financing costs of approximately $1 million were incurred and capitalized in connection with this loan. Substantially all assets of Cabo serve as collateral under the bank loan. Cabo has complied with the loan covenants and terms in all material respects.
On March 2, 2018, Cabo signed a modification of the existing senior loan that extended the maturity date to January 31, 2023. The modification reduced the interest rate to LIBOR plus 4.05%. The modification includes principal payments calculated on a fifteen-year amortization.
As a result of COVID-19, Cabo negotiated debt payment modification. Cabo negotiated a forbearance of principal payments for the period June to December 2020. Deferred payments will be added to the principal balance due at maturity.
American Yacht Harbor Note Payable – American Yacht Harbor (“AYH”) obtained a $15,300,000 loan facility from a bank on August 23, 2007. Interest accrued at LIBOR plus 2.00% to LIBOR plus 2.75% based on the debt service coverage ratio of AYH. Principal and interest were due monthly and the loan was scheduled to mature on September 1, 2017. On April 6, 2016, the loan was modified with a new maturity date of March 31, 2023 and a fixed interest rate of 4.95%. The modified note payable requires monthly principal payments of $33,000, plus interest, until maturity, at which time the remaining principal balance is due under a balloon payment. Issuance costs of $63,906 were paid in connection with the modification and have been recorded as reduction of the face amount of the note payable. At December 31, 2021 and 2020, the principal amount outstanding under the loan was $10,740,353 and $11,138,366, respectively.
The loan is collateralized by the real property and improvements thereon, AYH’s rights under its retail leases, and certain cash accounts and accounts receivable of AYH. As part of a security agreement with the bank, the bank has required that certain cash accounts of AYH be pledged to the bank. This amount is shown as restricted cash on the consolidated balance sheets in the amount of $1,275,021 and $1,713,398 at December 31, 2021 and 2020, 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, AYH must not incur additional indebtedness unless permitted in the loan agreement and AYH must provide audited financial statements to the lender by a certain date.
As a result of COVID-19, AYH negotiated a debt payment modifications. AYH obtained a forbearance of principal and interest payments for April, May and June of 2020 with the unpaid interest being added to the outstanding principal balance. Deferred payments will be added to the principal balance due at maturity.
27
Island Global Yachting LLC and Subsidiaries
Notes to Consolidated Financial Statements
Note 9. Notes Payable (continued)
IGY PPP Loan – In May 2020, IGY obtained a $1,387,800 loan from a bank under the Paycheck Protection Program administered by the United States Small Business Administration. During 2020, IGY expended the funds on payroll, rent and utilities as directed under the program. In 2021, IGY received full forgiveness of this loan.
The aggregate maturities of long-term debt for each of the years subsequent to December 31, 2021, are as follows:
| Year ending December 31: |
||||
| 2022 |
$ | 14,868,971 | ||
| 2023 |
11,857,833 | |||
| 2024 |
1,773,488 | |||
| 2025 |
1,890,443 | |||
| 2026 |
2,014,965 | |||
| Thereafter |
21,450,697 | |||
|
|
|
|||
| Total |
$ | 53,856,397 | ||
|
|
|
As the IGY PPP Loan of $1,387,800 was forgiven in 2021, it is excluded from the maturity schedule above.
As a result of COVID-19, the Company’s subsidiaries negotiated debt payment modifications. AYH obtained a forbearance of principal and interest payments for April, May and June of 2020 with the unpaid interest being added to the outstanding principal balance. IDS’ debt was modified to require interest only payments, with seasonal modifiers, through January 2021. RBM negotiated a six-month forbearance of principal and interest from April to September of 2020 with accrued interest to be added to the outstanding principal balance. Cabo Marina negotiated a forbearance of principal payments for the period June to December 2020. Deferred payments will be added to the principal balance due at maturity.
Note 10. Income Taxes
The total income (loss) before income taxes for the years ended December 31, 2021 and 2020 arose from entities as categorized below:
| 2021 | 2020 | |||||||
| Income (loss) from nontaxable entities |
$ | 2,598,656 | $ | (6,535,088 | ) | |||
| (Loss) income from taxable entities (below) |
(1,568,967 | ) | 795,270 | |||||
|
|
|
|
|
|||||
| Income (loss) before income taxes |
$ | 1,029,689 | $ | (5,739,818 | ) | |||
|
|
|
|
|
|||||
| 2021 | 2020 | |||||||
| Income from taxable entities (United States of America) |
$ | 120,080 | $ | 724,403 | ||||
| (Loss) income from taxable entities (Foreign) |
(1,689,047 | ) | 70,867 | |||||
|
|
|
|
|
|||||
| (Loss) income before income taxes from taxable entities |
$ | (1,568,967 | ) | $ | 795,270 | |||
|
|
|
|
|
|||||
28
Island Global Yachting LLC and Subsidiaries
Notes to Consolidated Financial Statements
Note 10. Income Taxes (continued)
Income tax expense (benefit) for the year ended December 31, 2021, attributable to income from taxable entities consisted of the following:
| Current | Deferred | Total | ||||||||||
| U.S. federal |
$ | — | $ | 149,140 | $ | 149,140 | ||||||
| State and local |
— | — | — | |||||||||
| Foreign |
2,603,484 | (2,378,887 | ) | 224,597 | ||||||||
|
|
|
|
|
|
|
|||||||
| $ | 2,603,484 | $ | (2,229,747 | ) | $ | 373,737 | ||||||
|
|
|
|
|
|
|
|||||||
Income tax expense (benefit) for the year ended December 31, 2020, attributable to income from taxable entities consisted of the following:
| Current | Deferred | Total | ||||||||||
| U.S. federal |
$ | (431 | ) | $ | (149,140 | ) | $ | (149,571 | ) | |||
| State and local |
— | — | — | |||||||||
| Foreign |
1,061,844 | (483,108 | ) | 578,736 | ||||||||
|
|
|
|
|
|
|
|||||||
| $ | 1,061,413 | $ | (632,248 | ) | $ | 429,165 | ||||||
|
|
|
|
|
|
|
|||||||
Income tax expense attributable to income from taxable entities was $373,737 and $429,165 for the years ended December 31, 2021 and 2020, respectively, and differed from the amount computed by applying the U.S. federal income tax rate of 21% for 2021 and 2020, to income before income taxes from taxable entities as a result of the following:
| 2021 | 2020 | |||||||
| Computed tax expense at statutory rate |
$ | (329,483 | ) | $ | 49,942 | |||
| Increase (decrease) in income tax benefit resulting from: |
||||||||
| Netherland Antilles turnover tax |
6,362 | 8,279 | ||||||
| (Decrease) increase in valuation allowance |
(3,147,407 | ) | 658,685 | |||||
| Differential in foreign rate |
(97,580 | ) | (74,749 | ) | ||||
| Investment deduction – St. Maarten |
(131,257 | ) | (108,819 | ) | ||||
| True-up of federal deferred tax assets and liabilities |
3,753,363 | (125,848 | ) | |||||
| Nondeductible expenses |
121,155 | 27,304 | ||||||
| St. Maarten income tax expense |
124,990 | 108,292 | ||||||
| Other, net |
73,594 | (113,921 | ) | |||||
|
|
|
|
|
|||||
| Income tax expense |
$ | 373,737 | $ | 429,165 | ||||
|
|
|
|
|
|||||
29
Island Global Yachting LLC and Subsidiaries
Notes to Consolidated Financial Statements
Note 10. Income Taxes (continued)
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2021 and 2020, are presented below:
| 2021 | 2020 | |||||||
| Deferred tax assets: |
||||||||
| Accounts receivable principally due to valuation differences |
$ | — | $ | 63,366 | ||||
| Compensated absences and nonqualified employee benefit plans, principally due to accrual for financial reporting purposes |
— | 287,207 | ||||||
| Difference in book and tax depreciation of property and equipment |
1,688,071 | 4,693,030 | ||||||
| Net operating loss |
1,496,017 | 1,313,243 | ||||||
| Other |
449,497 | 298,655 | ||||||
|
|
|
|
|
|||||
| Total gross deferred tax assets |
3,633,585 | 6,655,501 | ||||||
| Less valuation allowance |
(2,481,425 | ) | (5,628,832 | ) | ||||
|
|
|
|
|
|||||
| Net deferred tax assets |
1,152,160 | 1,026,669 | ||||||
|
|
|
|
|
|||||
| Deferred tax liabilities: |
||||||||
| Difference in book and tax depreciation of property and equipment |
(15,447,397 | ) | (16,945,358 | ) | ||||
| Other |
(22,254 | ) | (139,340 | ) | ||||
|
|
|
|
|
|||||
| Total gross deferred tax liabilities |
(15,469,651 | ) | (17,084,698 | ) | ||||
|
|
|
|
|
|||||
| Net deferred tax liabilities |
$ | (14,317,491 | ) | $ | (16,058,029 | ) | ||
|
|
|
|
|
|||||
In assessing whether deferred tax assets will in fact be realized, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Based upon the scheduled reversal of deferred tax liabilities and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not that the Company will not realize the benefits of these deductible differences and has recorded a valuation allowance against a portion of these deferred tax assets which relate primarily to the difference in book and tax depreciation of property and equipment and net operating losses at December 31, 2021 and 2020.
The valuation allowance for deferred tax assets as of December 31, 2021 and 2020 was $2,481,425 and $5,628,832, respectively. The net change in the total valuation allowance was a decrease of $3,147,407 and an increase of $658,685 in 2021 and 2020, respectively. The decrease for the year ended December 31, 2021 is primarily due to an adjustment of deferred tax attributes on Rodney Bay Marina Ltd. Several of the taxable entities have net operating losses which are being carried forward into future years. These losses have expiration periods which vary according to the appropriate taxing authorities’ regulations.
30
Island Global Yachting LLC and Subsidiaries
Notes to Consolidated Financial Statements
Note 11. Share-Based Compensation and Supplemental Retirement Plan
Share-Based Compensation
2018 IGY Option Plan
On December 1, 2018, the Board of the Company adopted the Island Global Yachting LLC 2018 Share Option Plan (the “2018 Plan”). The 2018 Plan is administered by the Board. Under the 2018 Plan, the Board had complete discretion (subject to the provisions of the Plan) to grant employees, consultants, and nonemployee directors of the Company and its affiliates and subsidiaries nonqualified share options to purchase authorized but unissued Class B Shares of the Company. Stock options are generally granted at the estimated fair value of the stock on the grant date. These options vest over ten years of continuous service and have twenty-year contractual terms. The option contracts provide for accelerated vesting if there is a change in control, as defined in the 2018 Plan.
The fair value of each 2018 Plan stock option award is estimated on the grant date using the Black Scholes Model. Expected volatilities are based on estimates of stock prices using comparable publicly traded companies as well as historical market value data. The expected term of the options is based on an estimate of the time period that the options are expected to be outstanding. The risk-free rate for periods within the contractual term of the stock options is based on the U.S. Treasury yield curve in effect at the time of the grant.
The following is a summary of the inputs to estimate the fair value of the stock option awards granted during the year ended December 31, 2018 for the 2018 plan:
| Expected volatility |
65.00 | % | ||
| Expected Term (in years) |
20 | |||
| Risk Free Rate |
2.92 | % | ||
| IGY Share Price |
$ | 2.00 |
The following is a summary of the inputs to estimate the fair value of the stock option awards granted during the year ended December 31, 2020 for the 2018 plan:
| Expected volatility |
65.00 | % | ||
| Expected Term (in years) |
20 | |||
| Risk Free Rate |
0.29 | % | ||
| IGY Share Price |
$ | 2.00 |
The Company’s accounting policy is to estimate forfeitures in determining the amount of total compensation cost to record each period.
31
Island Global Yachting LLC and Subsidiaries
Notes to Consolidated Financial Statements
Note 11. Share-Based Compensation and Supplemental Retirement Plan (continued)
Share-Based Compensation (continued)
2018 IGY Option Plan (continued)
During the year ended December 31, 2018, options to purchase 1,090,000 shares were granted at an exercise price of $4.00. As of December 31, 2021, 1,090,000 options are outstanding with 560,260 exercisable with respect to 2018 grants. The remaining vesting period is 6.92 years and the remaining contractual term is 16.92 years. The fair value of each of the 2018 granted options on the grant date was $1.69. During the year ended December 31, 2020, options to purchase 50,000 shares were granted at an exercise price of $3.00. As of December 31, 2021, 50,000 options are outstanding with 19,792 exercisable with respect to the 2020 grants. The remaining vesting period is 2.42 years and the remaining contractual term is 18.42 years. The fair value of each of the 2020 granted options on the grant date was $0.77.
$307,078 was recognized as personnel expense in the years ended December 31, 2021 and 2020 related to the 2018 and 2020 grants. As of December 31, 2021, there was $974,254 of total unrecognized compensation cost related to non-vested stock-based compensation arrangements granted under the Plan.
2018 ATM Option Plan
During the year ended December 31, 2018, Applied Technology and Management, Inc, a subsidiary of the Company, with approval of its stockholders, adopted a stock option plan (the “ATM 2018 Plan”) which permits the granting of stock options to employees for up to 300,000 shares of common stock of ATM (of which 1,000,000 are issued). Stock options are generally granted at the estimated fair value of the stock on the grant date. These options vest over five years of continuous service and have ten-year contractual terms. The option contracts provide for accelerated vesting if there is a change in control, as defined in the Plan.
The fair value of each ATM 2018 Plan stock option award is estimated on the grant date using the Black Scholes Model. Expected volatilities are based on estimates of stock prices using comparable publicly traded companies as well as historical market value data. The expected term of the options is based on an estimate of the time period that the options are expected to be outstanding. The risk-free rate for periods within the contractual term of the stock options is based on the U.S. Treasury yield curve in effect at the time of the grant. The following is a summary of the inputs to estimate the fair value of the stock option awards granted during the year ended December 31, 2018:
| Expected volatility |
30.00 | % | ||
| Expected Term (in years) |
10 | |||
| Risk Free Rate |
3.16 | % |
The Company’s accounting policy is to estimate forfeitures in determining the amount of total compensation cost to record each period. During the year ended December 31, 2018, options to purchase 170,000 shares were granted at an exercise price of $2.89. As of December 31, 2020, 170,000 options were outstanding with none exercisable. The remaining vesting period is 2.875 years and the remaining contractual term is 7.875 years. The fair value on the grant date was $2.89 with $45,900 recognized as personnel expense in the year ended December 31, 2020. As of December 31, 2020 there was $126,225 of total unrecognized compensation cost related to non-vested stock-based compensation arrangements granted under the Plan. As ATM was sold during 2021, there was no remaining unrecognized compensation cost related to the Plan as of December 31, 2021.
32
Island Global Yachting LLC and Subsidiaries
Notes to Consolidated Financial Statements
Note 11. Share-Based Compensation and Supplemental Retirement Plan (continued)
Supplemental Retirement Plan
ATM has a supplemental employee retirement plan covering certain of the subsidiary’s executive officers. The benefits are based on years of service and a percentage of the officer’s agreed-upon compensation at retirement. At December 31, 2020 the benefit obligation for this plan was $1,102,075, which equals the accrued liability at the balance sheet date because the plan has not been funded. Net periodic benefit costs were $63,642 the year ended December 31, 2020 and are included in personnel expenses in the consolidated statements of operations. During 2020 the Company paid $68,272 in benefit payments. The assumptions used to determine the benefit obligation at December 31, 2020 were: (1) a discount rate of 4.5%, and (2) rate of compensation increase of 0%, as the plan was frozen in 2010. As ATM was sold during 2021, there was no remaining benefit obligation as of December 31, 2021.
Note 12. Commitments and Contingencies
Certain of the Company’s subsidiaries are party to local development commission agreements which provide for certain economic incentives in the USVI with durations that range through December 31, 2032. The agreements required that the subsidiaries comply with certain conditions relating to its investment and operations in the USVI. The Company believes it was in compliance with the EDC Benefits agreement in all material respects as of December 31, 2021; however, the USVI EDC oversight authority periodically audits the Company’s compliance with respect to the EDC agreement. As a result, additional amounts may become due for prior periods.
On October 27, 2020 and May 26, 2021, the National Fund for Tourism Development (“FONATUR”) claimed that Cabo Marina owed certain penalties related to potential encroachment on government lands as described in a purchase agreement of certain lots at the marina of Cabo San Lucas. According to the purchase agreement, the penalties are updated on a daily basis and the most recent amount discussed with FONATUR was greater than $1,000,000. Cabo Marina has initiated actions in order to start negotiations with FONATUR to legally resolve this matter.
Note 13. Asset Retirement Obligation
One of the Company’s subsidiaries’ use of the submerged land and upland at the marina site requires that, upon expiration, the permitted area be restored to its original condition. Upon acquisition of the assets, 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 activity of the Company’s asset retirement obligation, which is included within other noncurrent liabilities in the consolidated balance sheets, for the years ended December 31:
| 2021 | 2020 | |||||||
| Balance at beginning of year |
$ | 796,676 | $ | 758,740 | ||||
| Accretion expense |
39,834 | 37,936 | ||||||
|
|
|
|
|
|||||
| Balance at end of year |
$ | 836,510 | $ | 796,676 | ||||
|
|
|
|
|
|||||
33
Island Global Yachting LLC and Subsidiaries
Notes to Consolidated Financial Statements
Note 14. Members’ Equity
IGYl held 8,000,000 Class A (voting) shares (“Class A Shares”) of the Company as of December 31, 2021 and 2020. Class A Shares entitle the shareholder to vote on Company matters. In addition, the Company had 11,204,572 Class B (nonvoting) shares (“Class B Shares”) and 5,684,930 Series A Preferred shares outstanding as of December 31, 2021 and 2020. The Company is authorized to issue up to 50,000,000 shares with a par value of $0.001.
