SUNVESTA, INC.
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2014
7.
DOWN PAYMENTS FOR PROPERTY & EQUIPMENT –
Continued
Hotel Project Atlanta - continued
On
October
28,
2013,
the
Company
concluded
a
further
amendment
(sixth-amendment)
with
the
counterparty. This sixth amendment includes the following clauses:
—
The Company has to pay $2,500,000 by November 12, 2013, to the counterparty as initial installment and
to pay the remaining
purchase price of $22,500,000 by January 31, 2014. As of the date of this report the
Company has not paid the $2,500,000 nor the $22,500,000 and is in default without any further impacts
for the Company
—
Since November 12, 2013, the Company is obligated to pay 6% interest on the remaining, outstanding
purchase price, which interest is also payable on January 31, 2014.
—
If the Company does not close this transaction in accordance with the provisions in this sixth amendment,
the
Company will be entitled to a refund of those purchase price installments timely received by the
counterparty.
—
The deposit, the three extension fees and the 2013 taxes paid, with all interest payments as noted above,
shall be deemed non-refundable. However, the deposit and the three extension fees in the total amount of $
1,000,000 will be credited to the purchase
price in the event of a successful closing.
On March 28, 2014, the Company decided not
to continue with the project
due
to the changes in
the conditions related to the acquisition and an inability to adjust a financing package to the new
conditions.
As
part
of
the
termination
and
to
avoid
potential
litigation,
the
Company
agreed
to
pay
the
counterparty
EUR
100,000
(approximately
$124,500)
to
settle
any
further
obligation.
The
amount
of
EUR
100,000
(approximately
$124,500)
has
been
expensed
within
the
actual
quarter and is included in other operating expenses.
Subsequent to the balance sheet date on April 7, 2014 the Company paid the EUR 100,000 to the
counterparty.
16
SUNVESTA, INC.
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2014
8.
FAIR VALUE MEASUREMENT
The
guidance
on
fair
value
measurements
defines
fair
value
as
the
exchange
price
that
would
be
received for an asset or paid to transfer a liability (an exit price) in the principal or most
advantageous
market
for
the
asset
or
liability
in
an
orderly
transaction
between
market
participants.
This
guidance
also
specifies
a
fair
value
hierarchy
based
upon
the
observability
of
inputs used in valuation techniques. Observable inputs (highest level) reflect market data obtained
from
independent
sources,
while
unobservable
inputs
(lowest
level)
reflect
internally
developed
market
assumptions.
In
accordance
with
this
guidance,
fair
value
measurements
are
classified
under the following hierarchy:
Level 1
Quoted prices for identical instruments in active markets.
Level 2
Quoted process for similar instruments in active markets, quoted prices for identical or similar
instruments in markets that are not active; and model-derived valuations in which significant inputs or
significant value drivers are observable in active markets.
Level 3
Model
derived
valuations
in
which
one
or
more
significant
inputs
or
significant
value-drivers
are
unobservable.
When available, we use quoted market prices to determine fair value, and we classify
such
measurements
within
Level
1.
In
some
cases
where
market
prices
are
not
available,
we
make
use
of
observable
market
based
inputs
to
calculate
fair
value,
in
which
case
the
measurements
are
classified
within
Level
2.
If
quoted
or
observable
market
prices
are
not
available,
fair
value
is
based upon internally
developed models that use, where possible, current
market-based
parameters such as interest rates, yield curves and currency rates. These measurements are
classified within Level 3.
Fair
value
measurements
are
classified
according
to
the
lowest
level
input
or
value-driver
that
is
significant
to
the
valuation. A
measurement
may
therefore
be
classified
within
Level
3
even
though there may be significant inputs that are readily observable.
Fair
value
measurement
includes
the
consideration
of
non-performance
risk.
Non-performance
risk
refers
to
the
risk
that
an
obligation
(either
by
counterparty
or
us)
will
not
be
fulfilled.
For
financial
assets
traded
in
an
active
market
(Level
1),
the
non-performance
risk
is
included
in
the
market
price. For
certain
other
financial
assets
and
liabilities
(Level
2
and
3),
our
fair
value
calculations have been adjusted accordingly.
As
of
March
31,
2014
and
December
31,
2013,
respectively,
there
are
no
financial
assets
or
liabilities measured on a recurring basis at fair value.
In
addition
to
the
methods
and
assumptions
we
use
to
record
the
fair
value
of
financial
instruments
as
discussed
above,
we
used
the
following
methods
and
assumptions
to
estimate
the
fair value of our financial instruments:
17
SUNVESTA, INC.
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2014
8.
FAIR VALUE MEASUREMENT -
Continued
—
Cash and cash equivalents – carrying amount approximated fair value.
—
Restricted cash – carrying amount approximated fair value
—
Accounts Payable – carrying amount approximated fair value.
