Kahala Ireland Opco Limited



Consolidated Financial Statements



As of December 31, 2015 and for the year then ended











Kahala Ireland Opco Limited



CONTENTS



|                                                                                           | Page  
|------------------------------------------------------------------------------------------ | ------
|Financial Statements                                                                       |       
|                                                                                           |       
|Independent Auditors' Report                                                               | 1 - 2 
|                                                                                           |       
|Consolidated Balance Sheet as of December 31, 2015                                         | 3 - 4 
|                                                                                           |       
|Consolidated Statement of Operations for the year ended December 31, 2015                  | 5     
|                                                                                           |       
|Consolidated Statement of Changes in Members' Deficit for the year ended December 31, 2015 | 6     
|                                                                                           |       
|Consolidated Statement of Cash Flows for the year ended December 31, 2015                  | 7 - 8 
|                                                                                           |       
|Notes to Consolidated Financial Statements                                                 | 9 - 34











|Independent Auditors' Report
|----------------------------



The Board of Directors



Kahala Ireland OpCo Limited:



Report on the Financial Statements



We have audited the accompanying consolidated
financial statements of Kahala Ireland OpCo Limited and its subsidiaries, which comprise the consolidated balance sheet as of December
31, 2015, and the related consolidated statements of operations, changes in members deficit, and cash flows for the year then ended,
and the related notes to the consolidated financial statements.



Management’s Responsibility for
the Financial Statements



Management is responsible for the preparation
and fair presentation of these consolidated financial statements in accordance with U.S. generally accepted accounting principles;
this includes 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.



Auditors’ Responsibility



Our responsibility is to express an opinion
on these consolidated financial statements based on our audit. We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the consolidated financial statements are free from material misstatement.



An audit involves performing procedures
to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend
on the auditors’ judgment, including the assessment of the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s
preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate
in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control.
Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and
the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the
consolidated financial statements.



We believe that the audit evidence we have
obtained is sufficient and appropriate to provide a basis for our opinion.



1







|Independent Auditors' Report
|----------------------------



Opinion



In our opinion, the 2015 consolidated financial statements referred
to above present fairly, in all material respects, the financial position of Kahala Ireland OpCo Limited and its subsidiaries as
of December 31, 2015, and the results of their operations and their cash flows for the year then ended in accordance with U.S.
generally accepted accounting principles.



Other Matter



The accompanying consolidated balance sheet of Kahala Ireland
OpCo Limited as of December 31, 2014, and the related statements of income and cash flows for the year then ended were not audited,
reviewed, or compiled by us and, accordingly, we do not express an opinion or any other form of assurance on them.



KPMG



Dublin, Ireland

March 9, 2016



2







|Kahala Ireland Opco Limited | 
|--------------------------- | 
|                            | 
|Consolidated Balance Sheet  | 
|                            | 
|As At December 31, 2015     | 
|                            | 
|(stated in US Dollars)      | 



|                                                                                                                                                                                                |  | Note |      |  | 2015 US$ |  |             | 2014 US$ (Unaudited) | 
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ---- |  | -------- |  | ----------- | -------------------- | 
|Assets                                                                                                                                                                                          |  |      |      |  |          |  |             |                      | 
|Current assets                                                                                                                                                                                  |  |      |      |  |          |  |             |                      | 
|Cash and cash equivalents                                                                                                                                                                       |  |      | 3    |  |          |  | 17,851,234  |                      | 
|Other receivables                                                                                                                                                                               |  |      |      |  |          |  | 2,175,907   |                      | 
|Due from related parties                                                                                                                                                                        |  |      | 18   |  |          |  | 740,433     |                      | 
|Prepayments                                                                                                                                                                                     |  |      |      |  |          |  | 104,573     |                      | 
|                                                                                                                                                                                                |  |      |      |  |          |  | 20,872,147  |                      | 
|Non-current assets                                                                                                                                                                              |  |      |      |  |          |  |             |                      | 
|Property and equipment, net (including US$100 million as of December 31, 2015 and  US$ nil as of December 31, 2014 representing collateral of VIE entities)                                     |  |      | 6    |  |          |  | 182,483,200 |                      | 
|Interest in Aircraft, net (including US$247 million as of December 31, 2015 and US$ nil as of December 31, 2014 representing collateral of VIE entities)                                        |  |      | 7    |  |          |  | 247,028,422 |                      | 
|Restricted cash (including US$29 million as of December 31, 2015 and US$ nil as of December 31, 2014 representing collateral of VIE entities)                                                   |  |      | 4    |  |          |  | 28,941,513  |                      | 
|Loans to related parties                                                                                                                                                                        |  |      | 18   |  |          |  | 1,000,000   |                      | 
|Deferred financing costs, net                                                                                                                                                                   |  |      |      |  |          |  | 709,873     |                      | 
|Lessor contributions                                                                                                                                                                            |  |      | 5    |  |          |  | 7,561,532   |                      | 
|                                                                                                                                                                                                |  |      |      |  |          |  | 467,724,540 |                      | 
|Total assets                                                                                                                                                                                    |  |      |      |  |          |  | 488,596,687 |                      | 
|Liabilities and Members' Equity                                                                                                                                                                 |  |      |      |  |          |  |             |                      | 
|Current liabilities                                                                                                                                                                             |  |      |      |  |          |  |             |                      | 
|Other liabilities                                                                                                                                                                               |  |      | 10   |  |          |  | 1,450,752   |                      | 
|Accrued interest                                                                                                                                                                                |  |      | 9    |  |          |  | 15,803,583  |                      | 
|Due to related parties                                                                                                                                                                          |  |      | 18   |  |          |  | 477,895     |                      | 
|Deferred revenue                                                                                                                                                                                |  |      |      |  |          |  | 2,359,627   |                      | 
|                                                                                                                                                                                                |  |      |      |  |          |  | 20,091,857  |                      | 
|Non-current liabilities                                                                                                                                                                         |  |      |      |  |          |  |             |                      | 
|Lease security deposits                                                                                                                                                                         |  |      |      |  |          |  | 5,058,000   |                      | 
|Aircraft maintenance reserve                                                                                                                                                                    |  |      |      |  |          |  | 62,992,355  |                      | 
|Loans from BDCA – related party                                                                                                                                                                 |  |      | 9,18 |  |          |  | 153,923,818 |                      | 
|Loans from KLS – related party                                                                                                                                                                  |  |      | 9,18 |  |          |  | 4,556,272   |                      | 
|Lease intangible liabilities, net                                                                                                                                                               |  |      | 8    |  |          |  | 5,232,122   |                      | 
|Long-term debt (including debt financing of VIE’s of US$240 million as of December 31, 2015 and US$nil as of  December 31, 2014 that do not have recourse of the general credit of the Company) |  |      | 9    |  |          |  | 239,540,512 |                      | 
|                                                                                                                                                                                                |  |      |      |  |          |  | 471,303,079 |                      | 
|Total liabilities                                                                                                                                                                               |  |      |      |  |          |  | 491,394,936 |                      | 



3







|Kahala Ireland Opco Limited | 
|--------------------------- | 
|                            | 
|Consolidated Balance Sheet  | 
|                            | 
|As At December 31, 2015     | 
|                            | 
|(stated in US Dollars)      | 



|                                      |  | Note |    |  | 2015 US$ |  |             | 2014 US$ (Unaudited) | 
|------------------------------------- |  | ---- | -- |  | -------- |  | ----------- | -------------------- | 
|Commitments and contingencies         |  |      | 19 |  |          |  | -           |                      | 
|                                      |  |      |    |  |          |  |             |                      | 
|Members' equity                       |  |      |    |  |          |  |             |                      | 
|Share capital                         |  |      |    |  |          |  |             |                      | 
|Common shares Eur1 par value          |  |      |    |  |          |  |             |                      | 
|Authorised: 1,000,000 shares          |  |      |    |  |          |  |             |                      | 
|Issued and outstanding: 100 shares    |  |      | 16 |  |          |  | 137         |                      | 
|Accumulated deficit                   |  |      |    |  |          |  | (2,798,386  | )                    | 
|Total members' deficit                |  |      |    |  |          |  | (2,798,249  | )                    | 
|Total liabilities and members' equity |  |      |    |  |          |  | 488,596,687 |                      | 



4







|Kahala Ireland Opco Limited         
|------------------------------------
|                                    
|Consolidated Statement of Operations
|                                    
|For the year ended December 31, 2015
|                                    
|(stated in US Dollars)              



|                                                                                                                                                                 |  | Note |        |  | 2015 US$ |  |            | 2014 US$ (Unaudited) | 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------ |  | -------- |  | ---------- | -------------------- | 
|Revenues                                                                                                                                                         |  |      |        |  |          |  |            |                      | 
|Lease rental income                                                                                                                                              |  |      | 12     |  |          |  | 11,767,666 |                      | 
|Net return on Interest in Aircraft                                                                                                                               |  |      |        |  |          |  | 9,726,215  |                      | 
|Maintenance reserve income                                                                                                                                       |  |      |        |  |          |  | 3,650,819  |                      | 
|Interest income                                                                                                                                                  |  |      | 18     |  |          |  | 154,797    |                      | 
|Other income                                                                                                                                                     |  |      |        |  |          |  | 12,648     |                      | 
|Total revenues                                                                                                                                                   |  |      |        |  |          |  | 25,312,145 |                      | 
|Expenses                                                                                                                                                         |  |      |        |  |          |  |            |                      | 
|Interest expense                                                                                                                                                 |  |      |        |  |          |  |            |                      | 
|Loans from third parties                                                                                                                                         |  |      | 9      |  |          |  | 4,428,010  |                      | 
|Loans from BDCA – related party                                                                                                                                  |  |      | 9, 18  |  |          |  | 13,499,616 |                      | 
|Loans from KLS – related party                                                                                                                                   |  |      | 9, 18  |  |          |  | 172,174    |                      | 
|Depreciation and amortization                                                                                                                                    |  |      | 6,7,8  |  |          |  | 5,132,928  |                      | 
|Selling, general and administrative expenses (including US$1 million as of December 31, 2015  and US$0.2 million as of December 31, 2014 which is related party) |  |      | 13, 18 |  |          |  | 4,485,277  |                      | 
|Total expenses                                                                                                                                                   |  |      |        |  |          |  | 27,718,005 |                      | 
|Net loss before taxes                                                                                                                                            |  |      |        |  |          |  | (2,405,860 | )                    | 
|Income taxes                                                                                                                                                     |  |      | 17     |  |          |  | -          |                      | 
|Net loss after taxes and total comprehensive loss                                                                                                                |  |      |        |  |          |  | (2,405,860 | )                    | 