During 2021 and 2020, the Company had the following share activity:
| 2021 | 2021 | 2021 | 2021 | |||||||||||||
| Series A | Series A-2 | |||||||||||||||
| Class A | Class B | Preferred | Preferred | |||||||||||||
| Balance at beginning of year |
8,000,000 | 11,204,572 | 5,684,930 | — | ||||||||||||
| Issuance of shares |
— | — | — | 2,160,000 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Balance at end of year |
8,000,000 | 11,204,572 | 5,684,930 | 2,160,000 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| 2020 | 2020 | 2020 | 2020 | |||||||||||||
| Series A | Series A-2 | |||||||||||||||
| Class A | Class B | Preferred | Preferred | |||||||||||||
| Balance at beginning of year |
8,000,000 | 11,204,572 | 5,684,930 | — | ||||||||||||
| Issuance of shares |
— | — | — | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Balance at end of year |
8,000,000 | 11,204,572 | 5,684,930 | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
During prior years, the Company purchased partnership units of certain limited partners of the Company’s partnership shareholders, which effectively were repurchases of its own shares; therefore, these shares have been treated as treasury shares. The Company intends to retire the repurchased shares.
34
Island Global Yachting LLC and Subsidiaries
Notes to Consolidated Financial Statements
Note 14. Members’ Equity (continued)
During 2018, Island Global Yachting Directives VI LLC, as general partner for IGY6, closed a round of equity financing with $30,000,000 of capital commitments. $4,850,000 of capital was called and received by the Company during 2018 and IGY6 was issued 970,000 Series A Preferred Shares (non-voting shares). During 2019, $23,580,000 of capital was called and received by the Company and IGY6 was issued 4,716,000 Series A Preferred Shares. The Series A Preferred Shares carry an 8% cumulative and compounded preferred dividend. At Island Global Yachting Directives VI LLC’s sole discretion, some or all of the Series A Preferred Shares may be converted into Class A Shares (voting) at a specified conversion price. In the event of a liquidity event, prior to any conversion of the IGY Series A Preferred Convertible Shares to IGY Class A Shares, the IGY Series A Preferred Convertible Shares will be eligible for a non-participating liquidation preference whereby the holders of the IGY Series A Preferred Convertible Shares will receive an amount equal to their initial investment plus any accrued dividends with the balance of the Liquidity Event proceeds allocated on a pro-rata basis to the holders of the IGY Class A Shares and IGY Class B Shares. At December 31, 2021, 5,684,930 Series A Preferred shares were outstanding and cumulative accrued dividends were $2,301,432.
During 2021, Island Global Yachting Directives VII LLC, as general partner for IGY7, closed a round of equity financing with $41,067,338 of capital commitments. $27,000,000 of capital was called and received by the Company during 2021 and IGY7 was issued 2,160,000 Series A-2 Preferred Shares (non-voting shares). The Series A-2 Preferred Shares carry an 8% cumulative and compounded preferred dividend. At Island Global Yachting Directives VII LLC’s sole discretion, some or all of the Series A-2 Preferred Shares may be converted into Class A Shares (voting) at a specified conversion price. In the event of a liquidity event, prior to any conversion of the IGY Series A-2 Preferred Convertible Shares to IGY Class A Shares, the IGY Series A-2 Preferred Convertible Shares will be eligible for a non-participating liquidation preference whereby the holders of the IGY Series A-2 Preferred Convertible Shares will receive an amount equal to their initial investment plus any accrued dividends with the balance of the Liquidity Event proceeds allocated on a pro-rata basis to the holders of the IGY Class A Shares and IGY Class B Shares. At December 31, 2021, 2,160,000 Series A-2 Preferred shares were outstanding and cumulative accrued dividends were $508,932.
Note 15. Acquisitions
AYH – In August 2021, the Company purchased the outstanding 50% membership interests in IGY-AYH St. Thomas Holdings LLC (“AYH”) for $4,600,000. As AYH was previously consolidated in the company’s results, this transaction was recorded as an adjustment to members’ equity and noncontrolling interests in the consolidated statement of members’ equity.
Fairport – In September 2021, the Company acquired 80% of the membership interests in Fairport Yacht Support LLC (“Fairport”). The fair value of the consideration transferred for this acquisition was $5,629,790, of which $5,100,000 was paid with cash at closing, $29,790 was paid with respect to working capital true ups as outlined in the purchase agreement and the remainder is payable in cash based on fixed terms outlined in the purchase agreement. Under the terms of the agreement, the Company acquired 80% of the ownership interests in Fairport at closing and the remainder of the interests are recorded as a non-controlling interest in the accompanying consolidated balance sheet and statement of operations.
35
Island Global Yachting LLC and Subsidiaries
Notes to Consolidated Financial Statements
Note 15. Acquisitions (continued)
The fair value of the consideration paid for this acquisition was allocated to the assets acquired and liabilities assumed, based on the estimated fair values at the acquisition date, with the excess recorded as goodwill, and is included in the table below:
| Assets Acquired: |
||||
| Current assets |
$ | 71,244 | ||
| Property and equipment |
25,000 | |||
|
|
|
|||
| Total assets acquired excluding goodwill |
96,244 | |||
|
|
|
|||
| Liabilities Assumed: |
||||
| Current liabilities |
26,830 | |||
|
|
|
|||
| Total liabilities assumed |
26,830 | |||
|
|
|
|||
| Fair value of net assets acquired excluding goodwill |
69,414 | |||
| Goodwill |
6,967,824 | |||
|
|
|
|||
| Fair value of acquisition |
7,037,238 | |||
| Less noncontrolling interest |
(1,407,448 | ) | ||
|
|
|
|||
| Total Consideration |
$ | 5,629,790 | ||
|
|
|
|||
| Deferred consideration |
(500,000 | ) | ||
| Working capital true-up |
(29,790 | ) | ||
|
|
|
|||
| Cash at closing |
$ | 5,100,000 | ||
|
|
|
Portisco Marina – In October 2021, the Company acquired 100% of the equity in Marina di Portisco S.P.A (“Portisco”). The fair value of the consideration transferred for this acquisition was €20,300,000, approximately $23,470,486, of which €20,300,000 was paid with cash at closing. Under the terms of the agreement, the Company’s 90% owned subsidiary Portisco Holding SRL, acquired 100% of the ownership interests in Portisco at closing. The Company effectively owns 90% of Portisco, has control and effective upon closing, consolidates the facility.
36
Island Global Yachting LLC and Subsidiaries
Notes to Consolidated Financial Statements
Note 15. Acquisitions (continued)
The fair value of the consideration, expressed in United States Dollars, paid for this acquisition was allocated to the assets acquired and liabilities assumed, based on the estimated fair values at the acquisition date, with the excess recorded as goodwill, and is included in the table below:
| Assets Acquired: |
||||
| Current assets |
$ | 2,246,135 | ||
| Property and equipment |
27,827,706 | |||
| Other assets |
384,356 | |||
|
|
|
|||
| Total assets acquired excluding goodwill |
30,458,197 | |||
|
|
|
|||
| Liabilities Assumed: |
||||
| Current liabilities |
6,987,711 | |||
|
|
|
|||
| Total liabilities assumed |
6,987,711 | |||
|
|
|
|||
| Fair value of net assets acquired and total consideration |
$ | 23,470,486 | ||
|
|
|
Pursuant to ASC 805, Business Combinations, all acquisitions have been accounted for using the acquisition method of accounting, and accordingly, the purchase price was allocated to assets acquired and liabilities assumed based on their estimated fair values on the acquisition date. For Fairport, the excess of the purchase price over the fair value of the net tangible assets and identified intangible assets was recorded as goodwill. For Portisco Marina, the values of the long term assets were adjusted proportionately in order for the fair value of the net tangible assets to agree to the purchase price, and no goodwill was recorded. During the preliminary purchase price measurement period, which may be up to one year from the business combination date, the Company may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. After the preliminary purchase price measurement period, the Company will record adjustments to assets acquired or liabilities assumed subsequent to the purchase price measurement period in operating expenses in the period in which the adjustments were determined. The Company’s outside valuation experts used various appropriate methods to value the Company’s assets. Methods used included the income approach, the market approach and the cost approach. The income approach is used to estimate value based on the present value of future economic benefits expected to be produced by an asset or business entity. The market approach is used to estimate the value through analysis of recent sales of comparable assets or business entities. The cost approach provides a systematic framework for estimating the value of tangible or intangible assets based on the economic principle of substitution: no prudent investor will purchase an existing asset for more than it will cost to create a comparable asset.
Note 16. Disposition
In August 2021, the Company sold 100% of the equity of Applied Technology and Management Inc. (“ATM”) for $7,000,000. Cash received at closing was $6,250,000 and the remainder is subject to a hold back period of one year. In November 2021, the Company received $268,297 as an adjustment to purchase price in accordance with the terms of the sale agreement. The Company recorded a gain on disposition of $5,066,109 in the consolidated statement of operations for the year ended December 31, 2021.
37
Island Global Yachting LLC and Subsidiaries
Notes to Consolidated Financial Statements
Note 16. Disposition (continued)
The Company presented ATM activity for the year ended December 31, 2021 within discontinued operations, net of tax on the consolidated statements of operations. Additionally, the Company reclassified amounts related to ATM for the year ended December 31, 2020 to conform to the 2021 presentation. Summarized activity for ATM for the years ended December 31, 2021 and 2020 are presented below. Included engineering revenues were recognized over time and are excluded from Note 2.
| 2021 | 2020 | |||||||
| Revenues: |
||||||||
| Engineering revenues |
$ | 6,158,229 | $ | 10,913,806 | ||||
|
|
|
|
|
|||||
| Direct costs: |
||||||||
| Engineering direct costs |
2,510,168 | 4,731,669 | ||||||
|
|
|
|
|
|||||
| Gross profit |
3,648,061 | 6,182,137 | ||||||
| General and administrative expenses |
||||||||
| General and administrative expenses |
3,524,837 | 4,957,329 | ||||||
|
|
|
|
|
|||||
| Operating income |
123,224 | 1,224,808 | ||||||
|
|
|
|
|
|||||
| Non-operating expense |
3,615 | 8,387 | ||||||
|
|
|
|
|
|||||
| Income before income taxes |
119,609 | 1,216,421 | ||||||
|
|
|
|
|
|||||
| Income tax (benefit) expense |
(58,436 | ) | 154,581 | |||||
|
|
|
|
|
|||||
| Net income |
$ | 178,045 | $ | 1,061,840 | ||||
|
|
|
|
|
|||||
Note 17. Subsequent Events
The Company has evaluated all events subsequent to the consolidated balance sheet date of December 31, 2021, through the date these consolidated financial statements were available to be issued, September 27, 2022.
On March 9, 2022, Yacht Haven Grande entered into a loan modification agreement with respect to the notes payable to a private lender to extend the maturity date to July 1, 2022.
On March 31, 2022, Island Gardens distributed $2,500,000 to its members, of which the Company received is pro rata share.
The Cabo Marina concession contract, which allows the Company to operate and manage the marina, will expire in 2022. Management is in the process of negotiating the extension of the concession and believes that it will be able to extend it.
38
Island Global Yachting LLC and Subsidiaries
Notes to Consolidated Financial Statements
Note 17. Subsequent Events (continued)
In March 2020, COVID-19 was recognized as a pandemic by the World Health Organization. The Company’s 2021 year end was subsequent to the initial impact of the pandemic, which continues to disrupt global markets. Since the Company’s 2021 year end, a conflict between Russia and Ukraine has further destabilized markets and routine supply-chain productions. As a result of the pandemic and the Russian-Ukraine conflict, the Company may be impacted by significant volatility in markets, interest rates, and rising inflation. Sufficient information is not available to adequately evaluate the short-term or long-term impact to the Company subsequent to year end; however, these continuing conditions may adversely impact the Company’s business operations and future financial condition. Management believes the Company is taking appropriate actions to mitigate the negative impact of these continuing conditions.
On August 8, 2022, the Company executed the following restructuring: First, the Company issued a Series B Perpetual Preferred Unit with an initial face amount of $10,000 to Island Marinas Subsidiary Corp., a Delaware corporation, in exchange for a promissory note of $10,000 issued by Island Marinas Subsidiary Corp. Second, each holder of each class of Company units (including Class A Shares, Class B Shares, Series A Preferred shares, Series A-2 Preferred Shares and Series A Preferred Convertible shares) other than Island Marinas Subsidiary Corp. contributed its Company units to Island Marina Holdings LLC, a Delaware limited liability company, in exchange for identical units of Island Marina Holdings LLC (such units bearing the same rights as such holder’s contributed units). Third, the Company exchanged the Company units contributed to Island Marina Holdings LLC for a single Class A unit of the Company. After such restructuring, and as of the date hereof, the outstanding ownership interests of the Company consist of a Class A unit held by Island Marina Holdings LLC and a Series B Perpetual Preferred unit held by Island Marinas Subsidiary Corp.
Also on August 8, 2022, Island Marina Holdings LLC and Island Marinas Subsidiary Corp. (as well as certain Subsidiaries with respect to single assets held by such Subsidiaries) entered into a Securities Purchase Agreement with MarineMax East, Inc., a Delaware corporation, (as well as MarineMax, Inc., a Florida corporation, as guarantor) to sell their interests in the Company to MarineMax East, Inc. The sale is expected to close once certain conditions provided in the Securities Purchase Agreement are satisfied and in no event will take place prior to October 1, 2022.
39
Exhibit 99.2
Island Gardens Deep Harbour, LLC
Financial Statements
for the years ended December 31, 2021 and 2020
(With Independent Auditor’s Report Thereon)
Island Gardens Deep Harbour, LLC
Contents
| Independent Auditors’ Report |
1-3 | |||
| Financial Statements |
||||
| Balance Sheets |
4 | |||
| Statements of Operations |
5 | |||
| Statements of Changes in Members’ Equity (Deficiency) |
6 | |||
| Statements of Cash Flows |
7-8 | |||
| Notes to Financial Statements |
9-17 | |||
| Supplemental Schedule – Statement of Revenues and Expenses |
18 | |||
2
To the Members
Island Gardens Deep Harbour, LLC
Miami, Florida
Opinion
We have audited the accompanying financial statements of Island Gardens Deep Harbour, LLC (the “Company”), which comprise the balance sheet as of December 31, 2021, and the related statements of operations, members’ equity (deficiency), and cash flows for the years then ended, and the related notes to the financial statements.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2021, and the results of its operations and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.
Basis for Opinion
We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of the company and to meet our other ethical responsibilities in accordance with the relevant ethical requirements relating to our audits. We believe the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Prior Period Financial Statements
The financial statements of the Company as of December 31, 2020 were audited by other auditors whose report dated April 27, 2021 expressed an unmodified opinion on those 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 States of America, and for 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.
In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are available to be issued.
107 Edgebrook Drive (29621) | Post Office Box 102 (29622) | Anderson, South Carolina | (864) 226-0306
862-C South Pleasantburg Drive (29607) | Post Office Box 8895 (29604) | Greenville, South Carolina | (864) 233-8400
suggsjohnson.com
Auditors’ Responsibility for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with generally accepted auditing standards will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements.
In performing an audit in accordance with generally accepted auditing standards, we:
| • | Exercise professional judgment and maintain professional skepticism throughout the audit. |
| • | Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. |
| • | Obtain an understanding of internal control relevant to the audit 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 Company’s internal control. Accordingly, no such opinion is expressed. |
| • | Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements. |
| • | Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for a reasonable period of time. |
We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control related matters that we identified during the audit.
Report on Supplementary Information
Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The statement of revenues and expenses, which is the responsibility of management, is presented for purposes of additional analysis and is not a required part of the financial statements. Such information, except for that portion marked “unaudited,” was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. That information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the 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, that information is fairly stated in all material respects in relation to the financial statements as a whole. The information marked “unaudited” has not been subjected to the auditing procedures applied in the audit of the financial statements and, accordingly, we do not express an opinion or provide any assurance on it.