—
Note payable – carrying amount approximated fair value due to the short term nature of the note payable.
—
Notes
payable
to
related
parties
-
Dr.
M.
Rössler
(current)
–
carrying
amount
approximated
fair
value
due
to
the
short term nature of the notes payable and the fair value of the underlying publically traded shares.
—
Notes payable to related parties –
(current) – carrying amount approximated fair value
due to the short term nature
of the notes payable.
—
EUR– bond (old) – carrying amount approximated fair value due to the short term nature of the EUR-Bond.
—
EUR- bond (new) – The fair values of the bonds payable are classified as level 3 fair values. The fair values of the
bonds have
been determined by discounting cash flow projections discounted at the respective interest rates of
7.25% for EUR bonds, which represents the current market rate based on the creditworthiness of the Company.
Hence, the carrying values approximate fair value.
—
CHF-bond
–
The fair
values
of
the
bonds
payable
are
classified
as
level
3
fair
values. The fair
values of
the bonds
have been
determined
by
discounting cash
flow
projections discounted
at
the respective interest
rates of 7.25%
for
CHF
bonds,
which
represents
the
current
market
rate
based
on
the
creditworthiness
of
the
Company.
Hence,
the
carrying values approximate fair value.
—
Notes
payable
to
related
parties
–
Aires
(non-current)
–
The fair values of the notes payable to Aires International
Investments
Inc.
is
classified
as
level
3
fair
values.
The
fair
values
of
the
notes
were
determined
by
discounting
cash
flow
projections
discounted
at
the respective interest
rates
of
7.25%,
which represents the current market
rate
based on the creditworthiness of the Company. Hence, the carrying value approximates fair value.
The fair value of our financial instruments is presented in the table below:
March 31, 2014
December 31, 2013
Carrying
Fair Value
Carrying
Fair Value
Fair Value
Amount
Amount
Reference
$
$
$
$
Levels
Cash and cash equivalents
242,860
242,860
629,673
629,673
1
Note 4
Restricted cash
1,697,351
1,697,351
1,697,974
1,697,974
1
Note 5
Accounts Payable
6,685,659
6,685,659
7,063,070
7,063,070
1
-
Note payable
4,818,172
4,818,172
2,000,000
2,000,000
1
Note 16
Notes payable to related
parties – Dr. M. Rössler
949,367
865,114
938,890
833,715
1
Note 9
(current)
Notes payable to related
parties – Rigendinger
658,346
658,346
600,000
600,000
3
Note 9
(current)
Notes payable to related
parties – other (current)
30,000
30,000
116,592
116,592
3
Note 9
Notes payable to related
499,987
499,987
1,065,963
1,065,963
3
Note 9
parties – Mettler (current)
EUR-bond (old)
754,332
754,332
5,786,248
5,786,248
3
Note 11
EUR-bond (new)
8,254,122
8,254,122
6,757,065
6,757,065
3
Note 11
CHF-bond 13,236,028
13,236,028
8,558,443
8,558,443
3
Note 11
Notes payable to related
parties – Aires (non- 34,103,862
34,103,862 33,409,095
33,409,095
3
Note 9
current)
18
SUNVESTA, INC.
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2014
9.
RECEIVABLES FROM AND PAYABLES TO RELATED PARTIES
Advances from (to) related parties are composed as follows:
Receivables
Payables
March 31,
December 31,
March 31,
December 31,
2014
2013
2014
2013
1
Hans Rigendinger
-
-
658,346
600,000
2
Josef Mettler
-
-
499,987
1,065,963
3
Adrian Oehler
-
-
-
39,002
4
Aires International
-
-
34,103,862
33,409,095
5
Dr. Max Rössler
-
-
949,367
938,890
6
4f capital ag
-
-
-
27,590
7
Akyinyi Interior and
Exterior Decoration
-
-
30,000
50,000
Total excluding interest
-
-
36,241,562
36,130,540
Accrued interest
-
-
2,304,774
1,693,166
Total
-
-
38,546,336
37,823,706
of which non-current
-
-
34,103,862
33,409,095
Related party
Capacity
Interest
Repayment
Rate
Terms
Security
1 Hans Rigendinger
Shareholder, COO and Company board member
3%
none
none
2 Josef Mettler
Shareholder, CEO, CFO and Company board member
3%
none
none
3 Adrian Oehler
Shareholder and chairman of the board SunVesta AG
3%
none
none
4 Aires International
*** see hereinafter ***
5 Dr. Max Rössler
*** see hereinafter ***
6 4f capital ag
Company owned by Josef Mettler (see No. 2)
none
none
none
Akyinyi Interior
7 and Exterior
Company owned by the
wife of a Company board
Decoration
member
none
none
none
19
SUNVESTA, INC.
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2014
9.
RECEIVABLES FROM AND PAYABLE TO RELATED PARTIES -
Continued
Loan agreement Aires International Investment Inc.