5









|Kahala Ireland Opco Limited                          
|-----------------------------------------------------
|                                                     
|Consolidated Statement of Changes in Members' Deficit
|                                                     
|For the year ended December 31, 2015                 
|                                                     
|(stated in US Dollars)                               



|                                                       |  | Share Capital Number of
shares |     |  | Share Capital Par value US$ |  |     | Accumulated
Deficit US$ |  |  | Total US$  |  
|------------------------------------------------------ |  | ------------------------------ | --- |  | --------------------------- |  | --- | ----------------------- |  |  | ---------- | -
|                                                       |  |                                |     |  |                             |  |     |                         |  |  |            |  
|2014 (Unaudited)                                       |  |                                |     |  |                             |  |     |                         |  |  |            |  
|Balance at 9 April 2014                                |  |                                | -   |  |                             |  | -   |                         |  |  | -          |  
|Shares issued during the period                        |  |                                | 100 |  |                             |  | 137 |                         |  |  | -          |  
|Net loss and total comprehensive income for the period |  |                                | -   |  |                             |  | -   |                         |  |  | (392,526   | )
|Balance at December 31, 2014 (Unaudited)               |  |                                | 100 |  |                             |  | 137 |                         |  |  | (392,526   | )
|                                                       |  |                                |     |  |                             |  |     |                         |  |  |            |  
|2015                                                   |  |                                |     |  |                             |  |     |                         |  |  |            |  
|Balance at January 1, 2015                             |  |                                | 100 |  |                             |  | 137 |                         |  |  | (392,526   | )
|Net loss and total comprehensive income for the year   |  |                                | -   |  |                             |  | -   |                         |  |  | (2,405,860 | )
|Balance at December 31, 2015                           |  |                                | 100 |  |                             |  | 137 |                         |  |  | (2,798,386 | )



6







|Kahala Ireland Opco Limited         
|------------------------------------
|                                    
|Consolidated Statement of Cash Flows
|                                    
|For the year ended December 31, 2015
|                                    
|(stated in US Dollars)              



|                                                                                          |  | 2015 US$ |              |   | 2014 US$ (Unaudited) | 
|----------------------------------------------------------------------------------------- |  | -------- | ------------ | - | -------------------- | 
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                     |  |          |              |   |                      | 
|Net loss for the year/period                                                              |  |          | (2,405,860   | ) |                      | 
|Adjustments to reconcile net loss to net cash provided by/(used in) operating activities: |  |          |              |   |                      | 
|Depreciation and amortization                                                             |  |          | 5,132,928    |   |                      | 
|Amortization of Interest in Aircraft                                                      |  |          | 23,002,633   |   |                      | 
|Amortization of deferred financing costs and discounts                                    |  |          | 12,336       |   |                      | 
|Changes in operating assets and liabilities:                                              |  |          |              |   |                      | 
|Lessor contributions                                                                      |  |          | (486,540     | ) |                      | 
|Other receivables                                                                         |  |          | (1,234,018   | ) |                      | 
|Prepayments                                                                               |  |          | (104,573     | ) |                      | 
|Due from related parties                                                                  |  |          | (427,016     | ) |                      | 
|Other liabilities                                                                         |  |          | 601,412      |   |                      | 
|Accrued interest                                                                          |  |          | 14,101,834   |   |                      | 
|Due to related parties                                                                    |  |          | (473,666     | ) |                      | 
|Deferred revenue                                                                          |  |          | 1,945,696    |   |                      | 
|Net cash provided by/(used in) operating activities                                       |  |          | 39,665,166   |   |                      | 
|Cash flows from investing activities                                                      |  |          |              |   |                      | 
|Payments for purchase of aircraft                                                         |  |          | (28,764,493  | ) |                      | 
|Interest in aircraft                                                                      |  |          | (365,822,522 | ) |                      | 
|Loans advanced to related party                                                           |  |          | -            |   |                      | 
|Net cash used in investing activities                                                     |  |          | (394,587,015 | ) |                      | 
|Cash flows from financing activities                                                      |  |          |              |   |                      | 
|Increase in restricted cash                                                               |  |          | (28,941,513  | ) |                      | 
|Deferred financing costs                                                                  |  |          | (494,835     | ) |                      | 
|Receipts of maintenance reserve                                                           |  |          | 48,939,359   |   |                      | 
|Repayments of maintenance reserve                                                         |  |          | (1,255,013   | ) |                      | 
|Receipts of lease security deposits                                                       |  |          | 2,713,000    |   |                      | 
|Proceeds from debt financing                                                              |  |          | 260,750,000  |   |                      | 
|Proceeds from BDCA loans – related party                                                  |  |          | 108,975,000  |   |                      | 
|Proceeds from KLS loans – related party                                                   |  |          | 1,625,000    |   |                      | 
|Repayment of debt financing                                                               |  |          | (21,209,488  | ) |                      | 



7







|Kahala Ireland Opco Limited                     
|------------------------------------------------
|                                                
|Consolidated Statement of Cash Flows (continued)
|                                                
|For the year ended December 31, 2015            
|                                                
|(stated in US Dollars)                          



|                                                                         |  | 2015 US$ |             |   | 2014 US$ (Unaudited) | 
|------------------------------------------------------------------------ |  | -------- | ----------- | - | -------------------- | 
|Net cash provided by financing activities                                |  |          | 371,101,510 |   |                      | 
|Increase in cash and cash equivalents                                    |  |          | 16,179,661  |   |                      | 
|Cash and cash equivalents at beginning of year/period                    |  |          | 1,671,573   |   |                      | 
|Cash and cash equivalents at end of year/period                          |  |          | 17,851,234  |   |                      | 
|                                                                         |  |          |             |   |                      | 
|Supplemental disclosures of non-cash investing and financing activities: |  |          |             |   |                      | 
|Transfer of Interest in Aircraft to Aircraft                             |  |          | 101,011,236 |   |                      | 
|Transfer of Interest in Aircraft to Intangibles                          |  |          | (5,219,769  | ) |                      | 



8







|Kahala Ireland Opco Limited               
|------------------------------------------
|                                          
|Notes to Consolidated Financial Statements
|                                          
|For the year ended December 31, 2015      
|                                          
|(stated in US Dollars)                    



|1.    Organization
|------------------



Kahala Ireland OpCo Limited
(the “Company”) was incorporated in Ireland on 9 April 2014 with a company registration number 542343. The Company
is a special purpose company with limited liability having its registered office at Fitzwilliam Hall, Fitzwilliam Place, Dublin
2, Ireland. The Company is a wholly owned subsidiary of Kahala Luxco S.A.R.L (“KLS”) which is ultimately owned by Kahala
Aviation Holdings, LLC (“KAH”), the ultimate parent. KAH is 89.5% owned by Business Development Corporation of America
(“BDCA”) and 10.5% owned by Kahala Aviation Group Ltd.



The Group refers to the Company
and its consolidated subsidiaries, Kahala Ireland Investments Designated Activity Company and Diamond Head Aviation 2015 Limited.



The principal activity of the
Group is the financing, purchasing and leasing of aircraft.



The Group is managed by Kahala
Aviation Group Ltd (the "Manager" or “KAGL”), a company organised under the laws of the Cayman Islands. The
Manager assumed the managing responsibilities of the previous manager, Kahala Aviation Leasing Ltd on October 6, 2014. Additionally,
certain corporate administration services have been outsourced to Maples Fiduciary Services (Ireland) Limited and PAFS Ireland
Limited.



The Group does not have employees
during the year ended December 31, 2015 (2014: none).



In 2014, the Group acquired
five aircraft, placed on lease to various airlines worldwide. These aircraft are held in Irish incorporated trust structures.



One aircraft (MSN 25372) was
15% funded by Ridgeline Holdings LLC, a third party. The contribution is profit participating and does not bear interest at a fixed
rate.



In 2015, the Group acquired
four aircraft held in trust structures. Three were placed on lease to lessees worldwide. The remaining aircraft is undergoing conversion
to freighter aircraft and is expected to be placed on lease in 2016.



On 2 July 2015, the Company
acquired the shares of Kahala Ireland Investments Designated Activity Company (“KII”), a company registered in Ireland
with company registration number 564256. Its registered office is Fitzwilliam Hall, Fitzwilliam Place, Dublin 2, Ireland. KII’s
principal activity is to carry on the business of a holding company.



On 30 July 2015, KII purchased
the entire E-notes issued by Diamond Head Aviation 2015 Limited (“Diamond Head”), an exempted company incorporated
with limited liability under the laws of Cayman Islands and resident in Ireland for Irish tax purposes. This transaction was funded
by a series of intercompany loans ultimately funded by a fixed rate loan from BDCA, the ultimate shareholder of the KAH group.



Diamond Head purchased a portfolio
of 30 aircraft funded from the proceeds of the Class A, Class B and Class E notes it issued. The returns generated from the leasing
of the aircraft and their ultimate disposition are used to service, in the first instance the interest and principal on the A and
B Notes among other items. Only when all required payments have been discharged under the priority of payments are the Class E
Note holders entitled to all remaining amounts as to settle any accrued and unpaid interest and principal on the E Notes.



The Group considered the requirements
under ASC 810-10 Consolidation in determining the treatment of Diamond Head as a Variable Interest Entity (“VIE”).
Under the VIE model, the party that has the power to direct the entity’s most significant economic activities and has ability
to participate in the entity’s economic benefits is deemed the primary beneficiary and consolidates the entity.



9







|Kahala Ireland Opco Limited                           
|------------------------------------------------------
|                                                      
|Notes to Consolidated Financial Statements (continued)
|                                                      
|For the year ended December 31, 2015                  
|                                                      
|(stated in US Dollars)                                



|1.    Organization (continued)
|------------------------------



Management has concluded KII
through its ownership of the entire E notes of Diamond Head is entitled to the distribution of economic benefits generated by Diamond
Head that is not proportionate to its equity ownership and voting rights. The key decisions affecting the economic activities of
Diamond Head are reserved for the Board of Directors, the majority of which are appointed by KII, therefore substantially all of
the Diamond Head’s activities are conducted on behalf of KII. KII has the right to the full economic benefits of all net
returns (i.e. those after all the obligations of Diamond Head have been met) generated by Diamond Head and through its ownership
of the E notes will bear the majority of Diamond Head’s expected losses. On this basis, Diamond Head is deemed a VIE and
is consolidated in the Group.



| | 2. | Summary of Significant Accounting Policies
| | -- | ------------------------------------------



The Group’s principal
accounting policies adopted in the preparation of these financial statements are set out below. These policies have been consistently
applied, unless otherwise stated.