2
Anderson, South Carolina
March 29, 2022, except for Note 8
which is dated November 1, 2022
3
Financial Statements
Island Gardens Deep Harbour, LLC
Balance Sheets
As of December 31,
| 2021 | 2020 | |||||||
| Assets |
||||||||
| Current assets: |
||||||||
| Cash and equivalents |
$ | 4,141,636 | $ | 2,845,495 | ||||
| Restricted cash |
— | 1,000,000 | ||||||
| Accounts receivable, net of allowance for doubtful accounts of $791 and $0, respectively |
284,880 | 124,432 | ||||||
| Due from related parties |
19,984 | — | ||||||
| Prepaid expenses |
342,075 | 321,545 | ||||||
|
|
|
|
|
|||||
| Total current assets |
4,788,575 | 4,291,472 | ||||||
| Property and equipment, net |
34,427,091 | 34,870,621 | ||||||
| Other assets |
258,222 | 206,076 | ||||||
|
|
|
|
|
|||||
| Total assets |
$ | 39,473,888 | $ | 39,368,169 | ||||
|
|
|
|
|
|||||
| Liabilities and members’ deficiency |
||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 151,307 | $ | 490,149 | ||||
| Accrued expenses and other current liabilities |
402,093 | 264,391 | ||||||
| Contract liabilities |
1,961,547 | 821,879 | ||||||
| Due to members |
79,661 | 22,200 | ||||||
| Current maturities of notes payable |
157,477 | 1,850,000 | ||||||
|
|
|
|
|
|||||
| Total current liabilities |
2,752,085 | 3,448,619 | ||||||
| Note payable less current maturities |
||||||||
| Principal amount |
29,842,523 | 12,920,913 | ||||||
| Less unamortized deferred financing costs |
(690,886 | ) | — | |||||
|
|
|
|
|
|||||
| Notes payable less unamortized deferred financing costs |
29,151,637 | 12,920,913 | ||||||
| Deferred rent obligation |
645,470 | 596,237 | ||||||
|
|
|
|
|
|||||
| Total liabilities |
32,549,192 | 16,965,769 | ||||||
| Members’ equity |
6,924,696 | 22,402,400 | ||||||
|
|
|
|
|
|||||
| Total liabilities and members’ equity |
$ | 39,473,888 | $ | 39,368,169 | ||||
|
|
|
|
|
|||||
The accompanying notes are an integral part of these financial statements.
4
Island Gardens Deep Harbour, LLC
Statements of Operations
for the years ended December 31,
| 2021 | 2020 | |||||||
| Revenues: |
||||||||
| Revenues |
$ | 9,126,061 | $ | 6,011,743 | ||||
|
|
|
|
|
|||||
| Costs and expenses: |
||||||||
| Direct costs |
657,570 | 494,336 | ||||||
| Operating expenses |
3,408,265 | 3,196,074 | ||||||
| Depreciation and amortization |
1,922,358 | 1,975,771 | ||||||
| Gain on sale of assets |
(551 | ) | — | |||||
|
|
|
|
|
|||||
| Total costs and expenses |
5,987,642 | 5,666,181 | ||||||
|
|
|
|
|
|||||
| Net operating income |
3,138,419 | 345,562 | ||||||
|
|
|
|
|
|||||
| Other (income) expenses: |
||||||||
| Interest expense |
1,616,123 | 1,073,727 | ||||||
| Other income |
— | (234,334 | ) | |||||
|
|
|
|
|
|||||
| Total other (income) expenses |
1,616,123 | 839,393 | ||||||
|
|
|
|
|
|||||
| Net income |
$ | 1,522,296 | $ | (493,831 | ) | |||
|
|
|
|
|
|||||
The accompanying notes are an integral part of these financial statements.
5
Island Gardens Deep Harbour, LLC
Statements of Changes in Members’ Equity (Deficiency)
| Balance at December 31, 2019 |
$ | (12,981,279 | ) | |
| Net loss |
(493,831 | ) | ||
| Conversion of amounts due to member to equity |
34,313,460 | |||
| Contributions |
3,235,243 | |||
| Distributions |
(1,671,193 | ) | ||
|
|
|
|||
| Balance at December 31, 2020 |
22,402,400 | |||
| Net Income |
1,522,296 | |||
| Distributions |
(17,000,000 | ) | ||
|
|
|
|||
| Balance at December 31, 2021 |
$ | 6,924,696 | ||
|
|
|
The accompanying notes are an integral part of these financial statements.
6
Island Gardens Deep Harbour, LLC
Statements of Cash Flows
For the years ended December 31,
| 2021 | 2020 | |||||||
| Cash flows from operating activities: |
||||||||
| Net income (loss) |
$ | 1,522,296 | $ | (493,831 | ) | |||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
||||||||
| Depreciation and amortization expense |
1,922,358 | 1,975,771 | ||||||
| Amortization of deferred financing costs |
121,720 | — | ||||||
| Gain on asset sale |
(551 | ) | — | |||||
| Deferred rent obligation |
49,233 | 34,966 | ||||||
| Bad debt expense |
791 | 49,283 | ||||||
| Changes in operating assets and liabilities: |
||||||||
| Accounts receivable |
(161,239 | ) | (8,000 | ) | ||||
| Due from related parties |
(19,984 | ) | — | |||||
| Prepaid expenses |
(20,530 | ) | (33,605 | ) | ||||
| Other assets |
(52,146 | ) | (163,938 | ) | ||||
| Accounts payable |
(338,842 | ) | 345,337 | |||||
| Accrued expenses and other liabilities |
137,702 | 102,422 | ||||||
| Contract liabilities |
1,139,668 | (239,729 | ) | |||||
| Due to members |
57,461 | 22,200 | ||||||
|
|
|
|
|
|||||
| Net cash provided by operating activities |
4,357,937 | 1,590,876 | ||||||
|
|
|
|
|
|||||
| Cash flows from investing activities: |
||||||||
| Purchases of property and equipment |
(1,483,484 | ) | (199,397 | ) | ||||
| Proceeds from sale of property and equipment |
5,207 | — | ||||||
|
|
|
|
|
|||||
| Net cash used in investing activities |
(1,478,277 | ) | (199,397 | ) | ||||
|
|
|
|
|
|||||
| Cash flows used in financing activities: |
||||||||
| Distributions |
(17,000,000 | ) | — | |||||
| Proceeds from issuance of note payable |
30,000,000 | — | ||||||
| Repayments of short-term debt |
— | (119,930 | ) | |||||
| Advances from member |
— | 15,058 | ||||||
| Contributions from members |
— | 3,235,243 | ||||||
| Payment of deferred financing costs |
(812,606 | ) | — | |||||
| Principal payments on note payable |
(14,770,913 | ) | (1,550,000 | ) | ||||
|
|
|
|
|
|||||
| Net cash (used in) provided by financing activities |
(2,583,519 | ) | 1,580,371 | |||||
|
|
|
|
|
|||||
| Net increase in cash and equivalents |
296,141 | 2,971,850 | ||||||
| Cash and equivalents and restricted cash at beginning of year |
3,845,495 | 873,645 | ||||||
|
|
|
|
|
|||||
| Cash and equivalents and restricted cash at end of year |
$ | 4,141,636 | $ | 3,845,495 | ||||
|
|
|
|
|
|||||
| Supplemental disclosure of cash flow information: |
||||||||
| Cash paid for interest |
$ | 1,371,695 | $ | 1,612,151 | ||||
|
|
|
|
|
|||||
| Distribution to member of property and equipment |
$ | — | $ | 1,671,193 | ||||
|
|
|
|
|
|||||
| Conversion of amounts due to member to equity |
$ | — | $ | 34,313,460 | ||||
|
|
|
|
|
|||||
The accompanying notes are an integral part of these financial statements.
7
Island Gardens Deep Harbour, LLC
Statements of Cash Flows (continued)
For the years ended December 31,
| 2021 | 2020 | |||||||
| Reconciliation of cash and equivalents and restricted cash reflected in the consolidated statements of cash flows to the consolidated balance sheets: |
||||||||
| Cash and cash equivalents per the balance sheet |
$ | 4,141,636 | $ | 2,845,495 | ||||
| Restricted cash per the consolidated balance sheets |
— | 1,000,000 | ||||||
|
|
|
|
|
|||||
| Total cash, cash equivalents, and restricted cash per the consolidated statements of cash flows |
$ | 4,141,636 | $ | 3,845,495 | ||||
|
|
|
|
|
|||||
The accompanying notes are an integral part of these financial statements.
8
Island Gardens Deep Harbour, LLC
Notes to Financial Statements
| 1. | General |
Nature of Operations
Island Gardens Deep Harbour, LLC (the “Company”) is a Delaware Limited Liability Company organized in August 2014. As of the date of these financial statements, the Company has two members. IG Holdings LLC (“IGH” and the “Majority Member”), a Delaware Limited Liability Company, has an 80% membership interest. Flagstone Island Gardens, LLC (the “Minority Member”), a Delaware Limited Liability Company with the ultimate parent being Flagstone Property Group, LLC (collectively, known as “Flagstone Group”) has a 20% membership interest.
The Company’s main business is the operation of a mega-yacht marina on Watson Island in Miami, Florida. The Company entered into component ground leases (the “Agreement”) with the City of Miami on January 1, 2003, amended on February 1, 2010. On April 13, 2020, the original lease was replaced with a new lease that has an initial term of 45 years and two 15-year options to extend, from the time of delivery of the ground leases.
| 2. | Summary of Significant Accounting Policies |
Use of Estimates
Preparing the Company’s financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and assumptions.
Concentrations of Credit Risk
The Company recognizes all revenues driven from the Agreement. The loss of this Agreement would have a material adverse effect on the Company’s ability to continue as a going concern. The Company’s revenues are primarily earned during the seasonal months of the yacht business, which for South Florida, is typically in October through March of any given year.
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash, restricted cash and accounts receivable. The Company maintains its cash in bank deposit accounts which, at times, may exceed insured limits. US Accounts are guaranteed by the Federal Deposit Insurance Corporation (“FDIC”) up to certain limits. For the years ended December 31, 2021 and 2020, the Company had $3,891,636 and $3,595,495, respectively, in excess of insured limits. Additionally, the $1,000,000 in restricted cash which was on deposit with the former lending institution of the Company’s previous Notes Payable has been released. The Company has not experienced any losses in such accounts. See Note 5 for further details on the Company’s long-term debt.
At December 31, 2021, one customer accounted for more than ten percent of the Company’s accounts receivable and sixteen percent of total accounts receivable in aggregate. At December 31, 2020, five customers, each of whom accounted for more than ten percent of the Company’s accounts receivable and eighty-nine percent of total accounts receivable in aggregate. The Company controls credit risk through credit approvals, credit limits, and monitoring procedures. The Company typically obtains from its customers a security deposit for all non-transient vessels amounting to one month dockage fee as well as last month’s rent as prepayment.
9
Island Gardens Deep Harbour, LLC
Notes to Financial Statements
Property and Equipment net
In accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 360, Property, Plant, and Equipment, property and equipment are recorded at cost. Depreciation is provided over the estimated useful lives of the related assets using the straight-line method for financial statement purposes. Amortization of leasehold improvements is computed using the straight-line method over the shorter of the remaining lease term or the estimated useful lives of the improvements. The estimated service lives of property and equipment are principally as follows in 2021:
| Marina structure and equipment |
15 years | |||
| Furniture, fixtures and vehicles |
5 years | |||
| Leasehold improvements |
Shorter of life or term of lease | |||
| Office equipment |
3-5 years |
Repairs and maintenance are expensed as incurred. Expenditures that increase the value or productive capacity of assets are capitalized. When property and equipment are retired, sold, or otherwise disposed of, the asset’s carrying amount and related accumulated depreciation are removed from the accounts and any gain or loss is included in operations.
Impairment of Long-Lived Assets
In accordance with ASC 360, Property, Plant and Equipment, the Company reviews the carrying value of property and equipment for impairment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. In cases where undiscounted expected future cash flows are less than the carrying value, an impairment loss is recognized equal to an amount by which the carrying value exceeds the fair value of assets. The factors considered by management in performing this assessment include current operating results, trends, and prospects, as well as the effects of obsolescence, demand, competition, and other economic factors. The Company did not recognize an impairment charge during the year ended December 31, 2021 or 2020.
Revenue Recognition
In accordance with ASC 606, Revenue from Contracts with Customers, the Company recognizes revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration the company expects to be entitled to in exchange for goods or services provided. Revenues primarily consist of slip rentals, utility sales, and other ancillary goods and services related to the marina. Performance obligations include making the slips available and providing utilities, goods and services. Revenue for slip rentals is recognized over time as the slip is occupied as the customer continually receives the benefit of the Company’s services. The Company’s revenues for utilities, goods, and services are recognized at a point in time when these services or goods have been delivered or rendered. Payment terms typically align with when the goods and services are provided and do not represent a significant financing component. At year-end, for billings that are made in advance and non-cancellable deposits for slip rentals, any amounts that have been billed or collected for which the slip has not yet been occupied, are recorded as deferred revenue or customer deposits (both contract liabilities) until the slip has been occupied and such revenue has been earned.
10
Island Gardens Deep Harbour, LLC
Notes to Financial Statements
Several factors are considered in determining that control transfers to the customer upon use of slips at the marina, or when fuel, utilities, goods, and other ancillary goods and services are provided to the customer. These factors include a present right to payment and that the customer has assumed the risks and rewards of ownership at the time the slip, goods, or services are provided.
Accounts Receivable, net and Allowance for Doubtful Accounts
In accordance with ASC 310, Receivables, accounts receivable are stated at the amount the Company expects to collect. The Company maintains allowances for credit losses for estimated losses resulting from the inability of its customers to make required payments. Management considers the following factors when determining the collectability of specific customer accounts: customer creditworthiness, past transaction history with the customer, current economic industry trends, and changes in customer payment terms. Past due balances over 90 days and other higher risk amounts are reviewed individually for collectability. If the financial condition of the Company’s customers were to deteriorate, adversely affecting their ability to make payments, additional allowances would be required. Based on management’s assessment, the Company provides for estimated uncollectible amounts through a charge to operations and a credit to the allowance for doubtful accounts. Balances that remain outstanding after the Company has used reasonable collection efforts are written off through a charge to the allowance for doubtful accounts and a credit to accounts receivable. As of December 31, 2021 and 2020, management recorded an allowance for doubtful accounts of $791 and $0, respectively.
Sales Taxes
The Company presents taxes collected from customers and remitted to governmental authorities on a net basis, and therefore they are excluded from revenues in the financial statements.
Advertising Costs
Advertising costs are expensed as incurred. Advertising expense totaled approximately $27,000 and $18,000 for the years ended December 31, 2021 and 202020, respectively.
Direct Costs
Direct costs for the years ended December 31, 2021 and 2020, primarily consist of utility costs.
Income Taxes
As a limited liability company, the Company is not a taxpaying entity for federal income tax purposes. In accordance with ASC 740, Accounting for Income Taxes, the Company’s taxable income or loss is allocated to its members. Therefore, no provision or liability for income taxes has been included in the accompanying financial statements.
11
Island Gardens Deep Harbour, LLC
Notes to Financial Statements
Loss Contingencies
Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company, but which will only be resolved when one or more future events occur or fail to occur. The Company’s management and its legal counsel assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability cannot be estimated, then the nature of the contingent liability together with an estimate of the range of possible loss if determinable and material, would be disclosed. Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the nature of the guarantee would be disclosed.
Recently Issued Accounting Pronouncements Not Yet Adopted
On February 25, 2016, FASB issued Accounting Standards Update (ASU) No. 2016-02, Leases, (Topic 842), which amends existing lease guidance. The update requires lessees to recognize a right-of-use asset and related lease liability for many operating leases now currently off-balance sheet under current U.S. GAAP. Also, the FASB has issued amendments to the update with practical expedients related to land easements and lessor accounting. The Company is currently evaluating the effect the update will have on its financial statements.
The update originally required transition to the new lease guidance using a modified retrospective approach which would reflect the application of the update as of the beginning of the earliest comparative period presented. A subsequent amendment to the update provides an optional transition method that allows entities to initially apply the new lease guidance with a cumulative-effect adjustment to the opening balance of equity in the period of adoption. The Company is evaluating the method of adoption it will elect. The update is effective for fiscal years beginning after December 15, 2021, with early application permitted.
Reclassifications and Revisions to Prior Year Financial Statements
The Company had previously reported revenue recognized from slip rentals as revenue recognized at a point in time. During the year ended December 31, 2021, the Company determined that the proper presentation for such revenue streams was for the revenue to be classified as earned over time. There was no effect to the amounts reported for the year ended December 31, 2020 for this change. The Company also segregated direct costs from operating expenses reported for the year ended December 31, 2020 to conform to the presentation of the financial statements for the year ended December 31, 2021.
12
Island Gardens Deep Harbour, LLC
Notes to Financial Statements
| 3. | Revenue and Contract Assets and Liabilities |
The following table shows the Company’s revenue disaggregated between revenue from contracts with customers and other revenue:
| Year ended December 31, | 2021 | 2020 | ||||||
| Revenue from contracts with customers |
$ | 9,126,061 | $ | 6,011,743 | ||||
|
|
|
|
|
|||||
| Total revenue |
$ | 9,126,061 | $ | 6,011,743 | ||||
|
|
|
|
|
|||||
The following table shows the Company’s revenues from contracts with customers, disaggregated according to the timing of transfer of goods or services:
| Year ended December 31, | 2021 | 2020 | ||||||
| Revenue recognized at a point in time |
$ | 1,522,269 | $ | 926,663 | ||||
| Recognized over time |
7,603,792 | 5,085,080 | ||||||
|
|
|
|
|
|||||
| Total revenue from contracts with customers |
$ | 9,126,061 | $ | 6,011,743 | ||||
|
|
|
|
|
|||||
As of December 31, 2021 and 2020, the Company did not have any contract assets. Contract liabilities arising from contracts with customers consist of the following:
| Year ended December 31, | 2021 | 2020 | ||||||
| Customer deposits |
$ | 1,857,346 | $ | 539,433 | ||||
| Deferred revenue |
104,201 | 282,446 | ||||||
|
|
|
|
|
|||||
| Total contract liabilities |
$ | 1,961,547 | $ | 821,879 | ||||
|
|
|
|
|
|||||
| 4. | Property and Equipment |
The following is a summary of property and equipment, at cost less accumulated depreciation and amortization, at December 31, 2021 and 2020:
| 2021 | 2020 | |||||||
| Marina structure and equipment |
$ | 44,236,640 | $ | 44,236,640 | ||||
| Leasehold improvements |
65,367 | 55,117 | ||||||
| Other property and equipment |
1,784,805 | 328,812 | ||||||
|
|
|
|
|
|||||
| Total property and equipment |
46,086,812 | 44,620,569 | ||||||
| Less: accumulated depreciation |
(11,659,721 | ) | (9,749,948 | ) | ||||
|
|
|
|
|
|||||
| Property and equipment, net |
$ | 34,427,091 | $ | 34,870,621 | ||||
|
|
|
|
|
|||||
Depreciation of property and equipment amounted to $1,922,358 and $1,975,771 for 2021 and 2020, respectively. Other property and equipment includes $1,471,346 of construction in progress at December 31, 2021.
13
Island Gardens Deep Harbour, LLC
Notes to Financial Statements
| 5. | Long-Term Debt |
In March 2021, the Company extinguished the existing long-term debt through the issuance of a promissory note with a new lender. The 2021 loan agreement for $30,000,000 is secured by substantially all the assets of the Company and accrues interest at 4.75% per annum until maturity in March 2026. Monthly payments consist of interest only for 18 months through September 2022. Monthly payments subsequent to September 2022 through maturity consist of interest plus principal based on a 300-month amortization schedule. The balance of the note is due upon maturity. Deferred financing costs paid as a part of this transaction were $812,606. During the year ended December 31, 2021, the Company amortized $121,720 of such costs, which resulted in a remaining deferred financing cost balance of $690,886 at December 31, 2021. Interest expense related to this was approximately $1,214,000 for the year ended December 31, 2021.
Prior to March 202,1 long-term debt consisted of a loan facility with a foreign bank with an outstanding balance of approximately $14,770,913 at December 31, 2020. The loan facility accrued interest semi-annually using a 6-month London Interbank Offered Rate (“LIBOR”) plus 5.75% and was collateralized by substantially all of the Company’s assets. Interest expense for this loan facility was approximately $402,000 and $1,074,000 for the years ended December 31, 2021 and 2020, respectively.
During 2020, the Company was required to deposit $1,000,000 into a bank account with the previous lender to guarantee payment of a principal payment due in January 2021. This depository account was included in Restricted Cash on the balance sheet at December 31, 2020.
Total interest expense for both loan facilities was approximately $1,616,000 and $1,074,000 for the years ended December 31, 2021 and 2020, respectively.
Future maturities of long-term debt are as follows as of December 31, 2021:
| Year Ending December 31, | ||||
| 2022 |
$ | 157,477 | ||
| 2023 |
648,909 | |||
| 2024 |
680,412 | |||
| 2025 |
713,445 | |||
| 2026 |
27,799,757 | |||
|
|
|
|||
| $30,000,000 | ||||
|
|
|
|||
| 6. | Related Party Transactions |
The following table details the amounts due to and from related parties at December 31, 2021 and 2020.
| 2021 | 2020 | |||||||
| Due from related parties: |
||||||||
| Due from One Island Park (shares common management) |
$ | 10,577 | $ | — | ||||
| Due from Flagstone Group |
9,407 | — | ||||||
|
|
|
|
|
|||||
| Total from related parties |
$ | 19,984 | $ | — | ||||
|
|
|
|
|
|||||
14
Island Gardens Deep Harbour, LLC
Notes to Financial Statements
| 2021 | 2020 | |||||||
| Due to related parties: |
||||||||
| Due to Flagstone Group |
$ | — | $ | 6,865 | ||||
| Due to Island Global Yachting LLC and affiliates |
79,661 | 15,335 | ||||||
|
|
|
|
|
|||||
| Total due to related parties |
$ | 79,661 | $ | 22,200 | ||||
|
|
|
|
|
|||||
Amounts due from One Island Park and Flagstone Group represent operational expenses paid by the Company on each entity’s behalf, such as payroll and security. Amounts due to Island Global Yachting LLC (“IGY”) and affiliates represents reimbursements of operational expenses paid on the Company’s behalf, such as payroll, and the balance of outstanding management fees. IGY is a member investor in IGH, the Majority Member. Amounts due to and from related parties will be settled during the normal course of business in the following year. Amounts due to related parties are presented as due to members in the balance sheets.
As of December 31, 2019, the Company owed approximately $34,298,000 to the Flagstone Group, whom at the time was the sole member, driven from advances to fund the operations of the Company since its inception. These amounts were included in long term liabilities Due to Member at December 31, 2019. During 2020, Flagstone Group exchanged $34,313,460 of such advances via a non-cash contribution to equity and is included in the Statement of Changes in Member’s Equity (Deficiency) for the year ended December 31, 2020. This exchange included the entire balance at December 31, 2019, plus additional net advances of $15,058 made in 2020.
Due to Flagstone Group represents amounts payable due to contractual arrangements primarily related to common area maintenance reimbursements.
The following table shows approximate amounts incurred with members and their affiliates for the years ended December 31, 2021 and 2020.
| Included in cost and expenses | 2021 | 2020 | ||||||
| Flagstone Group – Property Management Fee |
$ | — | $ | 113,000 | ||||
| Flagstone Group – Asset Management Fee |
— | 45,000 | ||||||
| Flagstone Group – Overhead reimbursement |
— | 301,000 | ||||||
| Flagstone Group – Common area maintenance |
75,000 | 17,466 | ||||||
| IGY and Affiliates – Management Fees |
439,496 | 156,000 | ||||||
| IGY and Affiliates – Personnel costs |
774,719 | 179,000 | ||||||
Flagstone Group Costs and Expenses
Prior to entering into the management contract with IGY as described below, the Company relied on Flagstone Group for certain administrative functions, and was allocated centralized corporate and land site infrastructure costs, which are included in overhead reimbursements in the table above. The majority of these costs are no longer chargeable to the Company. Additionally, the Company paid a property management fee and an asset management fee, both of which ceased upon engagement of the new manager.
IGY and Affiliates Costs and Expenses
During 2020, the Company entered into a management contract with IGY. As the manager, IGY employs all personnel for the facility and provides additional management services. In return, the Company pays a management fee as stipulated by contract to IGY. Additionally, as stipulated by the management contract, all direct personnel costs incurred by IGY are reimbursed by the Company.
15
Island Gardens Deep Harbour, LLC
Notes to Financial Statements
The management contract with IGY also stipulates a separate fee for construction and development management. During 2021, the Company incurred fees to IGY for managing construction related to a new fuel tank system. Fees of approximately $65,000 were paid during the year were capitalized into construction in process, included within property and equipment on the balance sheet at December 31, 2021.
| 7. | Commitments and Contingencies |
Ground Lease
The Company is obligated under a non-callable ground lease agreement with the City of Miami to pay rent in connection with the water rights at Watson Island. Prior to 2020 and for portions of 2020, the Company was charged an allocable portion of the master lease agreement for the lease on tangential property. In 2020, the previous master lease agreement with the Flagstone Group was replaced with a new lease that formally broke out the Company’s marina component of the ground lease. For the year ended December 31, 2020, minimum payments of the ground lease agreement amounted to approximately $55,000. Starting October 1, 2020, base rent increased to approximately $200,000 per year plus annual increases beginning in 2023 driven from the Consumer Price Index (“CPI”). Minimum increases under the lease are 1% with a maximum year over year increase of 5%. In addition to the minimum lease payments, a rental payment of 15% of the base rent is payable to the City of Miami for the State of Florida.
Commencing January 2019 and through September 2020, the Company was also required to pay a percentage rent, at 1% of gross revenues, as defined in the agreement. A rider amendment in 2020 discontinued these percentage rent payments until 2024. The Company incurred approximately $7,000 in percentage rent costs during the year ended December 31, 2020.
Future minimum payments to the City of Miami as allocated to the Company from the total ground lease agreement are estimated as follows as of December 31, 2021:
| Year Ending December 31, | Base Rent | 15% Payment to the State |
||||||
| 2022 |
$ | 200,000 | $ | 30,000 | ||||
| 2023 |
200,000 | 30,000 | ||||||
| 2024 |
200,500 | 30,075 | ||||||
| 2025 |
202,500 | 30,375 | ||||||
| 2026 |
204,530 | 30,679 | ||||||
| Thereafter |
9,718,263 | 1,457,739 | ||||||
|
|
|
|
|
|||||
| $ | 10,725,793 | $ | 1,608,868 | |||||
|
|
|
|
|
|||||
During the years ended December 31, 2021 and 2020, the Company recognized $278,318 and $334,000, respectively, of which $0 and $7,000, was paid as percentage rent based on sales volume, as rent expense. The total amount of rental payments due over the lease term is being charged to rent expense on the straight-line method over the term of the lease. The difference between rent expense recorded and the amount paid is credited to Deferred rent obligation. The deferred rent obligation amounted to $645,470 and $596,237 at December 31, 2021 and 2020, respectively.
16
Island Gardens Deep Harbour, LLC
Notes to Financial Statements
The Company is also required to fund the Civic Arts Trust Fund (the “Trust”). During each year of the initial lease term, the Company shall fund the Trust in amounts equal to the following percentages of the net operating income: (i) seven tenths percent (.7%) during each of the first fifteen years of the lease term; (ii) six tenths percent (.6%) during each of the second fifteen years of the lease term; and (iii) five tenths percent (.5%) during each of the third fifteen years of the lease term. As of December 31, 2021 and 2020, the Company had accrued approximately $94,036 and $58,096, respectively which is due to the Trust and included in “Accrued expenses and other current liabilities” in the accompanying balance sheet. No amounts have yet been paid as the Trust has not yet been established.
Litigation
Various legal claims also rise from time to time in the normal course of business which, in the opinion of management, will have no material effect on the Company’s financial statements.
| 8. | Subsequent Events |
The Company has evaluated subsequent events from the balance sheet date through November 1, 2022, the date the financial statements were available to be issued. Subsequent to year end, the Minority Member entered into a Membership Interest Purchase Agreement with IGY to sell its 20% membership interests in the Company. IGY’s acquisition of the Minority Member’s membership interests was completed on August 3, 2022 with customary assignment agreements completed on October 3, 2022. Separately, on October 1, 2022, an unrelated entity, MarineMax East, Inc., purchased 100% of the ownership interests in IGY. Facilitated by the acquisition of IGY, MarineMax East, Inc. concurrently purchased 100% of the ownership interests in the Company.
17
Supplemental Information
Island Gardens Deep Harbour, LLC
Supplemental Schedule
Statement of Revenues and Expenses
For the years ended December 31,
| 2021 | 2020 (Unaudited) |
|||||||
| Revenues: |
||||||||
| Marina slip |
$ | 7,603,792 | $ | 5,085,080 | ||||
| Fuel |
98,863 | 22,744 | ||||||
| Utilities |
883,931 | 625,411 | ||||||
| Concierge Services |
51,271 | — | ||||||
| Merchandise |
24,032 | — | ||||||
| Other |
464,172 | 278,508 | ||||||
|
|
|
|
|
|||||
| Total revenues |
9,126,061 | 6,011,743 | ||||||
|
|
|
|
|
|||||
| Costs and expenses: |
||||||||
| Personnel |
728,012 | 611,485 | ||||||
| Utilities |
770,569 | 622,911 | ||||||
| Management fee |
439,496 | 313,172 | ||||||
| Boat services and merchandise |
31,845 | 48,303 | ||||||
| Security |
140,837 | 276,115 | ||||||
| Non-income taxes |
124,906 | 246,010 | ||||||
| Insurance |
674,312 | 614,016 | ||||||
| Repairs and maintenance |
237,399 | 194,997 | ||||||
| Information technology |
46,090 | 42,309 | ||||||
| Professional fees |
350,499 | 169,636 | ||||||
| Rent |
278,318 | 333,480 | ||||||
| Credit card fees |
103,890 | 49,133 | ||||||
| Advertising and marketing |
27,345 | 18,140 | ||||||
| Supplies |
45,174 | 30,100 | ||||||
| Other |
67,143 | 34,007 | ||||||
| Allocated costs and expenses |
— | 86,596 | ||||||
| Depreciation and amortization |
1,922,358 | 1,975,771 | ||||||
| Gain on sale of fixed assets |
(551 | ) | — | |||||
|
|
|
|
|
|||||
| Total costs and expenses |
5,987,642 | 5,666,181 | ||||||
|
|
|
|
|
|||||
| Operating income |
3,138,419 | 345,562 | ||||||
|
|
|
|
|
|||||
| Other expenses (income): |
||||||||
| Interest expense |
1,616,123 | 1,073,727 | ||||||
| Other income |
— | (234,334 | ) | |||||
|
|
|
|
|
|||||
| Total other expense (income) |
1,616,123 | 839,393 | ||||||
|
|
|
|
|
|||||
| Net income (loss) |
$ | 1,522,296 | $ | (493,831 | ) | |||
|
|
|
|
|
|||||
See Independent Auditors’ Report
18
Exhibit 99.3
IGY Marinas
Combined Condensed Financial Statements of
Island Global Yachting LLC and Subsidiaries
and
Island Gardens Deep Harbour LLC
As of June 30, 2022 and December 31, 2021
and for the six months ended
June 30, 2022 and June 30, 2021
IGY Marinas
Island Global Yachting LLC and Island Gardens Deep Harbour LLC
Notes to Combined Condensed Financial Statements
(Unaudited)
Contents
| Page(s) | ||||
| Combined Condensed Financial Statements (Unaudited): |
||||
| Combined Condensed Balance Sheets |
3 | |||
| Combined Condensed Statements of Operations |
4 | |||
| Combined Condensed Statements of Comprehensive Income (Loss) |
5 | |||
| Combined Condensed Statements of Members’ Equity |
6 | |||
| Combined Condensed Statements of Cash Flows |
7 | |||
| Notes to Combined Condensed Financial Statements (Unaudited) |
8-19 | |||
IGY Marinas
Island Global Yachting LLC and Island Gardens Deep Harbour LLC
Combined Condensed Balance Sheets
(Amounts in thousands)
(Unaudited)
| June 30, 2022 | December 31, 2021 | |||||||
| Assets |
||||||||
| CURRENT ASSETS: |
||||||||
| Cash and cash equivalents |
$ | 29,584 | $ | 29,859 | ||||
| Accounts and notes receivable, net |
6,069 | 9,302 | ||||||
| Inventories |
1,069 | 659 | ||||||
| Prepaid expenses and other current assets |
2,717 | 2,557 | ||||||
|
|
|
|
|
|||||
| Total current assets |
39,439 | 42,377 | ||||||
| Equity method investments |
4,014 | 3,930 | ||||||
| Property, plant and equipment, net |
147,741 | 152,482 | ||||||
| Notes receivable - related party |
5,847 | — | ||||||
| Goodwill and other intangible assets, net |
19,699 | 20,058 | ||||||
| Other long-term assets |
2,114 | 2,370 | ||||||
|
|
|
|
|
|||||
| Total assets |
$ | 218,854 | $ | 221,217 | ||||
|
|
|
|
|
|||||
| Liabilities and Members’ Equity |
||||||||
| CURRENT LIABILITIES: |
||||||||
| Notes payable, current portion |
$ | 15,573 | $ | 15,026 | ||||
| Accounts payable |
3,415 | 4,426 | ||||||
| Contract liabilities |
8,467 | 9,590 | ||||||
| Accrued expenses and other current liabilities |
8,497 | 7,403 | ||||||
|
|
|
|
|
|||||
| Total current liabilities |
35,952 | 36,445 | ||||||
|
|
|
|
|
|||||
| Notes payable, net of current maturities and deferred financing costs |
66,617 | 67,423 | ||||||
| Deferred lease liabilities |
14,910 | 14,595 | ||||||
| Deferred tax liabilities, net |
13,180 | 14,317 | ||||||
| Other long-term liabilities |
4,439 | 3,431 | ||||||
|
|
|
|
|
|||||
| Total liabilities |
135,098 | 136,211 | ||||||
| MEMBERS’ EQUITY: |
||||||||
| Members’ equity |
80,010 | 80,559 | ||||||
| Accumulated other comprehensive loss |
(1,222 | ) | (557 | ) | ||||
| Noncontrolling interests in consolidated subsidiaries |
4,968 | 5,004 | ||||||
|
|
|
|
|
|||||
| Total members’ equity |
83,756 | 85,006 | ||||||
|
|
|
|
|
|||||
| Total liabilities and members’ equity |
$ | 218,854 | $ | 221,217 | ||||
|
|
|
|
|
|||||
The accompanying notes are an integral part of these Combined Condensed Financial Statements.