Basis of preparation



These consolidated financial
statements have been prepared on a going concern basis in accordance with the accounting policies set out below and in conformity
with accounting policies generally accepted in the United States of America ("US GAAP").



Basis of consolidation



The consolidated financial statements
include the results of the Company and its subsidiaries, KII and Diamond Head. All significant intercompany profits, transactions
and account balances have been eliminated. The results of subsidiary undertakings added in the year are included in the consolidated
statement of operations.



The Company consolidates all
companies in which the Company has direct or indirect legal or effective control and all variable interest entities (“VIE”)
for which the Company is deemed the primary beneficiary and has control under Accounting Standards Codification (“ASC”)
810. All intercompany balances and transactions with consolidated subsidiaries have been eliminated. The results of consolidated
entities are included from the effective date of control or, in the case of variable interest entities, from the date that the
Company is or becomes the primary beneficiary. The results of subsidiaries sold or otherwise deconsolidated are excluded from the
date that the Company ceases to control the subsidiary or, in the case of variable interest entities, when the Company ceases to
be the primary beneficiary.



Variable interest entities



The Company consolidates financial
statements of all entities in which the Company has a controlling financial interest including the accounts of any variable interest
entity (VIE) in which the Company has a controlling interest and for which the Company is the primary beneficiary.



The Company uses judgment when
deciding (a) whether an entity is subject to consolidation as a VIE, (b) who the variable interest holders are, (c) the potential
expected losses and residual returns of the variable interest holders, and (d) which variable interest holder is the primary beneficiary.



10







|Kahala Ireland Opco Limited                           
|------------------------------------------------------
|                                                      
|Notes to Consolidated Financial Statements (continued)
|                                                      
|For the year ended December 31, 2015                  
|                                                      
|(stated in US Dollars)                                



| | 2. | Summary of Significant Accounting Policies (continued)
| | -- | ------------------------------------------------------



Variable interest entities (continued)



When determining which enterprise
is the primary beneficiary, we consider (1) the entity’s purpose and design, (2) which variable interest holder has the power
to direct the activities that most significantly impact the entity’s economic performance, and (3) the obligation to absorb
losses of the entity or the right to receive benefits from the entity that could potentially be significant to the VIE.



When
certain events occur, we reconsider whether we are the primary beneficiary of VIEs.



Use of estimates



The
preparation of consolidated financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements, and revenue and expenses during the year reported. Significant items subject to such estimates include
those related to useful lives and residual values of property and equipment, interest in aircraft and recoverability of deferred
tax assets. While the Group believes the estimates and related assumptions used in the preparation of the consolidated financial
statements are appropriate, actual results could differ from those estimates.



Functional currency



The
consolidated financial statements are presented in United States Dollars ("US$"), which is the Company’s functional
currency and that of each of its subsidiaries. Zero balances are represented with a “-”. Management believe that US$
most faithfully represents the economic effects of the underlying transactions, events and conditions.



Transactions
in foreign currencies are translated to US$ at exchange rates at the dates of the transactions. Monetary assets and liabilities
denominated in foreign currencies are translated into US$ at the rates of exchange prevailing at the balance sheet date with differences
arising recognized as profit or loss in the consolidated income statement.



Cash and cash equivalents



Cash
and cash equivalents include cash and all highly liquid investments with initial maturities of three months or less.



Restricted cash



Restricted
cash represents cash held by the Group but which is ring-fenced or used as security for specific financing arrangements, and to
which the Group does not have unfettered access.



Loans and receivables



Loans and receivables are stated
at amortized cost based on the Group's ability and intent to hold such loans and receivables to maturity and are stated net of
allowances for uncollectible accounts, if any. Amortized cost represents acquisition cost, plus or minus origination and commitment
costs paid or fees received, which together with acquisition premiums or discounts, are deferred and amortized as yield adjustments
over the life of the loans and receivables. Allowances for uncollectible balances are provided when it is probable counterparties
will be unable to pay all amounts due based on the contractual terms. Loans and receivables are generally written off against allowances
after all reasonable collection efforts are exhausted.



11







|Kahala Ireland Opco Limited                           
|------------------------------------------------------
|                                                      
|Notes to Consolidated Financial Statements (continued)
|                                                      
|For the year ended December 31, 2015                  
|                                                      
|(stated in US Dollars)                                



| | 2. | Summary of Significant Accounting Policies (continued)
| | -- | ------------------------------------------------------



Fair value measurements



Fair value is defined as the
price that would be received to sell an asset or the price paid to transfer a liability in an orderly transaction between market
participants at the measurement date. Inputs used in determining fair value are characterized according to a hierarchy that prioritizes
those inputs



Level 1 - Quoted prices are
available in active markets for identical assets or liabilities as of the reported date.



Level 2 -The fair values determined
through Level 2 of the fair value hierarchy are derived principally from or corroborated by observable market data. Inputs include
quoted prices for similar assets, liabilities (risk adjusted) and market corroborated inputs, such as market comparable, interest
rates, yield curves and other items that allow value to be determined.



Level 3 - The fair values pertaining
to Level 3 of the fair value hierarchy are derived principally from unobservable inputs from our own assumptions about market risk
developed based on the best information available, subject to cost benefit analysis, and may include our own data.



Property and equipment,
net



Property and equipment, representing
purchased aircraft, is stated at cost less accumulated depreciation and provisions for impairment, if any. Property and equipment
is depreciated using the straight-line method over their estimated useful lives. Residual values are determined based on historical
trends, independent current and future forecast valuations and management's own experience and judgment.



Property and equipment are reviewed
for impairment annually whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
If circumstances require a long-lived asset or asset group be tested for possible impairment, the Group first compares undiscounted
cash flows expected to be generated by that asset or asset group to its carrying value. If the carrying value of the long-lived
asset or asset group is not recoverable on an undiscounted cash flow basis, impairment is recognized to the extent that the carrying
value exceeds its fair value. Fair value is determined through various valuation techniques, including quoted market values, and
third-party independent appraisals, as considered necessary.



No events or changes in circumstances
have occurred that indicate the carrying amount of an aircraft may not be recoverable. Accordingly, no impairment charges have
been incurred as of December 31, 2015 (2014: nil).



Interest in Aircraft,
net



The Group recognises an Interest
in Aircraft where a beneficial interest in an aircraft is obtained prior to transfer of legal ownership. On transfer of ownership
to the Group, Interests in Aircraft are reclassified as Aircraft. Interests in Aircraft are recorded at cost less amortisation
and provision for impairment, where necessary.



The net return on the Interest
in Aircraft represents (i) the rental income due to the Group and (ii) an amortisation of the Interest in Aircraft to reflect an
allocation of the cost of that asset on a basis consistent with the depreciation profile for each of Aircraft had they been acquired
on the respective purchase agreement dates.



12







|Kahala Ireland Opco Limited                           
|------------------------------------------------------
|                                                      
|Notes to Consolidated Financial Statements (continued)
|                                                      
|For the year ended December 31, 2015                  
|                                                      
|(stated in US Dollars)                                



| | 2. | Summary of Significant Accounting Policies (continued)
| | -- | ------------------------------------------------------



Lease intangible assets/liabilities



Lease intangible assets/liabilities
represent the value of an acquired non short term lease where the contractual rent payments are above/below the market lease rate
at the date of acquisition. This asset is recognized at cost based on discounted cash flows and is amortized on a straight-line
basis over the remaining term of the related lease and recorded as a reduction in lease rental income.



Maintenance intangible
assets/liabilities



Maintenance intangible assets/liabilities
represent the value in the difference between the contractual right under the acquired non short term leases to receive the aircraft
in a specified maintenance condition at the end of the lease and the actual physical condition of the aircraft at the date of acquisition.
The amortization for maintenance intangible commences when the Group has reliable information about maintenance advances received
under the same lease that are not expected to be reimbursed to customers or at the end of the lease. Maintenance intangible asset
amortization is recorded as a component of depreciation and amortization.



Long-term debt



Debt represents loans payable
to BDCA, KLS and Class A and B notes issued by Diamond Head and is classified as debt in accordance with ASC 470, 'Debt'. Loans
payable are measured at amortized cost. Direct and incremental costs of the issuance of debt are capitalized and reported as a
contra to debt. These costs are amortized over the life of the related debt using the effective interest rate method.



Interest income and expense



Interest income is recognized
in the Consolidated Statement of Operations as it is accrues. Interest expense incurred in connection with long-term debt is expensed
as it accrues as part of interest expense. All other operating costs are accounted for on an accruals basis.



Income taxes



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.
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 operations in the period that includes the enactment date. Deferred tax assets are reduced by a valuation
allowance when, in the opinion of management, it is not "more likely than not" that some portion or all of the deferred
tax assets will be realized. Deferred tax liabilities for accelerated depreciation of aircraft are substantially offset by deferred
tax assets for loss carryforwards and accrued interest. Losses are available indefinitely. There are no unrecognized tax benefits
for uncertain tax positions.



Revenue recognition



The Group leases aircraft under
operating leases and records rental income on a straight-line basis over the term of the lease. Rentals received but unearned under
the lease agreements is recorded in "Deferred revenue" on the Group's consolidated balance sheet until earned. The difference
between the rental income recorded and the cash received under the provisions of the lease is included in "Accounts receivable".
An allowance for doubtful accounts will be recognized for past-due rentals based on management's assessment of collectability.



13







|Kahala Ireland Opco Limited                           
|------------------------------------------------------
|                                                      
|Notes to Consolidated Financial Statements (continued)
|                                                      
|For the year ended December 31, 2015                  
|                                                      
|(stated in US Dollars)                                



| | 2. | Summary of Significant Accounting Policies (continued)
| | -- | ------------------------------------------------------



Revenue recognition (continued)



Past due rentals are recognized
on the basis of the Group's assessment of collectability. No revenues are recognized, and no receivable is recorded from a lease
when collectability is not reasonably assured. Estimating whether collectability is reasonably assured requires some level of subjectivity
and judgment. When collectability of rental payments is not certain, revenue is recognized when cash payments are received. Collectability
is evaluated based on factors such as the lessee's credit rating, payment performance, financial condition and requests for modifications
of lease terms and conditions as well as security received from the lessee.



Security deposits



Security deposits on leased
aircraft are generally paid by the lessee on the execution of the lease and are non-refundable during the term of the lease. The
amounts are held as a security for the timely and faithful performance by the lessee of its obligations during the lease and are
included on the balance sheet. The deposit may be applied against amounts owing from the lessee or returned to the lessee on the
termination of the lease.