3
IGY Marinas
Island Global Yachting LLC and Island Gardens Deep Harbour LLC
Combined Condensed Statements of Operations
(Amounts in thousands)
(Unaudited)
| Six Months Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Revenue |
$ | 52,297 | $ | 36,090 | ||||
| Cost of sales, excluding depreciation and amortization expense |
17,003 | 11,313 | ||||||
|
|
|
|
|
|||||
| Gross profit |
35,294 | 24,777 | ||||||
| Selling, general and administrative expenses |
28,189 | 18,288 | ||||||
|
|
|
|
|
|||||
| Operating income |
7,105 | 6,489 | ||||||
| Other income (expense): |
||||||||
| Foreign exchange loss |
(2,467 | ) | (345 | ) | ||||
| Gain on extinguishment of debt |
— | 1,388 | ||||||
| Interest expense, net |
(2,842 | ) | (3,164 | ) | ||||
|
|
|
|
|
|||||
| income before income tax provision |
1,796 | 4,368 | ||||||
| Income tax (expense) benefit |
(202 | ) | 117 | |||||
|
|
|
|
|
|||||
| Net income from continuing operations |
1,594 | 4,485 | ||||||
|
|
|
|
|
|||||
| Net income from discontinued operations |
— | 512 | ||||||
|
|
|
|
|
|||||
| Net income |
1,594 | 4,997 | ||||||
| Net income attributable to noncontrolling interest |
131 | 294 | ||||||
|
|
|
|
|
|||||
| Net income attributable to IGY Marinas |
$ | 1,463 | $ | 4,703 | ||||
|
|
|
|
|
|||||
The accompanying notes are an integral part of these Combined Condensed Financial Statements.
4
IGY Marinas
Island Global Yachting LLC and Island Gardens Deep Harbour LLC
Combined Condensed Statements of Comprehensive Income (Loss)
(Amounts in thousands)
(Unaudited)
| Six Months Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Net income attributable to IGY Marinas |
$ | 1,463 | $ | 4,703 | ||||
| Other comprehensive (loss) income, net of tax: |
||||||||
| Foreign currency translation adjustments |
(665 | ) | 35 | |||||
|
|
|
|
|
|||||
| Other comprehensive (loss) income |
(665 | ) | 35 | |||||
|
|
|
|
|
|||||
| Comprehensive income attributable to IGY Marinas |
$ | 798 | $ | 4,738 | ||||
|
|
|
|
|
|||||
The accompanying notes are an integral part of these Combined Condensed Financial Statements.
5
IGY Marinas
Island Global Yachting LLC and Island Gardens Deep Harbour LLC
Combined Condensed Statements of Members’ Equity
(Amounts in thousands)
(Unaudited)
| Six Months Ended June 30, 2022 | ||||||||||||||||
| Members’ Equity |
Accumulated Other Comprehensive Loss |
Noncontrolling Interest |
Total | |||||||||||||
| Balance at December 31, 2021 |
$ | 80,559 | $ | (557 | ) | $ | 5,004 | $ | 85,006 | |||||||
| Currency translation adjustment |
— | (665 | ) | — | (665 | ) | ||||||||||
| Paid-in capital from stock options |
173 | — | — | 173 | ||||||||||||
| Distributions and dividends |
(2,185 | ) | — | (167 | ) | (2,352 | ) | |||||||||
| Net income |
1,463 | — | 131 | 1,594 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Balance at June 30, 2022 |
$ | 80,010 | $ | (1,222 | ) | $ | 4,968 | $ | 83,756 | |||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Six Months Ended June 30, 2021 | ||||||||||||||||
| Members’ Equity |
Accumulated Other Comprehensive Loss |
Noncontrolling Interest |
Total | |||||||||||||
| Balance at December 31, 2020 |
$ | 71,561 | $ | (86 | ) | $ | 3,892 | $ | 75,367 | |||||||
| Currency translation adjustment |
— | 35 | — | 35 | ||||||||||||
| Distributions and dividends |
(17,619 | ) | — | — | (17,619 | ) | ||||||||||
| Other activities of noncontrolling interests, net |
— | — | 1 | 1 | ||||||||||||
| Net income |
4,703 | — | 294 | 4,997 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Balance at June 30, 2021 |
$ | 58,645 | $ | (51 | ) | $ | 4,187 | $ | 62,781 | |||||||
|
|
|
|
|
|
|
|
|
|||||||||
The accompanying notes are an integral part of these Combined Condensed Financial Statements.
6
IGY Marinas
Island Global Yachting LLC and Island Gardens Deep Harbour LLC
Combined Condensed Statements of Cash Flows
(Amounts in thousands)
(Unaudited)
| Six Months Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Cash flows from operating activities: |
||||||||
| Net income |
$ | 1,594 | $ | 4,997 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Depreciation, amortization, and accretion expense |
4,526 | 3,952 | ||||||
| Provision for doubtful accounts |
327 | 17 | ||||||
| Amortization of deferred financing costs |
267 | 388 | ||||||
| Gain on disposal of property and equipment |
— | 34 | ||||||
| Share-based compensation |
173 | — | ||||||
| Equity method investment losses |
372 | 534 | ||||||
| Gain on extinguishment of debt |
— | (1,388 | ) | |||||
| Increase in deferred lease obligation |
370 | 457 | ||||||
| Deferred income tax benefit |
(1,237 | ) | (859 | ) | ||||
| Accrual of interest on notes payable to related party |
34 | — | ||||||
| Accrual of interest on notes receivable from related party |
(104 | ) | — | |||||
| Unrealized loss on foreign exchange |
2,034 | 57 | ||||||
| Changes in operating assets and liabilities: |
||||||||
| Accounts receivable |
2,695 | (715 | ) | |||||
| Other current assets |
(609 | ) | (305 | ) | ||||
| Customer liabilities |
221 | 417 | ||||||
| Other current liabilities |
740 | 1,128 | ||||||
| Other noncurrent assets and liabilities |
267 | 299 | ||||||
|
|
|
|
|
|||||
| Net cash provided by operating activities |
11,670 | 9,013 | ||||||
|
|
|
|
|
|||||
| Cash flows from investing activities: |
||||||||
| Purchase of property and equipment |
(1,685 | ) | (1,848 | ) | ||||
| Proceeds from sale of property and equipment |
— | 15 | ||||||
| Contributions to equity method investments |
(604 | ) | (671 | ) | ||||
| Distributions received from equity method investments |
148 | 76 | ||||||
| Issuance of notes receivable |
(6,163 | ) | — | |||||
|
|
|
|
|
|||||
| Net cash used in investing activities |
(8,304 | ) | (2,428 | ) | ||||
|
|
|
|
|
|||||
| Cash flows from financing activities: |
||||||||
| Principal payments on notes payable |
(721 | ) | (31,199 | ) | ||||
| Proceeds from notes payable |
— | 46,000 | ||||||
| Principal payments on notes payable to related party |
(98 | ) | — | |||||
| Payment of deferred financing costs |
— | (1,319 | ) | |||||
| Distribution to member |
(2,185 | ) | (15,718 | ) | ||||
| Distribution to non-controlling interest |
(167 | ) | — | |||||
|
|
|
|
|
|||||
| Net cash used in financing activities |
(3,171 | ) | (2,236 | ) | ||||
|
|
|
|
|
|||||
| Currency translation on cash balance |
(470 | ) | (10 | ) | ||||
|
|
|
|
|
|||||
| Net decrease in cash and cash equivalents |
(275 | ) | 4,339 | |||||
| Cash and cash equivalents, at beginning of period |
29,859 | 30,901 | ||||||
|
|
|
|
|
|||||
| Cash and cash equivalents, at end of period |
$ | 29,584 | $ | 35,240 | ||||
|
|
|
|
|
|||||
| Supplemental disclosure of cash flow information: |
||||||||
| Cash paid for interest |
2,638 | 2,761 | ||||||
| Cash paid for income taxes |
1,595 | 896 | ||||||
|
|
|
|
|
|||||
The accompanying notes are an integral part of these Combined Condensed Financial Statements.
7
IGY Marinas
Island Global Yachting LLC and Island Gardens Deep Harbour LLC
Notes to Combined Condensed Financial Statements
(Unaudited)
Note 1. Summary of Significant Accounting Policies
Description of Business and Organization
These Combined Condensed Financial Statements comprise the operations of Island Global Yachting LLC and subsidiaries (“IGY”) and Island Gardens Deep Harbour LLC (“IGDH”, and collectively with IGY, “IGY Marinas” or the “Company”). IGY and IGDH are related businesses that operate under common management.
IGY was registered as a Delaware LLC in August 2020. IGY was previously registered as Island Global Yachting Ltd., a Cayman Islands exempted company which was formed as a subsidiary of Island Global Yachting L.P. (“IGY1” or the “Parent”), a Delaware limited partnership, formerly a Cayman Islands exempted limited partnership, in October 2005. IGY was capitalized with additional equity from five partnerships: Island Global Yachting II L.P. (“IGY2”), a Delaware limited partnership, Island Global Yachting III L.P. (“IGY3”), a Delaware limited partnership, Island Global Yachting IV L.P. (“IGY4”), a Delaware limited partnership, formerly a Cayman Islands exempted limited partnership, Island Global Yachting VI L.P. (“IGY6”), a Delaware limited partnership and Island Global Yachting VII L.P. (“IGY7”), a Delaware limited partnership. Each of IGY2, IGY3, and IGY4 is a holder of Class B shares in IGY. IGY6 holds Series A Preferred Shares that are convertible into Class A Shares of IGY. IGY7 holds Series A-2 Preferred Shares that are convertible into Class A Shares of IGY.
IGY conducts its business primarily through its subsidiaries, Island Global Yachting Services Ltd. (“IGYS”) and Island Global Yachting Facilities Ltd. (“IGYF”). IGYS and its subsidiaries provide marina and property management services. IGYF, through its various operating subsidiaries, acquires and holds direct and indirect interests (including controlling and noncontrolling interests) in luxury marina and related upland facilities in key yachting and nautical tourism areas around the world. IGY’s operations are conducted primarily in the Caribbean, the United States of America, Mexico, and Europe.
IGDH was registered as a Delaware LLC in August 2014. IGDH has two members: IG Holdings LLC (“IGH”), a Delaware LLC, has an 80% membership interest, and Flagstone Island Gardens LLC, a Delaware LLC with the ultimate parent being Flagstone Property Group LLC (collectively, the “Flagstone Group”), has a 20% membership interest.
IGDH’s business consists of the operations of Yacht Haven Grande Miami at Island Gardens, a mega-yacht marina on Watson Island in Miami, Florida, that operates under the IGY brand name.
On August 8, 2022, MarineMax, Inc., a Florida corporation, and its wholly-owned subsidiary, MarineMax East, Inc., a Delaware corporation (collectively, “MarineMax”) entered into a Securities Purchase Agreement with the shareholders of IGY and IGHD to acquire IGY Marinas for an aggregate cash purchase price of $480 million, subject to customary purchase price adjustments, with an additional potential payment of up to $100 million in cash two years after closing subject to the achievement of certain performance metrics (the “Transaction”). The Transaction did not include IGY’s investments in certain affiliated companies, including Beef Island and Navy Beach. The Transaction was completed on October 3, 2022, effective as of October 1, 2022.
Basis of Presentation
The Combined Condensed Financial Statements reflect a combination of IGY’s and IGDH’s financial position, results of operations and cash flows as if they were historically operated under common control. The Combined Condensed
8
IGY Marinas
Island Global Yachting LLC and Island Gardens Deep Harbour LLC
Notes to Combined Condensed Financial Statements
(Unaudited)
Financial Statements may not be indicative of future performance and do not necessarily reflect what IGY Marinas’ combined results of operations, financial condition and cash flows would have been had they operated as separate entities during the periods presented.
The Combined Condensed Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP) for interim financial information. Accordingly, these Combined Condensed Financial Statements do not include all of the information and footnote disclosures required by U.S. GAAP for complete financial statements. All significant intercompany balances and transactions have been eliminated, certain amounts have been reclassified to align the presentations of IGY and IGDH, and all normal recurring adjustments considered necessary for the fair presentation, including the elimination of transactions between IGY and IGDH, have been reflected in these Combined Condensed Financial Statements.
IGY uses the equity method of accounting for equity investments in less than majority-owned companies if the investment provides the ability to exercise significant influence. In 2020, IGY acquired a less than 20% equity interest in IGH, the entity that controls IGDH, which is accounted for as an equity method investment in IGY’s stand-alone consolidated financial statements due to IGY’s ability to exercise influence over the entity. As of June 30, 2022 and December 31, 2021, IGY’s equity method investment in IGDH was approximately $2.6 million and $2.8 million, respectively, which has been eliminated in these Combined Condensed Financial Statements.
IGY accounts for the portion of a subsidiary that is not owned as a noncontrolling interest. Noncontrolling interests in an acquired enterprise are reported at the fair value of the net assets acquired at the date of acquisition, depending on the nature of the acquisition, plus the cumulative allocation of net income (loss) from that date forward to the noncontrolling interests based on its ownership percentage.
The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Significant estimates made by us include, but are not limited to, the determination of valuation allowances, accounting for income taxes, accounting for contingencies, and the evaluation of goodwill, intangible assets and long-lived assets for impairment. Actual results could differ from those estimates. These Combined Condensed Financial Statements herein are unaudited, and should be read in conjunction with IGY’s and IGDH’s respective audited financial statements and the notes thereto for the fiscal year ended December 31, 2021.
In March 2020, COVID-19 was recognized as a pandemic by the World Health Organization. The overall impact of the COVID-19 pandemic did not create significant disruption to our business model during the six months ended June 30, 2022 and June 30, 2021. The conflict between Russia and Ukraine has further destabilized markets and routine supply-chain productions. As a result of the COVID-19 pandemic and the Russian-Ukraine conflict, IGY Marinas may be impacted by increased volatility in markets, interest rates, and rising inflation. Due to the COVID-19 pandemic, and current events involving Russia and Ukraine, there is ongoing uncertainty and disruption in the global economy and financial markets. Management is not aware of any specific event or circumstance that would require an update to its estimates or assumptions or a revision of the carrying value of its assets or liabilities. Sufficient information is not available to adequately evaluate the short-term or long-term impact to IGY Marinas. Management believes IGY Marinas is taking appropriate actions to mitigate the negative impact of these continuing conditions and does not believe IGY Marinas is exposed to substantial risk related to these events.
9
IGY Marinas
Island Global Yachting LLC and Island Gardens Deep Harbour LLC
Notes to Combined Condensed Financial Statements
(Unaudited)
Accounting Pronouncements Not Yet Adopted
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases (Accounting Standards Codification (“ASC”) Topic 842), as subsequently amended, which is required to be implemented for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. 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). IGY Marinas is currently evaluating the effect of the required implementation of this ASU on its financial statements, which will result in the recognition of operating lease right of use assets and liabilities pertaining to its upland and submerged land leases, as well as office leases, on the balance sheet.
Note 2. Revenue
The majority of revenue is from contracts with customers for slip rentals, fuel and utility sales, and other ancillary goods and services related to the marina properties, which are accounted for under ASC Topic 606, Revenue from Contracts with Customers. The Company recognizes revenue from slip rentals, fuel and utility sales, and other ancillary goods and services when slips are occupied or fuel, utilities, goods, and services have been delivered or rendered. Payment terms typically align with when the goods and services are provided. For billings that are made in advance and non-cancellable deposits for slip rentals, any amounts that have been billed or collected for which the slip has not yet been occupied, are recorded as deferred revenue or customer deposits (contract liabilities) until the slip has been occupied.
Upland revenues primarily consist of building and facility rentals under lease agreements, which are accounted for as leases as the lessor, common area charges, utility sales, food and beverage sales and other ancillary goods and services related to the upland property. Revenue is recognized when common area maintenance, utilities, goods, and services have been delivered or rendered. Payment terms typically align with when the goods and services are provided.
IGY has agreements in place with marinas to provide management and other services, which include the operations of the marina and providing marketing and training. Revenue is recognized as the services are performed. In addition, certain agreements include incentives based on marina performance, which are recognized in the period earned. The incentives represent variable consideration and IGYfully constrains its estimate of this variable consideration until the uncertainties with respect to IGY’s entitlement to these incentives are resolved. Payment terms are based on the respective agreement with the customer and typically align with when services are provided.
Revenue related to management services provided to yacht customers, such as managing the finances and administrative functions of customers, is recognized as the services are performed. Payment terms are based on the respective agreement with the customer and typically align with when services are provided.
10
IGY Marinas
Island Global Yachting LLC and Island Gardens Deep Harbour LLC
Notes to Combined Condensed Financial Statements
(Unaudited)
The following table shows IGY Marinas’ revenue disaggregated between revenue from contracts with customers and other revenue (amounts in thousands):
| Six Months Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Upland leases and utilities |
$ | 5,598 | $ | 4,365 | ||||
| Revenue from contracts with customers |
46,699 | 31,725 | ||||||
|
|
|
|
|
|||||
| Total revenue |
$ | 52,297 | $ | 36,090 | ||||
|
|
|
|
|
|||||
Revenues from contracts with customers were recognized as follows according to timing of the transfer of goods or services (amounts in thousands):
| Six Months Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Revenue recognized at a point in time |
$ | 22,499 | $ | 15,388 | ||||
| Revenue recognized over time |
24,200 | 16,337 | ||||||
|
|
|
|
|
|||||
| Total revenue from contracts with customers |
$ | 46,699 | $ | 31,725 | ||||
|
|
|
|
|
|||||
Contract assets and liabilities arising from contracts with customers consist of the following (amounts in thousands):
| June 30, 2022 | December 31, 2021 | |||||||
| Contract assets: |
||||||||
| Accounts receivable |
$ | 5,531 | $ | 9,153 | ||||
| Unbilled revenue |
488 | 149 | ||||||
|
|
|
|
|
|||||
| Total contract assets |
$ | 6,019 | $ | 9,302 | ||||
|
|
|
|
|
|||||
| Contract liabilities: |
||||||||
| Deferred revenue |
$ | 4,085 | $ | 2,833 | ||||
| Customer deposits |
4,382 | 6,757 | ||||||
|
|
|
|
|
|||||
| Total contract liabilities |
$ | 8,467 | $ | 9,590 | ||||
|
|
|
|
|
|||||
Note 3. Related Party Transactions
In 2020, IGDH entered into a management contract with IGY. As the manager, IGY employs all personnel for the IGDH marina and provides additional management services. In return, IGDH pays a management fee to IGY as well as reimburses all direct personnel costs incurred by IGY. The management contract with IGY also stipulates a separate fee for construction and development management pertaining to the IGDH’s Yacht Haven Grande Miami at Island Gardens marina. The amount due from IGDH to IGY, totaling approximately $80,000 and $80,000 as of June 30, 2022 and December 31, 2021, respectively, related to reimbursements of operational expenses and outstanding management fees. Management fees paid by IGDH to IGY were approximately $290,000 and $202,000 for the six months ended June 30, 2022 and 2021, respectively. During 2021, IGY’s wholly-owned subsidiary, IG Directives LLC, received a fee of $120,000 from IGH related to the refinance of debt of IGDH. IG Directives LLC is the general partner for IG Holdings LLC. These amounts have been eliminated within the Combined Condensed Financial Statements.
11
IGY Marinas
Island Global Yachting LLC and Island Gardens Deep Harbour LLC
Notes to Combined Condensed Financial Statements
(Unaudited)
The following is a summary of revenues and income earned and fees incurred with related parties that are reflected within the Combined Condensed Financial Statements (amounts in thousands):
| Six Months Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Included in revenues |
||||||||
| Interest earned from Cannes notes |
$ | 101 | $ | — | ||||
| Included in costs and expenses |
||||||||
| IGDH’s common area maintenance |
38 | 38 | ||||||
| Asset management fee to affiliate |
823 | (1,070 | ) | |||||
| Personnel and overhead costs paid by affiliates |
(51 | ) | (128 | ) | ||||
| Personnel and overhead costs paid to affiliates |
527 | 127 | ||||||
| Interest expense from Transport note |
37 | — | ||||||
The following is a summary of outstanding related party receivables and payables (amounts in thousands):
| As of June 30, 2022 |
As of December 31, 2021 |
|||||||
| Included in assets: |
||||||||
| Note receivable from Cannes – CMI |
$ | 2,097 | $ | — | ||||
| Note receivable from Cannes – MDVPDC Fixed |
2,183 | — | ||||||
| Note receivable from Cannes – MDVPDC Variable |
1,568 | — | ||||||
| Included in liabilities: |
||||||||
| Note payable to Transport |
1,372 | 1,553 | ||||||
IGDH incurs monthly common area maintenance charges payable to the Flagstone Group on a monthly basis.
Asset management fees paid or payable to Island Global Yachting Directives LLC (“IGYD”), an affiliate of IGY’s Parent, are pursuant to the relevant partnership agreements of certain shareholders of IGY and the subscription and shareholder agreements between each such partnership and IGY. Generally, these amounts are payable quarterly.
Personnel and overhead costs are reimbursement charges at cost from IGYD and its affiliates relating to non-IGY employees who performed services for the Company for the six months ended June 30, 2022 and June 30, 2021. In addition, IGYD and its affiliates and from IGH and its affiliate reimbursed the Company for personnel and overhead costs. The amounts are generally paid monthly.
In November 2007, IGY1 executed a $5,500,000 note payable on demand in favor of IGY to enable IGY1 to meet its obligation under the letter of credit posted in favor of the lender on the construction loan facility for Yacht Haven USVI. Through 2008, $4,004,432 had been advanced to IGY1. No additional advances have been made through June 30, 2022. The receivable from the Parent is secured by a security interest in, lien on, and right of setoff against all IGY shares owned by the Parent, together with all dividends and distributions thereon and all proceeds thereof. Interest is payable quarterly on the principal amount (including interest permitted by IGY to be added to principal) at 18% per annum. In 2017, the
12
IGY Marinas
Island Global Yachting LLC and Island Gardens Deep Harbour LLC
Notes to Combined Condensed Financial Statements
(Unaudited)
note payable was modified to suspend the accrual of interest until the occurrence of a termination event as defined by the agreement. Therefore, there was no interest accrued on this note at June 30, 2022 and December 31, 2021. The amount receivable from the Parent was $22,277,065 at June 30, 2022 and December 31, 2021 and is reflected as a reduction of members’ equity in the accompanying Combined Condensed Financial Statements.
In 2022, IGY entered into an investment relationship for a marina asset in Cannes, France. In addition to the equity investments, IGY, through its wholly owned subsidiary in Sete, France, entered into a series of notes with multiple of the legal entities that own the Cannes, France equity method investment asset.
The Note receivable from Cannes – CMI is a note with Cannes Marina Invest SAS, whom IGY ultimately owns 50%, issued on March 5, 2022 with an original principal balance of 1,960,000 Euros. Interest is fixed at 7.5% per annum and is repaid on a quarterly basis. Principal payments are due on demand or no later than the end of the Cannes marina concession in 2052. Principal payments must be approved in advance by a majority of ownership. The balance of $2,096,946 noted in the table above represents original principal plus accrued interest through June 30, 2022 translated at the current Euro to US Dollar exchange rate.
The Note receivable from Cannes – MDVPDC Fixed is a note with Marina du Vieux Port de Cannes SAS, whom IGY ultimately owns 50%, issued on March 5, 2022 with an original principal balance of 2,040,000 Euros. Interest is fixed at 7.5% per annum and is repaid on a quarterly basis. Principal payments are due on demand or no later than the end of the Cannes marina concession in 2052. Principal payments must be approved in advance by a majority of ownership. The balance of $2,182,557 noted in the table above represents original principal plus accrued interest through June 30, 2022 translated at the current Euro to US Dollar exchange rate.
The Note receivable from Cannes – MDVPDC Variable is a note with Marina du Vieux Port de Cannes SAS, whom IGY ultimately owns 50%, issued on February 25, 2022 with an original principal balance of 1,500,000 Euros. Interest is variable at the 90 day Euribor plus 0.5% per annum and is repaid on a quarterly basis. Principal payments are due on demand or no later than the end of the Cannes marina concession in 2052. Principal payments must be approved in advance by a majority of ownership. The balance of $1,567,670 noted in the table above represents original principal plus accrued interest through June 30, 2022 translated at the current Euro to US Dollar exchange rate.
The Note payable to Transport represents a loan from the 10% noncontrolling interest shareholder of the Portisco, Italy marina asset to Portisco Holdings SPA, which is 90% owned by IGY. The loan was issued upon the acquisition of Marina di Portisco in October 2021 with an original principal balance of 1,368,000 Euros. Interest is variable at Euribor plus 3.5% per annum and is repaid on a quarterly basis. Principal payments are due at the earlier of on demand, which must be approved by a majority of ownership, or quarterly installments of 28,500 Euros from December 31, 2024. The balance of $1,371,561 noted in the table above represents outstanding principal plus accrued interest through June 30, 2022 translated at the current Euro to US Dollar exchange rate.
Note 4. Property and Equipment
Depreciation expense related to property and equipment was approximately $4.1 million and $3.5 million for the six months ended June 30, 2022 and 2021, respectively. There were no impairment losses recorded during the six months ended June 30, 2022 and 2021.
13
IGY Marinas
Island Global Yachting LLC and Island Gardens Deep Harbour LLC
Notes to Combined Condensed Financial Statements
(Unaudited)
Note 5. Equity Method Investments
The following table summarizes the activities of IGY’s investments in affiliated companies, excluding IGY’s investment in the entity that controls IGDH which has been eliminated within these Combined Condensed Financial Statements, as of June 30, 2022 and December 31, 2021, respectively (amounts in thousands):
| Beef Island | Malaga | Navy Beach | IGY Gestora | Cannes | Total | |||||||||||||||||||
| Balance at December 31, 2020 |
$ | 2,267 | $ | 143 | $ | 1,435 | $ | 133 | $ | — | $ | 3,978 | ||||||||||||
| New investment |
— | 425 | 246 | — | — | 671 | ||||||||||||||||||
| Distribution |
— | — | (76 | ) | — | — | (76 | ) | ||||||||||||||||
| Share of loss |
— | (162 | ) | (285 | ) | (87 | ) | — | (534 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Balance at June 30, 2021 |
2,267 | 406 | 1,320 | 46 | — | 4,039 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Balance at December 31, 2021 |
2,267 | 245 | 1,418 | — | — | 3,930 | ||||||||||||||||||
| New investment |
— | 552 | — | — | 52 | 604 | ||||||||||||||||||
| Distribution |
— | — | (148 | ) | — | — | (148 | ) | ||||||||||||||||
| Share of (loss) earnings |
— | (705 | ) | — | — | 333 | (372 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Balance at June 30, 2022 |
$ | 2,267 | $ | 91 | $ | 1,270 | $ | — | $ | 385 | $ | 4,014 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Each of these investments were accounted for using the equity method. During 2022, the Company acquired a 50% ownership of Cannes; the equity method was used due to the Company’s ability to exercise influence over the entity without exercising control. Refer to Note 3 Related-Party Transaction for further details over this transaction.
Note 6. Notes Payable
Proceeds from notes payable were used to purchase or refinance loans secured by operating marinas, and proceeds from construction loans were used to develop or redevelop marina properties. These property specific notes are secured by the real and personal property of each borrowing entity and, in certain instances, by the borrowing entity’s rights under retail leases and certain cash accounts and accounts receivable of the entity, as well as, the equity in the borrowing entity. Debt issuance costs incurred in connection with each note payable are recorded as a reduction of the principal amount of the related note payable and amortized on a straight-line basis over the remaining term of the respective note. All notes contain certain financial covenants, negative covenants, and other terms and conditions customarily found in loan agreements. The respective borrowers were compliant with all covenants, terms and conditions as of June 30, 2022 and December 31, 2021.
14
IGY Marinas
Island Global Yachting LLC and Island Gardens Deep Harbour LLC
Notes to Combined Condensed Financial Statements
(Unaudited)
Notes payable consisted of the following (amounts in thousands):
| June 30, 2022 | December 31, 2021 | |||||||
| Rodney Bay Senior Note Payable |
$ | 6,117 | $ | 6,373 | ||||
| Yacht Haven Grande Note Payable |
13,000 | 13,000 | ||||||
| Isle de Sol Note Payable |
16,000 | 16,000 | ||||||
| Cabo Marina Note Payable |
7,026 | 7,255 | ||||||
| Portisco Note Payable |
645 | 488 | ||||||
| American Yacht Harbor Note Payable |
10,542 | 10,740 | ||||||
| Yacht Haven Grande Miami Note Payable |
30,000 | 30,000 | ||||||
|
|
|
|
|
|||||
| Total notes payable |
83,330 | 83,856 | ||||||
| Less: unamortized deferred financing costs |
(1,140 | ) | (1,407 | ) | ||||
|
|
|
|
|
|||||
| Total notes payable, net of deferred financing costs |
$ | 82,190 | $ | 82,449 | ||||
|
|
|
|
|
|||||
Rodney Bay Senior Note Payable
In February 2020, the Rodney Bay Marina, Ltd. and Planviron (Caribbean Practice) Ltd. (together, “RBM Borrowers”) extinguished the previous note payable and issued a new note payable to a financial institution in the amount of $6,500,000. The new note payable matures in January 2030, and bears interest at a floating 90 day LIBOR rate plus 4.75%, and a floor of 6.50% and is payable monthly. The floating 90 day LIBOR rate adjusts every six months. Fixed payments of $74,217 are due monthly which include interest and principal. As a result of uncertainty related to the COVID-19, the RBM Borrowers negotiated a modification to the agreement which deferred all payments for a period of seven months and no principal payments were due before March 2021. As a result of this modification, all deferred payments are added to the final principal payment at maturity and approximately $290,000 of accrued interest was converted to principal.
Yacht Haven Grande Note Payable
On September 29, 2020, Yacht Haven USVI LLC (“YHG”) entered into a note payable with a private lender in the amount of $15,000,000 through Yacht Haven Grande, a subsidiary. The note was scheduled to mature on April 1, 2022 and bears interest of 11%. Interest payments are due monthly, and principal and any remaining interest will be due at maturity. The YHG loan is guaranteed by IGY. On March 9, 2022, YHG agreed to a debt modification that extended the maturity date to July 1, 2022. On July 1, 2022, the Yacht Haven Grande Note Payable was amended, increasing the principal to $18,000,000. The amendments extended the Note’s maturity date to July 1, 2023 and modified the interest rate at prime plus 6.75%.
Isle de Sol Note Payable
On January 28, 2021, all previous bank financings entered into by Hop-Inn Enterprises (“IDS”), a subsidiary of IGY, extinguished the previous note payable through the issuance of a new note payable with a new lender. The 2021 senior loan facility for $16,000,000 is secured by substantially all the assets of IDS and accrues interest at 7.00% per annum until January 28, 2026. From January 28, 2026 through maturity on January 28, 2043, the interest rate is the greater of 7% or the five year US Treasury rate plus 500 basis points. Quarterly payments consist of interest only from April 1, 2021 through January 1, 2023. From April 1, 2023 through maturity, quarterly payments consist of interest plus principal based on a 15 year amortization schedule.
15
IGY Marinas
Island Global Yachting LLC and Island Gardens Deep Harbour LLC
Notes to Combined Condensed Financial Statements
(Unaudited)
Cabo Marina Note Payable
On October 29, 2013, Cabo Marina, S. de R.L. de C.V. (“Cabo”), a subsidiary of IGY, borrowed $17,000,000 from a Mexican bank and the proceeds were used to pay off the previous commercial bank loan. Under this new loan, principal and interest payments are due monthly. The loan had a 5-year term, maturing on October 30, 2018, but principal payments due were based on a 7-year amortization schedule and interest accrued at LIBOR plus 4.43%. Substantially all assets of Cabo serve as collateral under the bank loan. On March 2, 2018, Cabo entered into a modification of the existing senior loan that extended the maturity date to January 31, 2023. The modification reduced the interest rate to LIBOR plus 4.05%. The modification includes monthly principal payments calculated on a fifteen-year amortization.
American Yacht Harbor Note Payable
American Yacht Harbor (“AYH”), a subsidiary of IGY, obtained a $15,300,000 loan facility from a bank on August 23, 2007. Interest accrued at LIBOR plus 2.00% to LIBOR plus 2.75% based on the debt service coverage ratio of AYH. Principal and interest were due monthly and the loan was scheduled to mature on September 1, 2017. On April 6, 2016, the loan was modified with a new maturity date of March 31, 2023 and a fixed interest rate of 4.95%. The modified note payable requires monthly principal payments of $33,000, plus interest, until maturity, at which time the remaining principal balance is due under a balloon payment. The loan is collateralized by the real property and improvements thereon, AYH’s rights under its retail leases, and certain cash accounts and accounts receivable of AYH. As part of a security agreement with the bank, the bank has required that certain cash accounts of AYH be pledged to the bank.
Yacht Haven Grande Miami Note Payable
In March 2021, the IGDH extinguished its existing long-term debt through the issuance of a promissory note with a new lender. The 2021 loan agreement for $30,000,000 is secured by substantially all the assets of IGDH and accrues interest at 4.75% per annum until maturity in March 2026. Monthly payments consist of interest only for 18 months through September 2022. Monthly payments subsequent to September 2022 through maturity consist of interest plus principal based on a 300-month amortization schedule. The balance of the note is due upon maturity.
IGY PPP Loan
In May 2020, IGY obtained a $1,387,800 loan from a bank under the Paycheck Protection Program administered by the United States Small Business Administration. During 2020, IGY expended the funds on payroll, rent and utilities as directed under the program. In 2021, IGY received full forgiveness of this loan, causing a gain on extinguishment of debt of $1,387,800 for the six months ending June 30, 2021.
Note 7. Income Taxes
IGY Marinas accounts for income taxes in accordance with ASC Topic 740, Income Taxes. As limited liability companies, both IGY and IGDH are not subject to U.S. federal or state income taxes as the tax effects of the respective companies’ activities are reported directly by members on their respective income tax returns. As such, no provision for income taxes has been recognized by IGDH for the six months ended June 30, 2022 and 2021 in the accompanying Combined Condensed Financial Statements. However, certain of IGY’s subsidiaries are taxable corporations operating in U.S. and foreign jurisdictions that impose income taxes. For these subsidiaries, IGY recognizes deferred tax assets and liabilities
16
IGY Marinas
Island Global Yachting LLC and Island Gardens Deep Harbour LLC
Notes to Combined Condensed Financial Statements
(Unaudited)
for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the Company expects those temporary differences to be recovered or settled. Valuation allowances are recorded to reduce the deferred tax assets to the amount expected to be realized by the Company considering all available positive and negative evidence.
During the six months ended June 30, 2022 and 2021, IGY recognized an income tax provision (benefit) of approximately $202,000 and $(117,000), respectively. On a stand-alone basis, IGY’s effective income tax rate for the six months ended June 30, 2022 and 2021 was 22.5% and (5.7%), respectively. On a combined basis, IGY Marinas’ effective income tax rate for the six months ended June 30, 2022 and 2021 was 5.1% and 2.7%, respectively.