Lessor contributions



In certain lease agreements
the Group makes contributions towards maintenance expenses, which represents a lease incentive. At lease commencement, the Group
models expected maintenance to be incurred in the course of the lease. For all expected maintenance obligations that cover the
period before the lease commencement, the payment obligation is set up as a Lessor Contribution asset with a corresponding liability
in maintenance reserves. The lessor contribution is amortized on a straight line basis over the term of the lease and is included
as a reduction to lease revenue.



Maintenance reserves



The aircraft lease agreements
typically contain provisions which require the lessee to make additional contingent rental payments based on either the usage of
the aircraft, measured on the basis of hours or cycles flown per month (a cycle is one take off and landing), or calendar based
time. These payments represent contributions to the cost of major future maintenance events associated with the aircraft and typically
cover major airframe structural checks, engine overhauls, the replacement of limited life parts contained in each engine, landing
gear overhauls or the auxiliary power unit. These maintenance reserves are generally collected monthly based on reports of usage
by the lessee or collected as fixed monthly rates.



In accordance with the lease
agreements, maintenance reserves are subject to reimbursement to the lessee upon the occurrence of a qualifying event. The reimbursable
amount is capped at the amount of maintenance reserves received by the Group, net of previous reimbursements. All amounts of maintenance
reserves unclaimed by the lessee at the end of the lease term are retained by the Group, and included as contingent income within
revenue. There are no provisions in our leases for the repayment of unused reserves at lease end.



Any maintenance reserve receipts
that are not expected to be reimbursed to the lessee in the course of the lease either on the basis of the terms of the lease,
the timing and cost of the maintenance event or where the maintenance event has been carried and no further expectation of outflows
exist, the maintenance receipts are recognized as Contingent income as part of Revenue in the Consolidated Statement of Operations.



14







|Kahala Ireland Opco Limited                           
|------------------------------------------------------
|                                                      
|Notes to Consolidated Financial Statements (continued)
|                                                      
|For the year ended December 31, 2015                  
|                                                      
|(stated in US Dollars)                                



| | 2. | Summary of Significant Accounting Policies (continued)
| | -- | ------------------------------------------------------



Segment information



The Group manages its business,
analyses and reports its results of operations on the basis of one operating segment - leasing and selling of commercial aircraft.
Management uses one measure of profitability and does not segment its business for internal reporting.



Recent accounting
pronouncements



ASU 2015-02, Consolidation (Topic 810) - Amendments
to the Consolidation Analysis

In February 2015, the FASB issued ASU 2015-02, which
changes the way reporting enterprises evaluate whether (a) they should consolidate limited partnerships and similar entities, (b)
fees paid to a decision maker or service provider are variable interests in a variable interest entity (VIE), and (c) variable
interests in a VIE held by related parties of the reporting enterprise require the reporting enterprise to consolidate the VIE.
It also eliminates the VIE consolidation model based on majority exposure to variability that applied to certain investment companies
and similar entities. The new guidance excludes money market funds that are required to comply with Rule 2a-7 of the Investment
Company Act of 1940 and similar entities from the U.S. GAAP consolidation requirements.



ASU 2015-14, Revenue from Contracts with Customers
(Topic 606): Deferral of the Effective Date

FASB ASU 2015-14 amends the effective dates of ASU
2014-09, Revenue from Contracts with Customers. The requirements are effective for annual periods and interim periods within fiscal
years beginning after December 15, 2017, for public business entities, certain employee benefit plans, and certain not-for-profit
entities applying U.S. GAAP. Earlier application is permitted only as of annual reporting periods beginning after December 15,
2016, including interim reporting periods within that reporting period.



ASU 2015-17, Income Taxes (Topic 740): Balance
Sheet Classification of Deferred Taxes

In November 2015, the FASB issued ASU 2015-17, which
requires entities with a classified balance sheet to present all deferred tax assets and liabilities as noncurrent. The ASU is
effective for public business entities for interim and annual periods in fiscal years beginning after December 15, 2016. The Company
plans to adopt ASU 2015-17 for its annual period beginning on 1 January 2016. The amendment will be applied prospectively.



ASU 2015-03, Interest - Imputation of Interest
(Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs and ASU 2015-15, Interest - Imputation of Interest (Subtopic
835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements

In April 2015, the FASB issued ASU 2015-03, Interest—Imputation
of Interest. The standard will require debt issuance costs to be presented in the balance sheet as a direct deduction from the
related debt liability rather than as an asset. Amortization of the costs will be reported as interest expense. Entities will be
required to apply the new guidance retrospectively to all prior periods presented. ASU 2015-03 will be effective for annual periods
beginning after December 15, 2015, and interim periods within those fiscal years. Early application is permitted. The Company expects
new guidance will reduce total assets and debt financing on its consolidated balance sheets by amounts currently classified as
deferred issuance costs, but does not expect this update to have any other effect on its consolidated financial statements.



Management
is currently evaluating the impact, if any, that this update will have on its financial condition and financial position of the
Group.



| | 3. | Cash and cash equivalents
| | -- | -------------------------



Cash and cash equivalents consist
of cash balances that are in a credit position held with major financial institutions. As of December 31, 2015, cash and cash equivalent
balance amounts to US$17,851,234 (2014: US$1,671,573).



15







|Kahala Ireland Opco Limited                           
|------------------------------------------------------
|                                                      
|Notes to Consolidated Financial Statements (continued)
|                                                      
|For the year ended December 31, 2015                  
|                                                      
|(stated in US Dollars)                                



| | 4. | Restricted cash
| | -- | ---------------



Restricted
cash consist of cash balances held for specific purpose under the terms of the Group’s lease and financing agreements. As
of December 31, 2015, restricted cash balance amounts to US$28,941,513 (2014: nil). All of Group’s restricted cash of US$28,941,513
is pledged as security for the Group obligations under the A and B notes issued. The use of this cash is restricted and held for
payments of principal and interest of Class A, B and E notes.



| | 5. | Lessor contributions
| | -- | --------------------



As of December 31, 2015, the
Group’s lessor contributions amount to US$7,561,532 (2014: US$7,074,992). During 2015, US$2,224,147 (2014: US$7,520,890)
was set up as new lessor contributions and amortization of US$1,737,607 (2014: US$445,898) was charged to the Consolidated Statement
of Operations.



| | 6. | Property and equipment, net
| | -- | ---------------------------



Property and equipment consisted
of the following at December 31, 2015 and 2014:



|Flight Equipment             |  | 2015 US$ |             |   | 2014 US$ (Unaudited) | 
|---------------------------- |  | -------- | ----------- | - | -------------------- | 
|Cost                         |  |          | 188,282,710 | * |                      | 
|Accumulated depreciation     |  |          | (5,799,510  | ) |                      | 
|Total property and equipment |  |          | 182,483,200 |   |                      | 



*Cost includes US$101,011,236
transferred from Interest in Aircraft.



Depreciation expense for the
year amounted to $5,120,135 (2014: $679,375).



In 2014, the Group purchased
one Airbus A320-200 aircraft (MSN 1422), two Boeing 737-400 freighter aircraft (MSN 25372 and MSN 24231) and two Boeing B737-800
aircraft (MSN 28674 and MSN 28576). These aircraft are placed on lease to various airlines worldwide.



In 2015, the Group purchased
one Airbus A320-200 aircraft (MSN 986), three Boeing 737-300 freighter aircraft (MSN 28200, MSN 27459 and MSN 27460). As discussed
in Note 1, KII purchased the entire E-notes of Diamond Head. Diamond Head, a consolidated VIE, acquired 30 various aircraft, five
of those aircraft are classified under property and equipment at December 31, 2015, the remainder are classified as Interest in
Aircraft, see Note 7. These aircraft are placed on lease to various airlines worldwide except for MSN 27460.



At December 31, 2015 the Group
owned 14 aircraft held for operating lease (2014: five).



The estimated useful lives of
the aircraft ranges from 2 years to 7 years. The aircraft are depreciated on a straight line basis to an estimated residual value.



16







|Kahala Ireland Opco Limited                           
|------------------------------------------------------
|                                                      
|Notes to Consolidated Financial Statements (continued)
|                                                      
|For the year ended December 31, 2015                  
|                                                      
|(stated in US Dollars)                                





| | 6. | Property and equipment, net (continued)
| | -- | ---------------------------------------



No events or changes in circumstances
have occurred that indicate the carrying amount of an aircraft may not be recoverable. Accordingly, no impairment charges have
been incurred as of December 31, 2015 (2014: nil).



The Company has defined a threshold
of 10% for determining whether the undiscounted cash flows substantially exceed the carrying value of the aircraft. All of the
aircraft held by the Company exceeded this 10% threshold on December 31, 2015. The aggregated carrying value of the aircraft on
December 31, 2015 amounted to US$182 million (2014: US$58 million).



Aircraft
held by Diamond Head are pledged as security for the Group’s obligations under the Class A and B notes.



| | 7. | Interest in aircraft, net
| | -- | -------------------------



Interest in aircraft consisted of the following
at December 31, 2015 and 2014:



|                                    |  | 2015 US$ |             |   | 2014 US$ (Unaudited) | 
|----------------------------------- |  | -------- | ----------- | - | -------------------- | 
|Cost                                |  |          | 365,822,522 |   |                      | 
|Transfer to aircraft and intangible |  |          | (95,791,467 | ) |                      | 
|Accumulated amortization            |  |          | (23,002,633 | ) |                      | 
|                                    |  |          | 247,028,422 |   |                      | 



During
the year ended 31 December 2015 the Group entered into a Purchase Agreement with another lessor to acquire a portfolio of 30 aircraft. 
Under the terms of the purchase agreement, the Group is required to place US$354.12 million in an escrow account as consideration
for the aircraft and from the economic closing date is entitled to a beneficial interest in the 30 aircraft. The other lessor
is obligated to transfer the 30 aircraft to the Group on various dates to be agreed from the purchase agreement date onwards, but
not later than April 25, 2016. The final payment for each aircraft is release from the escrow account to the other lessor on the
respect closing date.



If
the other Lessor is unable to transfer any aircraft before the end of this period for any reason other than the destruction of,
or substantial damage to, the aircraft, then the other lessor must use reasonable efforts to designate a substitute aircraft for
the aircraft which is not transferred before April 24, 2016. A substitute aircraft, individually or in the aggregate with
other substitute aircraft, must be reasonably acceptable to the Group and must meet certain conditions.