Note 8. Commitments and Contingencies
Certain of IGY’s subsidiaries are party to local development commission agreements which provide for certain economic incentives in the United States Virgin Islands (“USVI”) with durations that range through December 31, 2032. The agreements required that the subsidiaries comply with certain conditions relating to its investment and operations in the USVI. IGY believes it was not in compliance with the Economic Development Commission (“EDC”) Benefits agreement in all material respects as of June 30, 2022. While the Company has appropriately filed all required documentation and reports, the USVI EDC oversight board ultimately must approve the Company’s good standing. The USVI EDC oversight board has not declared the Company in default as of the issuance date of this report.
On October 27, 2020 and May 26, 2021, the National Fund for Tourism Development (“FONATUR”) claimed that Cabo Marina owed certain penalties related to potential encroachment on government lands as described in a purchase agreement of certain lots at the marina of Cabo San Lucas. According to the purchase agreement, the penalties are updated on a daily basis and the most recent amount discussed with FONATUR was greater than $1,000,000. Cabo Marina has initiated actions in order to start negotiations with FONATUR to legally resolve this matter.
17
IGY Marinas
Island Global Yachting LLC and Island Gardens Deep Harbour LLC
Notes to Combined Condensed Financial Statements
(Unaudited)
Note 9. Members’ Equity
IGY1 held 8,000,000 Class A (voting) shares (“Class A Shares”) of IGY as of June 30, 2022 and December 31, 2021. Class A Shares entitle the shareholder to vote on IGY matters. In addition, IGY had 11,204,572 Class B (nonvoting) shares (“Class B Shares”) and 5,684,930 Series A Preferred shares outstanding as of June 30, 2022 and December 31, 2021. The Company is authorized to issue up to 50,000,000 shares with a par value of $0.001.
During 2018, Island Global Yachting Directives VI LLC, as general partner for IGY6, closed a round of equity financing with $30,000,000 of capital commitments. $4,850,000 of capital was called and received by IGY during 2018 and IGY6 was issued 970,000 Series A Preferred Shares (non-voting shares). During 2019, $23,580,000 of capital was called and received by IGY and IGY6 was issued 4,716,000 Series A Preferred Shares. The Series A Preferred Shares carry an 8% cumulative and compounded preferred dividend. At Island Global Yachting Directives VI LLC’s sole discretion, some or all of the Series A Preferred Shares may be converted into Class A Shares (voting) at a specified conversion price. In the event of a liquidity event, prior to any conversion of the IGY Series A Preferred Convertible Shares to IGY Class A Shares, the IGY Series A Preferred Convertible Shares will be eligible for a non-participating liquidation preference whereby the holders of the IGY Series A Preferred Convertible Shares will receive an amount equal to their initial investment plus any accrued dividends with the balance of the Liquidity Event proceeds allocated on a pro-rata basis to the holders of the IGY Class A Shares and IGY Class B Shares.
During 2021, Island Global Yachting Directives VII LLC, as general partner for IGY7, closed a round of equity financing with $41,067,338 of capital commitments. $27,000,000 of capital was called and received by IGY during 2021 and IGY7 was issued 2,160,000 Series A-2 Preferred Shares (non-voting shares). The Series A-2 Preferred Shares carry an 8% cumulative and compounded preferred dividend. At Island Global Yachting Directives VII LLC’s sole discretion, some or all of the Series A-2 Preferred Shares may be converted into Class A Shares (voting) at a specified conversion price. In the event of a liquidity event, prior to any conversion of the IGY Series A-2 Preferred Convertible Shares to IGY Class A Shares, the IGY Series A-2 Preferred Convertible Shares will be eligible for a non-participating liquidation preference whereby the holders of the IGY Series A-2 Preferred Convertible Shares will receive an amount equal to their initial investment plus any accrued dividends with the balance of the Liquidity Event proceeds allocated on a pro-rata basis to the holders of the IGY Class A Shares and IGY Class B Shares.
IGDH has two members: IGH has an 80% membership interest, and Flagstone Group has a 20% membership interest. Equity investment transactions between IGDH and IGY, through IGY’s investment in IGH, have been eliminated in these Combined Condensed Financial Statements.
Note 10. Disposition
In August 2021, IGY sold 100% of the equity of Applied Technology and Management Inc. (“ATM”) for $7,000,000. Cash received at closing was $6,250,000 and the remainder is subject to a hold back period of one year. In November 2021, IGY received $268,297 as an adjustment to purchase price in accordance with the terms of the sale agreement. IGY recorded a gain on disposition of $5,066,109 in August 2021. IGY presented ATM activity for the six months ended June 30, 2021 within discontinued operations, net of tax on the Combined Condensed Statements of Operations. Related revenues were recognized over time and are excluded from Note 2.
18
IGY Marinas
Island Global Yachting LLC and Island Gardens Deep Harbour LLC
Notes to Combined Condensed Financial Statements
(Unaudited)
Summarized activity for ATM for the six months ended June 30, 2021 are presented below (amounts in thousands):
| Six Months Ended June 30, 2021 |
||||
| Revenue |
$ | 4,986 | ||
| Cost of sales, excluding depreciation and amortization expense |
2,015 | |||
|
|
|
|||
| Gross profit |
2,971 | |||
| Selling, general and administrative expenses |
2,456 | |||
| Interest expense |
3 | |||
|
|
|
|||
| Net income |
$ | 512 | ||
|
|
|
|||
Note 11. Subsequent Events
The Company has evaluated all events subsequent to June 30, 2022, through the date these Combined Condensed Financial Statements were available to be issued on October 3, 2022.
On August 8, 2022, IGY executed the following restructuring: First, IGY issued a Series B Perpetual Preferred Unit with an initial face amount of $10,000 to Island Marinas Subsidiary Corp., a Delaware corporation, in exchange for a promissory note of $10,000 issued by Island Marinas Subsidiary Corp. Second, each holder of each class of Company units (including Class A Shares, Class B Shares, Series A Preferred Shares, Series A-2 Preferred Shares and Series A Preferred Convertible Shares) other than Island Marinas Subsidiary Corp. contributed its Company units to Island Marina Holdings LLC, a Delaware LLC, in exchange for identical units of Island Marina Holdings LLC (such units bearing the same rights as such holder’s contributed units). Third, IGY exchanged IGY units contributed to Island Marina Holdings LLC for a single Class A unit of IGY. After such restructuring, and as of the date hereof, the outstanding ownership interests of IGY consist of a Class A unit held by Island Marina Holdings LLC and a Series B Perpetual Preferred unit held by Island Marinas Subsidiary Corp.
On October 3, 2022, the previously disclosed sale of IGY Marinas, per the Securities Purchase Agreement with MarineMax dated August 8, 2022, was completed and effective as October 1, 2022.
19
Exhibit 99.4
MARINEMAX, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED COMBINED PRO FORMA BALANCE SHEET
As of June 30, 2022
(Amounts in thousands, except share data)
| MarineMax Historical |
IGY Marinas Historical |
Pro Forma Adjustments |
Notes | Pro Forma Combined |
||||||||||||||||
| ASSETS | ||||||||||||||||||||
| Current assets: |
||||||||||||||||||||
| Cash and cash equivalents |
$ | 281,351 | $ | 29,584 | $ | (120,439 | ) | A | $ | 190,496 | ||||||||||
| Accounts receivable, net |
61,863 | 6,069 | (1,466 | ) | A | 66,466 | ||||||||||||||
| Inventories, net |
374,217 | 1,069 | (180 | ) | A | 375,106 | ||||||||||||||
| Prepaid expenses and other current assets |
18,566 | 2,717 | 1,104 | A | 22,387 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total current assets |
735,997 | 39,439 | (120,981 | ) | 654,455 | |||||||||||||||
| Property and equipment, net |
226,647 | 147,741 | 126,444 | D | 500,832 | |||||||||||||||
| Operating lease right-of-use assets, net |
100,127 | — | 43,969 | E | 144,096 | |||||||||||||||
| Goodwill and other intangible assets, net |
248,194 | 19,699 | 275,307 | G | 543,200 | |||||||||||||||
| Other long-term assets |
9,104 | 11,975 | (4,525 | ) | A | 16,554 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total assets |
$ | 1,320,069 | $ | 218,854 | $ | 320,214 | $ | 1,859,137 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||||||||||
| Current liabilities: |
||||||||||||||||||||
| Accounts payable |
$ | 56,533 | $ | 3,415 | $ | (1,364 | ) | A | $ | 58,584 | ||||||||||
| Contract liabilities (customer deposits) |
138,375 | 8,467 | 1,024 | A | 147,866 | |||||||||||||||
| Accrued expenses |
97,088 | 8,497 | 10,096 | A, I, J | 115,681 | |||||||||||||||
| Short-term borrowings |
107,222 | — | — | 107,222 | ||||||||||||||||
| Current maturities on long-term debt |
3,028 | 15,573 | 14,427 | A | 33,028 | |||||||||||||||
| Current operating lease liabilities |
10,323 | — | 1,845 | E | 12,168 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total current liabilities |
412,569 | 35,952 | 26,028 | 474,549 | ||||||||||||||||
| Long-term debt, net of current maturities |
45,834 | 66,617 | 300,238 | A | 412,689 | |||||||||||||||
| Noncurrent operating lease liabilities |
92,774 | 14,910 | 13,498 | E | 121,182 | |||||||||||||||
| Deferred tax liabilities, net |
17,805 | 13,180 | 23,826 | F | 54,811 | |||||||||||||||
| Other long-term liabilities |
8,347 | 4,439 | 48,725 | A, B | 61,511 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total liabilities |
577,329 | 135,098 | 412,315 | 1,124,742 | ||||||||||||||||
| COMMITMENTS AND CONTINGENCIES |
||||||||||||||||||||
| SHAREHOLDERS’ EQUITY: |
||||||||||||||||||||
| Preferred stock, $.001 par value, 1,000,000 shares authorized, |
— | — | — | — | ||||||||||||||||
| Common stock, $.001 par value, 40,000,000 shares authorized, |
29 | — | — | 29 | ||||||||||||||||
| Members’ equity |
— | 80,010 | (80,010 | ) | A | — | ||||||||||||||
| Additional paid-in capital |
300,411 | — | — | 300,411 | ||||||||||||||||
| Accumulated other comprehensive income (loss) |
(1,351 | ) | (1,222 | ) | 1,222 | A | (1,351 | ) | ||||||||||||
| Retained earnings |
592,307 | — | (10,856 | ) | I, J | 581,451 | ||||||||||||||
| Treasury stock, at cost, 7,267,021 shares held as of June 30, 2022 |
(148,656 | ) | — | — | (148,656 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total shareholders’ equity attributable to MarineMax, Inc. |
742,740 | 78,788 | (89,644 | ) | 731,884 | |||||||||||||||
| Equity attributable to noncontrolling interest |
— | 4,968 | (2,457 | ) | C | 2,511 | ||||||||||||||
| Total shareholders’ equity |
742,740 | 83,756 | (92,101 | ) | 734,395 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total liabilities and shareholders’ equity |
$ | 1,320,069 | $ | 218,854 | $ | 320,214 | $ | 1,859,137 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
MARINEMAX, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED COMBINED PRO FORMA STATEMENT OF OPERATIONS
Nine Months Ended June 30, 2022
(Amounts in thousands, except share and per share data)
| MarineMax Historical |
IGY Marinas Historical |
Pro Forma Adjustments |
Notes | Pro Forma Combined |
||||||||||||||||
| Revenue |
$ | 1,771,334 | $ | 78,283 | $ | — | $ | 1,849,617 | ||||||||||||
| Cost of sales |
1,162,347 | 25,744 | — | 1,188,091 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Gross profit |
608,987 | 52,539 | — | 661,526 | ||||||||||||||||
| Selling, general, and administrative expenses |
394,702 | 48,795 | 14,565 | D, G, I, J, K | 458,062 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Income (loss) from operations |
214,285 | 3,744 | (14,565 | ) | 203,464 | |||||||||||||||
| Other expense (income): |
||||||||||||||||||||
| Interest expense, net |
2,299 | 4,183 | 12,423 | H | 18,905 | |||||||||||||||
| Other non-operating income |
— | — | — | — | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Income (loss) before income tax provision |
211,986 | (439 | ) | (26,988 | ) | 184,559 | ||||||||||||||
| Income tax provision |
52,357 | 787 | (6,612 | ) | L | 46,532 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Net income (loss) from continuing operations |
159,629 | (1,226 | ) | (20,376 | ) | 138,027 | ||||||||||||||
| Net income attributable to the noncontrolling interest |
— | 51 | — | 51 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Net income (loss) attributable to MarineMax, Inc. |
$ | 159,629 | $ | (1,277 | ) | $ | (20,376 | ) | $ | 137,976 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Basic net income per common share |
$ | 7.34 | $ | 6.34 | ||||||||||||||||
|
|
|
|
|
|||||||||||||||||
| Diluted net income per common share |
$ | 7.11 | $ | 6.14 | ||||||||||||||||
|
|
|
|
|
|||||||||||||||||
| Weighted average number of common shares used in computing net income per common share: |
||||||||||||||||||||
| Basic |
21,761,811 | 21,761,811 | ||||||||||||||||||
|
|
|
|
|
|||||||||||||||||
| Diluted |
22,455,828 | 22,455,828 | ||||||||||||||||||
|
|
|
|
|
|||||||||||||||||
MARINEMAX, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED COMBINED PRO FORMA STATEMENT OF OPERATIONS
Fiscal Year Ended September 30, 2021
(Amounts in thousands, except share and per share data)
| MarineMax Historical |
IGY Marinas Historical |
Pro Forma Adjustments |
Notes | Pro Forma Combined |
||||||||||||||||
| Revenue |
$ | 2,063,257 | $ | 74,052 | $ | — | $ | 2,137,309 | ||||||||||||
| Cost of sales |
1,403,824 | 23,285 | — | 1,427,109 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Gross profit |
659,433 | 50,767 | — | 710,200 | ||||||||||||||||
| Selling, general, and administrative expenses |
449,974 | 48,559 | 17,087 | D, G, I, J, K | 515,620 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Income (loss) from operations |
209,459 | 2,208 | (17,087 | ) | 194,580 | |||||||||||||||
| Other expense (income): |
||||||||||||||||||||
| Interest expense, net |
3,665 | 6,288 | 15,639 | H | 25,592 | |||||||||||||||
| Other non-operating income |
— | (1,388 | ) | — | (1,388 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Income (loss) before income tax provision |
205,794 | (2,692 | ) | (32,726 | ) | 170,376 | ||||||||||||||
| Income tax provision |
50,815 | 374 | (8,018 | ) | L | 43,171 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Net income (loss) from continuing operations |
154,979 | (3,066 | ) | (24,708 | ) | 127,205 | ||||||||||||||
| Net loss attributable to the noncontrolling interest |
— | (321 | ) | — | (321 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Net income (loss) attributable to MarineMax, Inc. |
$ | 154,979 | $ | (2,745 | ) | $ | (24,708 | ) | $ | 127,526 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Basic net income per common share |
$ | 7.04 | $ | 5.79 | ||||||||||||||||
|
|
|
|
|
|||||||||||||||||
| Diluted net income per common share |
$ | 6.78 | $ | 5.58 | ||||||||||||||||
|
|
|
|
|
|||||||||||||||||
| Weighted average number of common shares used in computing net income per common share: |
||||||||||||||||||||
| Basic |
22,010,130 | 22,010,130 | ||||||||||||||||||
|
|
|
|
|
|||||||||||||||||
| Diluted |
22,859,498 | 22,859,498 | ||||||||||||||||||
|
|
|
|
|
|||||||||||||||||
MARINEMAX, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED COMBINED PRO FORMA FINANCIAL STATEMENTS
1. DESCRIPTION OF THE TRANSACTION:
On August 8, 2022, MarineMax, Inc., a Florida corporation, and its wholly-owned subsidiary, MarineMax East, Inc., a Delaware corporation (collectively, the “Company” or “MarineMax”) entered into a Securities Purchase Agreement (the “Purchase Agreement”) with the shareholders of Island Global Yachting LLC and subsidiaries (“IGY”) and Island Gardens Deep Harbour, LLC (“IGDH”, and collectively with IGY, “IGY Marinas”) to acquire IGY Marinas for an aggregate cash purchase price of $480 million, subject to customary purchase price adjustments, with an additional potential payment of up to $100 million in cash two years after closing subject to the achievement of certain performance metrics (the “Transaction”). IGY Marinas is a leading nautical hospitality brand that operates and manages an integrated network of luxury marinas. The acquisition expands the Company’s marina footprint and superyacht services offerings and strengthens its position as the global leader in superyacht and luxury marina destinations in the United States of America, the Caribbean, Mexico and Europe. The Transaction was completed on October 3, 2022, effective as of October 1, 2022.
The Company funded the cash purchase price through a combination of cash on hand and debt financing. On August 8, 2022, the Company refinanced its existing credit facility with a new facility (the “Credit Facility”) pursuant to a credit agreement with the lenders party thereto, which matures in August 2027. The Credit Facility includes a delayed draw term loan in the amount of $400 million, net of debt issuance costs, the proceeds of which were used to finance the Transaction. The interest rate for amounts outstanding under the delayed draw term loan ranges from 1.5% to 2.0%, depending on the total net leverage ratio, above a specified SOFR rate. This description of the Credit Facility is qualified in its entirety by reference to the complete terms and conditions of the Credit Facility which is expected to be filed as an exhibit to MarineMax’s Annual Report on Form 10-K for its fiscal year ended September 30, 2022.