In
the period from the purchase agreement date to each Closing Date, the beneficial interest in the Aircraft that the Group has acquired
through the terms of the purchase agreement, entitles the Group to receive an amount equal to the rental income (base rent and
additional rent) from the lease arrangements entered into in respect of the Aircraft, net of amortisation. The Interest in Aircraft
is amortised to an estimated residual value over its expected useful economic life. The Group has also assumed a liability to pay
all maintenance and other payments due under the lease arrangements. The effect of the purchase agreement is that as at the Closing
Date of each aircraft the Group will be in the same position as they would have been had such aircraft been novated on the purchase
agreement date.



In
the period from the purchase agreement date to each of the closing dates the Group has recognised an Interest in Aircraft (representing
the amounts paid to the other Lessors to acquire the beneficial interest in the Aircraft), and a net return on that interest is
included as part of Revenue of US$9.7 million.



17







|Kahala Ireland Opco Limited                           
|------------------------------------------------------
|                                                      
|Notes to Consolidated Financial Statements (continued)
|                                                      
|For the year ended December 31, 2015                  
|                                                      
|(stated in US Dollars)                                



| | 7. | Interest in aircraft, net (continued)
| | -- | -------------------------------------



Once
the Group obtains full ownership of these aircraft (i.e. on novation) the Interest in Aircraft will be transferred to property,
plant and equipment as part of the initial cost of each aircraft, the rental income will be recognised gross as part of lease revenue,
and the aircraft will be depreciated in accordance with the Group’s existing policies in this regard.



Five
of the aircraft were transferred during the period and consequently US$95.7 million was transferred from Interest in Aircraft to
Aircraft and Lease intangible liabilities.



25 aircraft were
classified as Interest in Aircraft at December 31, 2015. Subsequent to year end 14 aircraft were transferred and have been transferred
from Interest in Aircraft to Aircraft.



| | 8. | Intangible assets and liabilities
| | -- | ---------------------------------



Intangible assets and liabilities
consisted of the following at December 31, 2015 and 2014:



|                       |  | 2015 US$ |             |   | 2014 US$ (Unaudited) | 
|---------------------- |  | -------- | ----------- | - | -------------------- | 
|Intangible assets      |  |          | 10,326,882  |   |                      | 
|Intangible liabilities |  |          | (15,559,004 | ) |                      | 
|Net intangible         |  |          | (5,232,122  | ) |                      | 



The
Group recognizes maintenance and lease intangibles in relation to the acquisition of aircraft that were purchased on lease. Lease
intangibles represent the value of an acquired lease rentals above or below the market rate for leases of a similar type of aircraft,
which is adjusted by the relevant credit risk associated with that lessee. Lease intangibles are amortized on a straight line basis
over the remaining life of the lease.



Maintenance
intangibles represent the value of the return-condition of the aircraft on lease when compared to the current market value of that
aircraft, adjusted for current maintenance condition. Maintenance intangibles are amortized from the period the Group begins to
release maintenance advances to revenue to the end of the life of the lease, or at the end of lease, depending upon the maintenance
arrangements per the underlying lease contract.



Movements
during the year are as follows:



|                         |  | Lease intangible assets US$ |            |   | Maintenance intangible
assets US$ |  |   | Lease intangible liabilities US$ |  |  | Maintenance intangible
liabilities US$ |   |  | Total US$ |           
|------------------------ |  | --------------------------- | ---------- | - | --------------------------------- |  | - | -------------------------------- |  |  | -------------------------------------- | - |  | --------- | ----------
|Cost                     |  |                             | 10,390,292 |   |                                   |  | - |                                  |  |  | (9,555,238                             | ) |  |           | (6,054,823
|Accumulated amortization |  |                             | (63,410    | ) |                                   |  | - |                                  |  |  | 29,638                                 |   |  |           | 21,419    
|                         |  |                             | 10,326,882 |   |                                   |  | - |                                  |  |  | (9,525,600                             | ) |  |           | (6,033,404



18







|Kahala Ireland Opco Limited                           
|------------------------------------------------------
|                                                      
|Notes to Consolidated Financial Statements (continued)
|                                                      
|For the year ended December 31, 2015                  
|                                                      
|(stated in US Dollars)                                



| | 8. | Intangible assets and liabilities (continued)
| | -- | ---------------------------------------------



The
amortization of lease intangibles and of maintenance intangibles is recognized in depreciation and amortization. During the period
ended December 31, 2015, the amortization of lease intangibles amounted to US$(33,772) and the amortization of maintenance intangibles
amounted to US$ 21,419.



| | 9. | Long-term debt
| | -- | --------------



The Group’s long term
debt consisted of the following at December 31, 2015:



|                                   |  | Maturity |               |  | Interest rate |  |       | Loan balance 2015 US$ |  |  | Accrued interest 2015 US$ | 
|---------------------------------- |  | -------- | ------------- |  | ------------- |  | ----- | --------------------- |  |  | ------------------------- | 
|Loans payable to BDCA              |  |          |               |  |               |  |       |                       |  |  |                           | 
|Long-term debt                     |  |          | Dec 23, 2028  |  |               |  | 13.00 | %                     |  |  | 153,923,818               | 
|Loans payable to KLS               |  |          |               |  |               |  |       |                       |  |  |                           | 
|Long-term debt                     |  |          | Jun 27, 2021  |  |               |  | 13.00 | %                     |  |  | 1,306,272                 | 
|PPN                                |  |          | Dec 23, 2028  |  |               |  | -     |                       |  |  | 3,250,000                 | 
|Total loans payable to KLS         |  |          |               |  |               |  |       |                       |  |  | 4,556,272                 | 
|Notes in issue – Diamond Head      |  |          |               |  |               |  |       |                       |  |  |                           | 
|Class A                            |  |          | July 14, 2028 |  |               |  | 3.81  | %                     |  |  | 183,038,945               | 
|Class B                            |  |          | July 14, 2028 |  |               |  | 5.92  | %                     |  |  | 56,501,567                | 
|Total debt in issue - Diamond Head |  |          |               |  |               |  |       |                       |  |  | 239,540,512               | 
|                                   |  |          |               |  |               |  |       |                       |  |  | 398,020,602               | 



The Group’s long-term
debt consisted of the following at December 31, 2014 (Unaudited):



|                      |  | Maturity |              |  | Interest rate |  |          | Loan balance 2014 US$ |  |  | Accrued interest
    2014 US$ | 
|--------------------- |  | -------- | ------------ |  | ------------- |  | -------- | --------------------- |  |  | ----------------------------- | 
|Loans payable to BDCA |  |          |              |  |               |  |          |                       |  |  |                               | 
|Long-term debt        |  |          | Dec 23, 2028 |  |               |  | 13.00    | %                     |  |  | 44,948,818                    | 
|Loans payable to KLS  |  |          |              |  |               |  |          |                       |  |  |                               | 
|Long-term debt        |  |          | Jun 27, 2021 |  |               |  | 13.00    | %                     |  |  | 1,306,272                     | 
|PPN                   |  |          | Dec 23, 2028 |  |               |  | Variable |                       |  |  | 1,625,000                     | 
|                      |  |          |              |  |               |  |          |                       |  |  | 2,931,272                     | 
|                      |  |          |              |  |               |  |          |                       |  |  | 47,880,090                    | 



19







|Kahala Ireland Opco Limited                           
|------------------------------------------------------
|                                                      
|Notes to Consolidated Financial Statements (continued)
|                                                      
|For the year ended December 31, 2015                  
|                                                      
|(stated in US Dollars)                                



| | 9. | Long-term debt (continued)
| | -- | --------------------------



Movements
during the year are as follows:



|                             |  | 2015 US$ |             |   | 2014 US$ (Unaudited) | 
|---------------------------- |  | -------- | ----------- | - | -------------------- | 
|Beginning of the year/period |  |          | 47,880,090  |   |                      | 
|Additions                    |  |          | 371,350,000 |   |                      | 
|Repayments                   |  |          | (21,209,488 | ) |                      | 
|End of the year/period       |  |          | 398,020,602 |   |                      | 



Loans payable to BDCA



On June 27, 2014, the Group
executed a Loan & Security agreements (the "Agreements") with BDCA (the "Lender"), the majority investor
of the ultimate parent company, KAH. The loan was provided to finance aircraft acquisitions. On the basis of these Agreements,
the Company may borrow and the Lender may advance one or more loans but the Lender is under no obligation to advance the loan notwithstanding
any request by the Company. The loans require monthly payments of interest with any unpaid interest being capitalized to the principal
balance. The principal balance of the loans shall be payable monthly in an amount equal to the amount of the Excess Cash Flow of
the Borrowers which shall be an amount specified by the Lender and notified to the Borrowers taking into account operating expenses
and an agreed reserve amount. In any event, all principal and interest shall be due and payable on December 23, 2028.



The Agreement provides the Lender
a continuing first priority security interest and lien upon assets of the Company.



Interest expense of US$13,499,616
was charged during the year ended December 31, 2015 (2014: US$1,613,068). US$15,112,684 (2014: US$1,613,068) remains accrued and
unpaid as at December 31, 2015.



Loans amounting to US$108,975,000
were received from BDCA during the year ended December 31, 2015 (2014: US$44,948,818). No repayments were made for 2015 and 2014.



Loans payable to KLS



On June 27, 2014, the Company
entered into loan agreement with KLS in the amount of US$1,306,272. This loan has a 7 year term and bears a fixed interest rate
of 13%. No repayments were made for 2015 and 2014. Principal will be repaid upon maturity on 2021. Early repayment is permitted
at the discretion of the Company.



Interest expense of US$172,174
was charged during the year ended December 31, 2015 (2014: US$88,681). US$260,855 (2014: US$ 88,681) remains accrued and unpaid
as at December 31, 2015.



20







|Kahala Ireland Opco Limited                           
|------------------------------------------------------
|                                                      
|Notes to Consolidated Financial Statements (continued)
|                                                      
|For the year ended December 31, 2015                  
|                                                      
|(stated in US Dollars)                                





| | 9. | Long-term debt (continued)
| | -- | --------------------------



Profit participating note
- KLS



In 2014, KLS subscribed for
a Profit Participating Notes (“PPN”) issued by the Company totaling US$1,625,000. The term of the PPN is 29 years.



In 2015, KLS subscribed for
additional PPN in the Company totaling US$1,625,000.



The PPN does not bear a fixed
interest rate. Interest is dependent on the profit of the Company over the life of the PPN. No interest was accrued or paid in
2015 or 2014 due to the losses incurred by the Company.



The principal balance outstanding
on the PPN as at December 31, 2015 was US$3,250,000 (2014: US$1,625,000).



Notes in issue – Diamond
Head



In July 2015, Diamond Head (incorporated
in Cayman Islands and domiciled in Ireland), a consolidated VIE, issued Class A notes and Class B notes in the amounts of US$199.3
million and US$61.5 million, respectively. The notes are listed on the Global Exchange Market of the Irish Stock Exchange. Repayment
of principal is dependent upon the cash available at each monthly determination date and is governed by the priority of payments
as set out in the Trust Indenture. Class A and B notes bear interest at fixed rates as per the Agreement with 3.81% and 5.92%,
respectively. The Notes are amortized on a monthly basis. Final maturity for each of the notes is on July 14, 2028. Early repayment
is permitted.



The assets and shares of Diamond
Head are pledged as collateral for its obligations under the Notes. Interest expense of US$4,415,674 (2014: nil) was charged during
the year, of which US$430,044 (2014: nil) remains accrued and unpaid as at December 31, 2015.



Credit facilities



On July 30, 2015 Diamond Head
entered into a revolving liquidity facility agreement to provide additional funds for the payment of certain liabilities, of Diamond
Head, if and to the extent that insufficient funds are available in the form of periodic revenues.



Under the terms of the Credit
Facility Agreement, Royal Bank of Canada has provided a credit facility to Diamond Head of up to US$8.4 million which may be drawn
upon, subject to certain conditions, to pay interest on the Class A and B Notes. Upon each drawing under the Credit Facility, Diamond
Head will be required to reimburse the Credit Facility Provider for the amount of such drawing in accordance with the priority
of payments specified in the Trust Indenture.



21







|Kahala Ireland Opco Limited                           
|------------------------------------------------------
|                                                      
|Notes to Consolidated Financial Statements (continued)
|                                                      
|For the year ended December 31, 2015                  
|                                                      
|(stated in US Dollars)                                



| | 9. | Long-term debt (continued)
| | -- | --------------------------



Below is the contractual maturity
table of the loans for December 31, 2015.



|                       |  | Principal US$ |             |  | Interest US$ |  |             | Total US$ | 
|---------------------- |  | ------------- | ----------- |  | ------------ |  | ----------- | --------- | 
|Year ended 31 December |  |               |             |  |              |  |             |           | 
|2016                   |  |               | 36,261,420  |  |              |  | 29,785,030  |           | 
|2017                   |  |               | 36,261,420  |  |              |  | 28,223,011  |           | 
|2018                   |  |               | 36,261,420  |  |              |  | 26,660,992  |           | 
|2019                   |  |               | 34,290,367  |  |              |  | 25,120,199  |           | 
|Thereafter             |  |               | 254,945,975 |  |              |  | 188,264,088 |           | 
|Total                  |  |               | 398,020,602 |  |              |  | 298,053,320 |           | 



At
December 31, 2015 and 2014 the Company was in compliance with the covenants in its debt facilities. The Company’s debt facilities
contain customary covenants and events of default; included within certain debt facilities are covenants that limit the ability
of the Company to incur additional indebtedness and create liens, covenants that limit the ability of the Company to consolidate,
merge or dispose of all or substantially all of its assets and enter into transactions with affiliates and covenants that limit
the ability of the Company to pay dividends.



Breakdown
of interest expense for December 31, 2015 and 2014 are as follows:



|                                                       |  | 2015 US$ |            |  | 2014 US$ (Unaudited) | 
|------------------------------------------------------ |  | -------- | ---------- |  | -------------------- | 
|Interest expense on:                                   |  |          |            |  |                      | 
|BDCA loans                                             |  |          | 13,499,616 |  |                      | 
|KLS loans                                              |  |          | 172,174    |  |                      | 
|Notes in issue                                         |  |          | 4,415,674  |  |                      | 
|Amortization of deferred financing costs and discounts |  |          | 12,336     |  |                      | 
|                                                       |  |          | 18,099,800 |  |                      | 



22







|Kahala Ireland Opco Limited                           
|------------------------------------------------------
|                                                      
|Notes to Consolidated Financial Statements (continued)
|                                                      
|For the year ended December 31, 2015                  
|                                                      
|(stated in US Dollars)                                





| | 10. | Other liabilities
| | --- | -----------------



Breakdown
of other liabilities for December 31, 2015 and 2014 are as follows:



|                                 |  | 2015 US$ |           |  | 2014 US$ (Unaudited) | 
|-------------------------------- |  | -------- | --------- |  | -------------------- | 
|Accounts payable                 |  |          | 664,328   |  |                      | 
|Amounts payable to Ridgeline (i) |  |          | 786,424   |  |                      | 
|                                 |  |          | 1,450,752 |  |                      | 



(i) The Company holds an 85%
interest in MSN 25372 Trust and the remaining 15% interest is held by Ridgeline Holdings LLC ("Ridgeline"). This trust
holds one aircraft, MSN 25372. Under the trust agreement, Ridgeline is entitled to a 15% share of all monies received by the trust
estate. Therefore there is an obligation to provide a return to Ridgeline and thus, represents a liability to the Group.



The Group recognized the 15%
as a liability payable to Ridgeline. The distributions to Ridgeline are treated as an expense in the Consolidated Statement of
Operations. As of December 31, 2015, the amount payable to Ridgeline was US$786,424 (2014: US$826,382). Payments of US$250,500
(2014: US$922,075) were made during the year.





| | 11. | Variable interest entities
| | --- | --------------------------





During
the year ended December 31, 2015, the Company assisted in the incorporation and ongoing management of Diamond Head, see Note 1.
Diamond Head is primarily engaged in the business of leasing passenger aircraft on behalf of the Group. We determined that the
Company, through its wholly owned subsidiary KII, was the primary beneficiary of Diamond Head and consolidated the activities in
the financial statements.



As of December 31, 2015, the
assets of Diamond Head consisted of five aircraft with a net book value of approximately US$100 million and an interest in 25 aircraft
with a net book value of approximately US$247 million. As of December 31, 2015 liabilities of Diamond Head related to long-term
debt and current maturities of long-term debt to finance the aircraft purchases are approximately US$240 million.



23







|Kahala Ireland Opco Limited                           
|------------------------------------------------------
|                                                      
|Notes to Consolidated Financial Statements (continued)
|                                                      
|For the year ended December 31, 2015                  
|                                                      
|(stated in US Dollars)                                





| | 11. | Variable interest entities (continued)
| | --- | --------------------------------------



Total
revenue from Diamond Head was US$10 million in 2015. Related expenses consisted primarily of depreciation expense of US$535 thousand
and interest expense of US$4 million.



The
Group is required to consolidate our interests in these entities because we are deemed to be the primary beneficiary and have the
power to direct the activities of the entity that most significantly affect economic performance and the obligation to absorb losses
and rights to receive benefits that could potentially be significant to the entity. The obligations of Diamond Head can be settled
from the assets of Diamond Head. Contractually the cash flows from these aircraft must first be used to pay third-party debt holders
as well as other expenses of Diamond Head. Excess cash flows are available to the Group.



The
carrying value of assets as at December 31, 2015 that were not available to VIE entities were as follows:



|                            |  | Total US$ |             |  | Available to VIE US$ |  |             | Not available to VIE US$ | 
|--------------------------- |  | --------- | ----------- |  | -------------------- |  | ----------- | ------------------------ | 
|Cash and cash equivalents   |  |           | 17,851,234  |  |                      |  | -           |                          | 
|Restricted cash             |  |           | 28,941,513  |  |                      |  | 28,941,513  |                          | 
|Property and equipment, net |  |           | 182,483,200 |  |                      |  | 100,488,318 |                          | 
|Interest in aircraft, net   |  |           | 247,028,422 |  |                      |  | 247,028,422 |                          | 
|Other assets                |  |           | 12,292,318  |  |                      |  | 1,758,019   |                          | 
|                            |  |           | 488,596,687 |  |                      |  | 378,216,272 |                          | 



At
December 31, 2015 and December 31, 2014, the Company’s maximum exposure to losses in its consolidated VIEs was US$89 million
and US$nil, respectively.



24







|Kahala Ireland Opco Limited                           
|------------------------------------------------------
|                                                      
|Notes to Consolidated Financial Statements (continued)
|                                                      
|For the year ended December 31, 2015                  
|                                                      
|(stated in US Dollars)                                



| | 12. | Contractual lease receivables
| | --- | -----------------------------



Minimum future rental income
on non-cancellable operating leases as of December 31, 2015 are shown below.



|Year ended December 31 |  | 2015 US$ |            
|---------------------- |  | -------- | -----------
|2016                   |  |          | 65,325,888 
|2017                   |  |          | 59,471,888 
|2018                   |  |          | 53,576,888 
|2019                   |  |          | 42,460,129 
|Thereafter             |  |          | 44,156,475 
|                       |  |          | 264,991,268



Minimum
future rental income assumes no extension or termination options are exercised on any leases. Contingent rentals of US$3,650,819
were recognized during the year (2014: US$344,880).



| | 13. | Management fees
| | --- | ---------------



Pursuant to the Management
Agreement entered into between the Group and KAGL, KAGL provides the Group with Management services as defined in the Management
Agreement. As compensation for the services, KAGL earns management fee US$1,000,000 per year.



For
the year ended December 31, 2015, the Group incurred US$ 1,000,000 of management fees to KAGL (2014: US$217,884). Management fees
expense is included within Selling, General and Administrative expenses in the consolidated statement of operations. US$83,333
of these management fees were prepaid during the year ended December 31, 2015 (2014: US$83,333).



25







|Kahala Ireland Opco Limited                           
|------------------------------------------------------
|                                                      
|Notes to Consolidated Financial Statements (continued)
|                                                      
|For the year ended December 31, 2015                  
|                                                      
|(stated in US Dollars)                                





| | 14. | Fair value measurements
| | --- | -----------------------



The Group had no assets or liabilities
that are measured at fair value at December 31, 2015 or December 31, 2014. The financial assets and liabilities of the Group that
are not required to be measured at fair value are summarized below with fair values shown according to the fair value hierarchy.