2. BASIS OF PRESENTATION:
The accompanying pro forma financial information and related notes (collectively, the “Pro Forma Financial Statements”) were derived from the Company’s and IGY Marinas’ historical financial information as adjusted to give effect to the Transaction and related debt financing as of October 1, 2022. The unaudited Condensed Combined Pro Forma Balance Sheet as of June 30, 2022 (the “Pro Forma Balance Sheet”) gives effect to the Transaction as if it had occurred on that day. The unaudited Condensed Combined Pro Forma Statements of Operations for the nine months ended June 30, 2022 (the “Pro Forma Interim 2022”) and the fiscal year ended September 30, 2021 (the “Pro Forma Annual 2021”, and collectively with the Pro Forma Interim 2022, the “Pro Forma Income Statements”) give effect to the Transaction as if it had occurred on October 1, 2020, the first day of MarineMax’s fiscal year 2021.
The Company’s historical financial information reflects:
| • | The unaudited Condensed Consolidated Balance Sheet as of June 30, 2022, as filed in its Form 10-Q for its fiscal quarter ended June 30, 2022 (the “MarineMax Balance Sheet”). |
| • | The unaudited Condensed Consolidated Statement of Operations for the nine months ended June 30, 2022, as filed in its Form 10-Q for its fiscal quarter ended June 30, 2022 (the “MarineMax Interim FY22”). |
| • | The audited Consolidated Statement of Operations for the fiscal year ended September 30, 2021, as filed in its Form 10-K for its fiscal year ended September 30, 2021 (the “MarineMax Annual FY21”). |
IGY Marinas’ historical financial information reflects a combination of IGY’s historical financial information and IGDH’s historical financial information, adjusted for the elimination of balances and transactions between IGY and IGDH as well as other reclassifications considered necessary for the fair presentation of the combined historical financial information, and consists of:
| • | The unaudited Combined Condensed Balance Sheet of IGY Marinas as of June 30, 2022, as filed in Exhibit 99.3 and incorporated by reference in Item 9.01(a) of the accompanying Amendment No. 1 to the Form 8-K/A (the “IGY Marinas Balance Sheet”). |
| • | The unaudited Combined Statement of Operations for the nine months ended June 30, 2022, reflecting the combination of (1) the unaudited Combined Condensed Statement of Operations of IGY Marinas for the six months ended June 30, 2022, as filed in Exhibit 99.3 and incorporated by reference in Item 9.01(a) of the accompanying Amendment No. 1 to the Form 8-K/A; and (2) the unaudited Combined Condensed Statement of Operations of IGY Marinas for the three months ended December 31, 2021, derived from the respective audited financial information for the year ended December 31, 2021 (collectively, the “IGY Marinas Interim FY22”). |
MARINEMAX, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED COMBINED PRO FORMA FINANCIAL STATEMENTS
| • | The unaudited Combined Statement of Operations for the twelve months ended December 31, 2021, reflecting the combination of (1) IGY’s audited Consolidated Statement of Operations for the year ended December 31, 2021, as filed in Exhibit 99.1 and incorporated by reference in Item 9.01(a) of the accompanying Amendment No. 1 to the Form 8-K/A; and (2) IGDH’s audited Statement of Operations for the year ended December 31, 2021, as filed in Exhibit 99.2 and incorporated by reference in Item 9.01(a) of the accompanying Amendment No. 1 to the Form 8-K/A (collectively, the “IGY Marinas Annual FY21”). |
MarineMax and IGY Marinas had different fiscal years (September 30 and December 31, respectively). The Pro Forma Annual 2021 combines the MarineMax Annual FY21 (for the year ended September 30, 2021) and the IGY Marinas Annual FY21 (for the year ended December 31, 2021).
The Pro Forma Financial Statements reflect the adjustments that give effect to pro forma events that are directly attributable to the Transaction and related debt financing, are factually supportable, and in the case of the Pro Forma Income Statements, are expected to have an impact on our operating results (the “Pro Forma Adjustments”). The estimates and assumptions underlying the Pro Forma Adjustments are based on currently available information that management believes provides a reasonable basis for presenting the significant effects of the transactions described herein.
The Pro Forma Financial Statements have been prepared in a manner consistent with the accounting policies adopted by MarineMax and reflect certain reclassifications to align IGY Marinas’ financial statement presentation. The Pro Forma Financial Statements should be read in conjunction with the Company’s historical Consolidated Financial Statements found in MarineMax’s Form 10-K for the fiscal year ended September 30, 2021, as filed with the Securities and Exchange Commission (“SEC”) on November 19, 2021.
The Pro Forma Financial Statements are presented for illustrative purposes only and do not necessarily reflect the operating results that would have occurred if the Transaction and related financing had been consummated on the date indicated, nor is it necessarily indicative of the results of operations that may be expected for any future period or date. The Pro Forma Financial Statements do not reflect the realization of any expected cost savings or other synergies from the acquisition of IGY Marinas; therefore, future results may vary significantly from the results reflected in the Pro Forma Financial Statements and should not be relied upon as an indicator of future performance.
3. PRELIMINARY PURCHASE PRICE ALLOCATION AND RELATED PRO FORMA ADJUSTMENTS:
The Transaction was accounted for as a business combination under the acquisition method of accounting in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 805, “Business Combinations” (“ASC 805”). The Company has performed a preliminary analysis of the estimated fair market value of IGY Marinas’ assets acquired and liabilities assumed. The following table summarizes the preliminary allocation of the total estimated consideration transferred to such assets and liabilities as of October 1, 2022:
| (in thousands) | ||||
| Estimated consideration: |
||||
| Cash, comprised of $396.9 million net proceeds from debt and $90.8 million cash-on-hand (A) |
$ | 487,710 | ||
| Contingent consideration (B) |
50,000 | |||
| Noncontrolling interests in consolidated subsidiaries (C) |
2,511 | |||
|
|
|
|||
| Estimated fair value of total consideration transferred |
$ | 540,221 | ||
|
|
|
|||
| Estimated amounts of identifiable assets acquired and liabilities assumed: |
||||
| Net working capital, net of cash acquired (A) |
$ | (9,966 | ) | |
| Property and equipment (D) |
274,185 | |||
| Operating lease right-of-use assets (E) |
43,969 | |||
| Operating lease liabilities (E) |
(30,253 | ) | ||
| Other assets (A) |
7,450 | |||
| Other liabilities (A) |
(3,164 | ) | ||
| Deferred tax liabilities, net (F) |
(37,006 | ) | ||
|
|
|
|||
| Total identifiable net assets acquired before goodwill and intangible assets |
$ | 245,215 | ||
| Goodwill and intangible assets (G) |
295,006 | |||
|
|
|
|||
| Total |
$ | 540,221 | ||
|
|
|
|||
This preliminary purchase price allocation has been used to prepare the transaction accounting and other adjustments in the Pro Forma Financial Statements. The final purchase price allocation will be determined when the Company completes the detailed valuations and necessary calculations and is expected to be completed when the Company files its report on Form 10-Q for the period ended December 31,
MARINEMAX, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED COMBINED PRO FORMA FINANCIAL STATEMENTS
2022. The final allocation could differ materially from the preliminary allocation used to compute the Pro Forma Adjustments presented herein, and may include changes in (1) the fair value of contingent consideration; (2) the fair values of property and equipment and related useful lives; (3) the fair value of favorable lease arrangements, impacting the total operating lease right-of-use assets; (4) the fair values of equity method investments, impacting the allocation to other assets; (5) the determination of certain other asset and liability balances; (6) the determination of deferred tax liabilities; (7) the fair values of intangible assets, such as trade names, customer relationships and in-place leases; and (8) the final allocation to goodwill.
The following Pro Forma Adjustments, pertaining to the preliminary purchase price allocation and reflected in the accompanying Pro Forma Financial Statements, are based on our estimates and assumptions that are subject to change:
| A. | The Pro Forma Balance Sheet reflects adjustments pertaining to the closing of the Transaction, including (1) the net increase to debt resulting from the receipt of the proceeds in connection with the Credit Facility, net of the extinguishment of all outstanding third-party debt of IGY Marinas; (2) the net decrease to cash to fund the remaining portion of the cash purchase price; (3) the elimination of IGY Marinas historical members’ equity and accumulated other comprehensive income balances; and (4) the differences between the preliminary purchase price allocation, determined as of October 1, 2022, and the related historical account balances in IGY Marinas Balance Sheet as of June 30, 2022. |
| B. | Additional consideration up to $100 million is payable to the selling shareholders subject to the achievement of certain operating results over a two-year period beginning January 1, 2023 (the “Earnout Payment”). If the base measurement amount is not achieved, then the Earnout Payment will be $0. If the base measurement amount is achieved, then the Earnout Payment will be $50 million, plus the pro rata share of the additional earnout amount upon achieving the incremental measurement amount, if any. Therefore, the undiscounted range of the potential Earnout Payment is between $0 and $100 million. |
| For purposes of the adjustment reflected in the Pro Forma Balance Sheet, we assumed that the base measurement amount will be achieved and the corresponding base earnout amount of $50 million (undiscounted) will be paid. The fair value of the Earnout Payment will be estimated by a third-party valuation specialist by applying an income valuation approach based on forecasted net operating income results over the two-year period (among other assumptions) subject to a Monte Carlo simulation, and the preliminary estimate will differ from the final amount determined after completing the detailed valuation analysis. Any change in the fair value of the Earnout Payment will directly result in an increase or decrease to goodwill, and the maximum potential difference could be up to $50 million. |
| C. | The preliminary estimate of the fair value of the noncontrolling interest in consolidated subsidiaries is approximately $2.5 million. The actual fair value will be determined by applying customary assumptions and other adjustments that market participants would consider when estimating the fair value of a noncontrolling interest in a consolidated subsidiary, and the preliminary estimate may differ from the final amount determined after completing the detailed valuation analysis. The adjustment in the Pro Forma Balance Sheet reflects the net decrease of approximately $2.5 million resulting from (1) the removal of the historical noncontrolling interest balance of approximately $5.0 million; and (2) the recognition of the preliminary estimated fair value of the noncontrolling interest of approximately $2.5 million. |
| D. | The preliminary estimate of the fair value of acquired property and equipment was determined with the assistance of third-party valuation specialists primarily using a combination of the market and cost valuation approaches. The following table summarizes the preliminary estimate of the fair value of the acquired property and equipment and their estimated useful lives and applies a straight-line method of depreciation to compute the incremental pro forma depreciation expense: |
| Pro forma depreciation expense | ||||||||||||||||
| Preliminary estimated fair value |
Weighted average useful life |
Annual 2021 | Interim 2022 | |||||||||||||
| (in thousands) | (years) | (in thousands) | ||||||||||||||
| Land |
$ | 37,645 | — | $ | — | $ | — | |||||||||
| Buildings and improvements |
228,355 | 20 | 11,400 | 8,600 | ||||||||||||
| Other property and equipment |
8,185 | 10 | 800 | 600 | ||||||||||||
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|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 274,185 | $ | 12,200 | $ | 9,200 | ||||||||||
| Less: historical amount |
(147,741 | ) | (7,482 | ) | (6,323 | ) | ||||||||||
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|
|
|
|
|
|||||||||||
| Pro Forma Adjustment |
$ | 126,444 | $ | 4,718 | $ | 2,877 | ||||||||||
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|
|
|
|
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MARINEMAX, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED COMBINED PRO FORMA FINANCIAL STATEMENTS
| The preliminary estimates of the fair value of property and equipment and related useful lives may differ from final amounts the Company will calculate after completing the remaining detailed valuation analysis, and the difference could have a material effect on the accompanying Pro Forma Financial Statements. A 10% change in the valuation of property and equipment would cause a corresponding increase or decrease in the balance of goodwill of approximately $28 million, and annual depreciation expense of approximately $1.6 million, assuming an overall weighted average useful life of approximately 17 years. |
| E. | IGY Marinas is party to long-term lease and concession agreements for land and submerged land at various marina sites. As of October 1, 2022, IGY Marinas adopted ASC Topic 842, “Leases” (“ASC 842”), resulting in the recognition of operating lease liabilities, initially measured at the present value of the remaining lease payments, and operating lease right-of-use assets, initially measured at an amount equal to the lease liability and adjusted for prepaid or accrued rent amounts and the preliminary estimate of the fair value of favorable lease agreements. With the assistance of third-party valuation specialists, the Company is reviewing for favorable or unfavorable terms when compared with market terms, and the right-of-use asset balance will be adjusted accordingly. A determination that favorable lease terms represent an additional $20 million would result in an increase in annual rent expense of approximately $0.5 million, assuming an overall weighted average remaining lease term of approximately 40 years. |
| F. | The Pro Forma Balance Sheet adjustments to historical deferred tax liabilities are approximately $23.8 million, which results in IGY Marinas pro forma net deferred tax liability balance of approximately $37.0 million. As of October 1, 2022, IGY Marinas will be included in the Company’s consolidated tax return, and the Company has preliminary identified certain basis difference that give rise to deferred tax liabilities which are included in the preliminary purchase price allocation. The final purchase price allocation will be determined when the Company has completed the detailed valuations and necessary calculations, and the final allocation could differ materially from the preliminary allocation used to prepare the Pro Forma Financial Statements. |
| G. | In connection with the preliminary purchase price allocation, the Company identified certain intangible assets, including trade names, customer relationships, and in-place leases, as well as favorable leases which are reflected within the operating lease right-of-use asset balance. The fair value of the identifiable intangible assets will be estimated with the assistance of third-party valuation specialists primarily using an income valuation approach based on forecasted cash flows over the estimated useful lives (among other assumptions). For purposes of the adjustments reflected in the Pro Forma Financial Statements, the Company relied on our previous acquisition experience as well as publicly available transaction data for the industry and estimated approximately $20 million of the total purchase price will be allocated to definite-lived intangible assets, such as customer relationships and in-place leases, and the remainder will be allocated to indefinite-lived intangibles, such as trade names, and goodwill. The following table summarizes the preliminary allocation between indefinite-lived intangible assets, including goodwill, and definite-lived intangible assets and applies a straight-line method of amortization based on the assumed useful lives to compute the incremental pro forma amortization expense: |
| Pro forma amortization expense | ||||||||||||||||
| Preliminary estimated fair value |
Weighted average useful life |
Annual 2021 | Interim 2022 | |||||||||||||
| (in thousands) | (years) | (in thousands) | ||||||||||||||
| Definite-lived intangible assets |
$ | 20,000 | 5 | $ | 4,000 | $ | 3,000 | |||||||||
| Indefinite-lived intangible assets and goodwill |
275,006 | — | — | — | ||||||||||||
|
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|
|
|
|
|
|
|
|||||||||
| Total |
$ | 295,006 | $ | 4,000 | $ | 3,000 | ||||||||||
| Less: historical amount |
(19,699 | ) | (887 | ) | (968 | ) | ||||||||||
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|
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|
|
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| Pro Forma Adjustment |
$ | 275,307 | $ | 3,113 | $ | 2,032 | ||||||||||
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|
|
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|
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| The preliminary allocation between intangible assets and goodwill will differ from the amounts determined after completing the detailed valuation analysis, and the difference could have a material effect on the accompanying Pro Forma Financial Statements. A 50% change in the valuation of definite-lived intangibles would cause a corresponding increase or decrease in the allocation of goodwill of approximately $10 million, and annual amortization expense of approximately $2.0 million, assuming an overall weighted average useful life of approximately five years. |
MARINEMAX, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED COMBINED PRO FORMA FINANCIAL STATEMENTS
Other adjustments reflected in the Pro Forma Financial Statements include:
| H. | The Pro Forma Income Statements reflect adjustments pertaining to the elimination of IGY Marinas’ historical interest expense and the recognition of the estimated incremental interest expense from the borrowings under the Credit Facility, including the amortization of debt issuance costs, based on the Company’s current variable rate of 5.3%. A one-eighth percent change in the variable interest rate would cause a corresponding increase or decrease in interest expense of approximately $0.4 million for the nine months ended June 30, 2022 and approximately $0.5 million for the year ended September 30, 2021. |
| I. | The preexisting terms of IGY’s share-based awards contained a change-in-control provision that automatically accelerated all unvested awards immediately upon consummation of an acquisition and change-in-control. An adjustment to accrue approximately $4.0 million has been reflected in the Pro Forma Financial Statements. These costs will not affect the Company’s statement of operations beyond twelve months after the acquisition date. |
| J. | Transaction-related costs incurred as of the date of this filing total approximately $7.8 million, of which approximately $0.9 million was incurred prior to June 30, 2022 and reflected in the historical financial information used to prepare the Pro Forma Financial Statements. An adjustment to accrue approximately $6.9 million for the remaining costs incurred as of the date of this filing has been reflected in the Pro Forma Financial Statements. These costs will not affect the Company’s statement of operations beyond twelve months after the acquisition date. |
| K. | Reflects the removal of management fees paid by IGY Marinas to its private equity sponsor. |
| L. | Reflects the income tax effect of all Pro Forma Adjustments impacting the Pro Forma Income Statements based on the estimated statutory rate of 24.5%. |