The carrying values of cash
and cash equivalents, other receivables, restricted cash, loans to related party, due from/to related parties, lease security deposits,
and amounts payable to Ridgeline are considered reasonable estimates of their fair values.



|December 31, 2015         |  | Carrying Value US$ |            |  | Fair Value US$ |  |            | Quoted Prices (Level 1) US$ |  |  | Significant Other Observable Inputs (Level 2) US$ |  |  | Significant Unobservable Inputs (Level 3) US$ |          
|------------------------- |  | ------------------ | ---------- |  | -------------- |  | ---------- | --------------------------- |  |  | ------------------------------------------------- |  |  | --------------------------------------------- | ---------
|Assets                    |  |                    |            |  |                |  |            |                             |  |  |                                                   |  |  |                                               |          
|Cash and cash equivalents |  |                    | 17,851,234 |  |                |  | 17,851,234 |                             |  |  | 17,851,234                                        |  |  |                                               | -        
|Other receivables         |  |                    | 2,175,907  |  |                |  | 2,175,907  |                             |  |  | -                                                 |  |  |                                               | 2,175,907
|Restricted cash           |  |                    | 28,941,513 |  |                |  | 28,941,513 |                             |  |  | 28,941,513                                        |  |  |                                               | -        
|Due from related parties  |  |                    | 740,433    |  |                |  | 740,433    |                             |  |  | -                                                 |  |  |                                               | 740,433  
|Loans to related parties  |  |                    | 1,000,000  |  |                |  | 1,000,000  |                             |  |  | -                                                 |  |  |                                               | 1,000,000
|Liabilities               |  |                    |            |  |                |  |            |                             |  |  |                                                   |  |  |                                               |          
|Other liabilities         |  |                    | 1,450,752  |  |                |  | 1,450,752  |                             |  |  | -                                                 |  |  |                                               | 1,450,752
|Lease security deposits   |  |                    | 5,058,000  |  |                |  | 5,058,000  |                             |  |  | 5,058,000                                         |  |  |                                               | -        
|Due to related parties    |  |                    | 477,895    |  |                |  | 477,895    |                             |  |  | -                                                 |  |  |                                               | 477,895  



|December 31, 2014 (Unaudited) |  | Carrying Value US$ |           |  | Fair Value US$ |  |           | Quoted prices (Level 1) US$ |  |  | Significant Other Observable Inputs (level 2) US$ |  |  | Significant unobservable Inputs (Level 3) US$ |          
|----------------------------- |  | ------------------ | --------- |  | -------------- |  | --------- | --------------------------- |  |  | ------------------------------------------------- |  |  | --------------------------------------------- | ---------
|Assets                        |  |                    |           |  |                |  |           |                             |  |  |                                                   |  |  |                                               |          
|Cash and cash equivalents     |  |                    | 1,671,573 |  |                |  | 1,671,573 |                             |  |  | 1,671,573                                         |  |  |                                               | -        
|Other receivables             |  |                    | 1,169,263 |  |                |  | 1,169,263 |                             |  |  | -                                                 |  |  |                                               | 1,169,263
|Due from related parties      |  |                    | 313,417   |  |                |  | 313,417   |                             |  |  | -                                                 |  |  |                                               | 313,417  
|Loans to related parties      |  |                    | 1,000,000 |  |                |  | 1,000,000 |                             |  |  | -                                                 |  |  |                                               | 1,000,000
|Liabilities                   |  |                    |           |  |                |  |           |                             |  |  |                                                   |  |  |                                               |          
|Other liabilities             |  |                    | 849,340   |  |                |  | 849,340   |                             |  |  | -                                                 |  |  |                                               | 849,340  
|Lease security deposits       |  |                    | 2,345,000 |  |                |  | 2,345,000 |                             |  |  | 2,345,000                                         |  |  |                                               | -        
|Due to related parties        |  |                    | 951,561   |  |                |  | 951,561   |                             |  |  | -                                                 |  |  |                                               | 951,561  



26







|Kahala Ireland Opco Limited                           
|------------------------------------------------------
|                                                      
|Notes to Consolidated Financial Statements (continued)
|                                                      
|For the year ended December 31, 2015                  
|                                                      
|(stated in US Dollars)                                





| | 15. | Concentration of risk
| | --- | ---------------------



Interest rate risk



The Group may be exposed to
interest rate risk arising from its debt financing. Changes, both increases and decreases, in the cost of borrowing, directly impact
the Group’s net income. Currently, the Group uses fixed rate debt to finance its investments. This mitigates the Group's
exposure to changes to interest rate risk.



Currency risk



The
Group attempts to minimize currency and exchange risks by entering into lease agreements and debt agreements with US Dollar as
the designated payment currency. Most of the revenue and expenses are therefore denominated in US$ thus reducing currency risk.



Counterparty
credit risk



Credit risk is the risk of financial
loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations. The Group’s
credit risk arises principally in relation to the collection of rental payments under its operating leases. The effective monitoring
and controlling of customer credit risk is a competency of the Treasury and Risk team. Creditworthiness of each new customer is
assessed and the Group seeks security deposits in the form of cash or letters of credit to mitigate overall financial exposure
to its lessees. The assessment process takes into account qualitative and quantitative information about the customer such as business
activities, senior management team, financial fitness, resources and performance, and business risks, to the extent that this information
is publicly available or otherwise disclosed to the Group.



The Group holds significant
cash balances which are invested on a short-term basis and are classified as cash and cash equivalents. These deposits and other
financial instruments give rise to credit risk on amounts due from counterparties. Credit risk is managed by limiting the aggregate
amount and duration of exposure to any one counterparty. The value of trade and other receivables are highly dependent upon the
financial strength of the airline industry. Defaults by one or more of the Group's major customers could have a material adverse
effect on the Group’s cash flow and earnings and its ability to meet its obligations.



Exposure to credit risk



Below is the exposure to credit risk for December
31, 2015 and 2014:



|                          |  | 2015 US$ |            |  | 2014 US$ (Unaudited) | 
|------------------------- |  | -------- | ---------- |  | -------------------- | 
|Cash and cash equivalents |  |          | 17,851,234 |  |                      | 
|Other receivables         |  |          | 2,175,907  |  |                      | 
|Restricted cash           |  |          | 28,941,513 |  |                      | 
|Due from related parties  |  |          | 740,433    |  |                      | 
|Loans to related parties  |  |          | 1,000,000  |  |                      | 
|                          |  |          | 50,709,087 |  |                      | 



The Group’s top 5 customers account for 60%
(2014: 100%) of total revenue. The Group’s most significant customer is based in Asia and accounts for 20% (2014: based in
Europe accounts for 40%) of revenue.



27







|Kahala Ireland Opco Limited                           
|------------------------------------------------------
|                                                      
|Notes to Consolidated Financial Statements (continued)
|                                                      
|For the year ended December 31, 2015                  
|                                                      
|(stated in US Dollars)                                





| | 15. | Concentration of risk (continued)
| | --- | ---------------------------------



Geographical and credit
risks



As of December 31, 2015, all
of the Group's lease rental income was generated by leasing aircraft to foreign and domestic US airlines.



Over 65% (2014: 51%) of the
aircraft are operated internationally. The following table sets forth the regional concentration of the Group's aircraft and interest
in aircraft portfolio based on net book value as of December 31, 2015 and 2014:



|       |  | December 31, 2015  |             |  | December 31, 2014 (Unaudited) | 
|------ |  | ------------------ | ----------- |  | ----------------------------- | 
|Region |  | Net Book Value US$ |             |  | % of Total US$                | 
|Europe |  |                    | 146,714,362 |  |                               | 
|U.S.   |  |                    | 156,347,832 |  |                               | 
|Asia   |  |                    | 126,449,428 |  |                               | 
|       |  |                    | 429,511,622 |  |                               | 



At December 31, 2015, the Group
leased aircraft to customers in the following regions:



|       |  | December 31, 2015   |    |  | December 31, 2014 (Unaudited) | 
|------ |  | ------------------- | -- |  | ----------------------------- | 
|Region |  | Number of Customers |    |  | % of Total                    | 
|Europe |  |                     | 10 |  |                               | 
|U.S.   |  |                     | 5  |  |                               | 
|Asia   |  |                     | 6  |  |                               | 
|       |  |                     | 21 |  |                               | 



The following table sets forth
the dollar amount and percentage of the Group's lease rental income and net return on interest in aircraft attributable to the
indicated regions based on each airline's principal place of business:



|       |  | December 31, 2015                                                        |            |  | December 31, 2014 (Unaudited) | 
|------ |  | ------------------------------------------------------------------------ | ---------- |  | ----------------------------- | 
|Region |  | Amount of Lease Rental Income and Net return on Interest in Aircraft US$ |            |  | % of Total                    | 
|Europe |  |                                                                          | 7,321,136  |  |                               | 
|U.S.   |  |                                                                          | 5,977,170  |  |                               | 
|Asia   |  |                                                                          | 8,195,575  |  |                               | 
|       |  |                                                                          | 21,493,881 |  |                               | 



28







|Kahala Ireland Opco Limited                           
|------------------------------------------------------
|                                                      
|Notes to Consolidated Financial Statements (continued)
|                                                      
|For the year ended December 31, 2015                  
|                                                      
|(stated in US Dollars)                                





| | 16. | Share capital
| | --- | -------------



|                                        |  | Number of shares |           |  | Par value 2015 EUR |  |           | 2014 EUR (Unaudited) | 
|--------------------------------------- |  | ---------------- | --------- |  | ------------------ |  | --------- | -------------------- | 
|Authorised                              |  |                  |           |  |                    |  |           |                      | 
|1,000,000 ordinary shares of EUR 1 each |  |                  | 1,000,000 |  |                    |  | 1,000,000 |                      | 
|                                        |  |                  |           |  |                    |  |           |                      | 
|Allotted and called up                  |  |                  |           |  |                    |  |           |                      | 
|100 ordinary shares of EUR 1 each       |  |                  | 100       |  |                    |  | 100       |                      | 



|                                  |  | Number of shares |     |  | Par value 2015 USD |  |     | 2014 USD (Unaudited) | 
|--------------------------------- |  | ---------------- | --- |  | ------------------ |  | --- | -------------------- | 
|Allotted and called up            |  |                  |     |  |                    |  |     |                      | 
|100 ordinary shares of EUR 1 each |  |                  | 100 |  |                    |  | 137 |                      | 



All
equity is attributable to the holder of the ordinary shares in the Company. The holder of the ordinary shares is entitled to receive
dividends as declared from time to time. The sole shareholder has all powers and full voting rights as permitted under Company
Law.



| | 17. | Income taxes
| | --- | ------------



Income tax expense consists
of the following:



|                              |  |  | 2015 US$ |  |  |  | 2014 US$ (Unaudited) | 
|----------------------------- |  |  | -------- |  |  |  | -------------------- | 
|(a) Income tax expense        |  |  |          |  |  |  |                      | 
|Current tax expense/(credit)  |  |  | -        |  |  |  | -                    | 
|Deferred tax expense/(credit) |  |  | -        |  |  |  | -                    | 
|                              |  |  | -        |  |  |  | -                    | 



|                                         |  | 2015 US$ |            |   | 2014 US$ (Unaudited) | 
|---------------------------------------- |  | -------- | ---------- | - | -------------------- | 
|(b) Reconciliation of effective tax rate |  |          |            |   |                      | 
|Net loss before income taxes             |  |          | (2,405,860 | ) |                      | 
|                                         |  |          |            |   |                      | 
|Income tax benefit at 25 percent         |  |          | (601,465   | ) |                      | 
|Valuation allowance                      |  |          | 601,465    |   |                      | 
|Reported amount of income tax benefit    |  |          | -          |   |                      | 



29







|Kahala Ireland Opco Limited                           
|------------------------------------------------------
|                                                      
|Notes to Consolidated Financial Statements (continued)
|                                                      
|For the year ended December 31, 2015                  
|                                                      
|(stated in US Dollars)                                





| | 17. | Income taxes (continued)
| | --- | ------------------------



(c) Circumstances affecting
current and future tax charges



To the extent losses are incurred
in the future, these can be carried forward. Each of the Group companies is resident in Ireland for income tax purposes and is
subject to Section 110 of the Taxes Consolidation Act, 1997. Accordingly, each of the Group companies is subject to a 25 percent
statutory income tax rate.



(d) Deferred tax



Deferred tax represents the
amount of tax recoverable in respect of tax losses available in the current year which are available for carry forward against
future taxable profits and temporary differences principally for an excess of capital allowances over accounting depreciation.



The reconciliation of deferred
tax assets and liabilities for the year is as follows:



|                               |  | 2015 US$ |           |   | 2014 US$ (Unaudited) | 
|------------------------------ |  | -------- | --------- | - | -------------------- | 
|Deferred tax assets            |  |          |           |   |                      | 
|Operating losses carry forward |  |          | 3,053,772 |   |                      | 
|Valuation allowance            |  |          | (699,597  | ) |                      | 
|Total deferred tax assets      |  |          | 2,354,175 |   |                      | 



|                                                |  | 2015 US$ |            |   | 2014 US$ (Unaudited) | 
|----------------------------------------------- |  | -------- | ---------- | - | -------------------- | 
|Deferred tax liabilities                        |  |          |            |   |                      | 
|Property and equipment and Interest in aircraft |  |          | (2,354,175 | ) |                      | 
|Total deferred tax liabilities                  |  |          | (2,354,175 | ) |                      | 



30







|Kahala Ireland Opco Limited                           
|------------------------------------------------------
|                                                      
|Notes to Consolidated Financial Statements (continued)
|                                                      
|For the year ended December 31, 2015                  
|                                                      
|(stated in US Dollars)                                



| | 17. | Income taxes (continued)
| | --- | ------------------------



When deferred tax assets and
deferred tax liabilities relate to the same taxable entity, all current amounts are offset and presented as a single current amount
and all noncurrent amounts are offset and presented as a single noncurrent amount on the consolidated balance sheet.



When determining the amount
of valuation allowance recorded, management assesses the available positive and negative evidence to estimate if sufficient future
taxable income will be generated to use the existing deferred tax assets. Certain Irish entities have a history of losses and have
a limited ability to generate future profits, and as a result deferred tax assets of such entities have been offset with a valuation
allowance, to the extent not supported by reversing taxable temporary differences.



Deferred tax benefits of Irish
operating losses carry forwards amounting to US$1,547,225 (2014: US$806,950) were recognized during the year. At the end of the
year, the Group had unrecognized deferred tax assets of US$699,597 (2014: US$98,132). These deferred tax assets are not recognized
by the Group on the basis that it is more likely than not that there will not be sufficient taxable profits going forward to obtain
the benefit of these tax losses.



At December 31, 2015, the Group
had approximately US$12,255,431 of Irish net operating loss (NOLs) carry forwards (2014: US$3,620,325). The Company is allowed
to carry-forward its Irish NOLs for an indefinite period to be offset against income of the same trade under current tax rules
in Ireland.



The Company files income tax
returns in Ireland. The Company is not under examination in any jurisdiction as of December 31, 2015. The periods from 2014 onwards
remain open to examination by all the relevant tax authorities.

The Company has not recorded
an unrecognized tax benefit in any of the reporting periods presented.



18.	Related party transactions





Related parties relationships
are determined with reference to ASC 850, Related Party Disclosures. Balances as at December 31, 2015 and 2014 and transactions
for the year ended December 31, 2015 and 2014 with related parties of the Group are as follows:



Loans and receivables



In 2014, the Company advanced
a loan of US$8,800,000 to Kahala Aviation US Inc. (“KAU”) in 2014. KAU is a related party as it is a subsidiary of
the Companies ultimate parent, KAH. KAU repaid US$7,800,000 of the loan to the Company in 2014. The principal amount outstanding
on the loan as at December 31, 2015 and 2014 is US$1,000,000. All principal and accrued interest shall be due and payable on December
23, 2028. This bears a fixed interest rate of 13%.



Interest income of US$154,797
was recognized during the year ended December 31, 2015 (2014: US$105,166). US$259,963 (2014: US$ 105,166) remains accrued and receivable
as at December 31, 2015.



31







|Kahala Ireland Opco Limited                           
|------------------------------------------------------
|                                                      
|Notes to Consolidated Financial Statements (continued)
|                                                      
|For the year ended December 31, 2015                  
|                                                      
|(stated in US Dollars)                                



| | 18. | Related party transactions (continued)
| | --- | --------------------------------------



Profit participating note



In 2014, KLS subscribed for
a Profit Participating Notes (“PPN”) issued by the Company totaling US$1,625,000. The term of the PPN is 29 years.



In 2015, KLS subscribed for
additional PPN in the Company totaling US$1,625,000.



The PPN does not bear a fixed
interest rate. Interest is dependent on the profit of the Company over the life of the PPN. No interest was accrued or paid in
2015 or 2014 due to the losses incurred by the Company.



The principal balance outstanding
on the PPN as at December 31, 2015 was US$3,250,000 (2014: US$1,625,000).



Long-term debt



As outlined in Note 9, the Company
received debt financing from BDCA, the majority investor in its ultimate parent company, KAH, to fund the purchase of aircraft.



The principal amount outstanding
under this agreement was US$153,923,818 (2014: US$44,948,818) as at December 31, 2015. Interest expense of US$13,499,616 was charged
during the year ended December 31, 2015 (2014: US$1,613,068). US$15,112,684 (2014: US$1,613,068) remains accrued and unpaid as
at December 31, 2015.



Loans amounting to US$108,975,000
were received from BDCA during the year ended December 31, 2015 (2014: US$44,948,818). No repayments were made for 2015 and 2014.
The loan will mature on December 23, 2028 and bears a fixed interest rate of 13%.



Also as discussed in Note 9,
the Company entered to a Loan Agreement with KLS. The principal amount outstanding under this agreement was US$1,306,272 (2014:
US$1,306,272).The loan will mature June 27, 2021 and bears a fixed interest rate of 13%.



Interest expense of US$172,174
was charged during the year ended December 31, 2015 (2014: US$88,681). US$260,855 (2014: US$ 88,681) remains accrued and unpaid
as at December 31, 2015.



32







|Kahala Ireland Opco Limited                           
|------------------------------------------------------
|                                                      
|Notes to Consolidated Financial Statements (continued)
|                                                      
|For the year ended December 31, 2015                  
|                                                      
|(stated in US Dollars)                                





| | 18. | Related party transactions (continued)
| | --- | --------------------------------------





|                          |  | Nature of Relationship |  | 2015 US$ |             |  | 2014 US$ (Unaudited) | 
|------------------------- |  | ---------------------- |  | -------- | ----------- |  | -------------------- | 
|Related party balances    |  |                        |  |          |             |  |                      | 
|Assets                    |  |                        |  |          |             |  |                      | 
|Due from related parties: |  |                        |  |          |             |  |                      | 
|KAH                       |  | Ultimate parent        |  |          | 3,035       |  |                      | 
|Kahala US 28200 LLC       |  | Group company          |  |          | 317,241     |  |                      | 
|KLS                       |  | Immediate parent       |  |          | 100,000     |  |                      | 
|Kahala US 25372 LLC       |  | Group company          |  |          | 313,417     |  |                      | 
|KAU                       |  | Group company          |  |          | 3,035       |  |                      | 
|KAGL                      |  | Manager                |  |          | 3,705       |  |                      | 
|                          |  |                        |  |          | 740,433     |  |                      | 
|Loans to related party    |  | Group company          |  |          | 1,000,000   |  |                      | 
|                          |  |                        |  |          |             |  |                      | 
|Liabilities               |  |                        |  |          |             |  |                      | 
|Due to related parties:   |  |                        |  |          |             |  |                      | 
|Kahala US Opco LLC        |  | Group company          |  |          | 477,895     |  |                      | 
|Kahala US 28200 LLC       |  | Group company          |  |          | -           |  |                      | 
|KAGL                      |  | Manager                |  |          | -           |  |                      | 
|                          |  |                        |  |          | 477,895     |  |                      | 
|PPN                       |  | Immediate parent       |  |          | 3,250,000   |  |                      | 
|Loans payable to BDCA     |  | Ultimate shareholder   |  |          | 153,923,818 |  |                      | 
|Loans payable to KLS      |  | Immediate parent       |  |          | 1,306,272   |  |                      | 







|                           |  | Account                 |  | Related Party |  | 2015 US$ |            |  | 2014 US$ (Unaudited) | 
|-------------------------- |  | ----------------------- |  | ------------- |  | -------- | ---------- |  | -------------------- | 
|Related party transactions |  |                         |  |               |  |          |            |  |                      | 
|Loan interest expense      |  | Interest expense        |  | BDCA          |  |          | 13,499,616 |  |                      | 
|Loan interest income       |  | Interest income         |  | KAU           |  |          | 154,797    |  |                      | 
|Management fees            |  | Administrative expenses |  | KAGL          |  |          | 1,000,000  |  |                      | 
|Directors' fees            |  | Administrative expenses |  | Directors     |  |          | 118,219    |  |                      | 



33







|Kahala Ireland Opco Limited                           
|------------------------------------------------------
|                                                      
|Notes to Consolidated Financial Statements (continued)
|                                                      
|For the year ended December 31, 2015                  
|                                                      
|(stated in US Dollars)                                





| | 19. | Commitments and contingencies
| | --- | -----------------------------



Claims, suits and complaints
may arise in the ordinary course of our business. Currently, we are not aware of any such claims or contingent liabilities which
should be disclosed or for which a provision should be established in the accompanying consolidated financial statements.



Obligations for contingencies
are recognized where such items are probable and amounts are reasonably estimable.



| | 20. | Subsequent events
| | --- | -----------------



The Group has evaluated all
events or transactions that occurred from the balance sheet date through March 9, 2016, the date the consolidated financial statements
were available to be issued, and determined there are no items requiring disclosure or adjustment.



34