On
July
27,
2011,
SunVesta
AG
signed
a
loan
agreement
with
Aires
International
Investments
Inc.
(“Aires”),
a
company
owned
by
Mr.
Rössler
(a
board
member
of
the
Company).
The
loan
agreement was amended on May 11, 2012, on June 21, 2012 and on October 31, 2013.
The agreement includes the following main terms:
—
All previous existing loan agreements including amendments between SunVesta Holding AG and Aires
International Investment, Inc. will be cancelled and superseded by the new agreement, signed on October 31,
2013.
—
The loan shall not be due for repayment before December 31, 2015 but at the latest on December 31, 2020.
—
Both parties have the possibility, despite of the scheduled repayment dates, to resign the loan agreement with a
notice period of 90 days subject to the subordination noted in the following.
—
The complete loan amount including further additions is subordinated.
—
Yearly
interest
on
the
loan
is
7.25%
and
will
be credited
to
the
loan
account
on
a
quarterly
basis,
i.e.
on
March
31, June 30, September 30 and December 31.
In addition, a fraction of the loan amounting to CHF 10,044,370 that was transferred from
SunVesta
Holding
AG
to
the
Company
as
of
December
31,
2012,
was
clarified
in
a
promissory
note in October 2013 with the main terms being:
—
The effective date is December 31, 2012. However, since the promissory note was only signed in October 2013
this is the relevant date for accounting purposes.
—
The principal amount together with any interest will be payable on December 31, 2015 (the maturity date)
—
The interest rate is 7.25%.
—
Any
amount
of
principal
or
interest
which
is
not
paid
when
due
shall
bear
interest
at
the
rate
of
10%
per
year
from the due date until it is paid.
—
The following covenants have been agreed:
(A)
So
long
as
the
Company
shall
have
any
obligation
under
this
Note,
the
Company
shall
not
without
Aires’
written
consent
(a)
pay,
declare
or
set
apart
for
such
payment,
any
dividend
or
other
distribution
(whether
in
cash, property or other securities) on shares of capital stock or (b) directly or indirectly or through any subsidiary
make any other payment or distribution in respect of its capital stock.
(B)
So
long
as
the
Company
shall
have
any
obligation
under
this
Note,
the
Company
shall
not
without
Aires’
written
consent
redeem,
repurchase
or
otherwise
acquire
(whether
for
cash
or
in
exchange
for
property
or
other
securities
or
otherwise)
in
any
one transaction
or
series
of
related
transactions
any
shares
of
capital
stock
of
the
Company or any warrants, rights or options to purchase or acquire any such shares.
20
SUNVESTA, INC.
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2014
9.
RECEIVABLES FROM AND PAYABLE TO RELATED PARTIES
–
Continued
Loan agreement Aires International Investment Inc – continued
Additionally another fraction of the loan
amounting to CHF 10,000,000 that was transferred from
SunVesta
Holding
AG
to
the
Company
as
of
December
31,
2013,
was
clarified
in
a
promissory
note in March 2014, with the main terms being:
—
The effective date is December 31, 2013. However, since the promissory note was only signed in March 2014
this is the relevant date for accounting purposes.
—
The principal amount together with any interest will be payable on December 31, 2015 (the maturity date)
—
The interest rate is 7.25%.
—
Any
amount
of
principal
or
interest
which
is
not
paid
when
due
shall
bear
interest
at
the
rate
of
10%
per
year
from the due date until it is paid.
—
The following covenants have been agreed:
(A)
So
long
as
the
Company
shall
have
any
obligation
under
this
Note,
the
Company
shall
not
without
Aires’
written
consent
(a)
pay,
declare
or
set
apart
for
such
payment,
any
dividend
or
other
distribution
(whether
in
cash, property or other securities) on shares of capital stock or (b) directly or indirectly or through any subsidiary
make any other payment or distribution in respect of its capital stock.
(B)
So
long
as
the
Company
shall
have
any
obligation
under
this
Note,
the
Company
shall
not
without
Aires’
written
consent
redeem,
repurchase
or
otherwise
acquire
(whether
for
cash
or
in
exchange
for
property
or
other
securities
or
otherwise)
in
any
one transaction
or
series
of
related
transactions
any
shares
of
capital
stock
of
the
Company or any warrants, rights or options to purchase or acquire any such shares.
Due
to
the
transfer
of
fractions
of
the
loan
from
SunVesta
Holding
AG
to
the
Company
foreign
exchange gains or losses will be reflected through the income statement rather than in the
comprehensive income (cumulative translation adjustment).
As of March 31, 2014 and December 31, 2013 the Company
borrowed CHF 31.77 million
(approximately
$34.10
million)
respectively
CHF
31.12
million
(approximately
$33.41
million)
from
Aires
and
accrued
interest
of
CHF
2.04
million
(approximately
$2.30
million)
respectively
CHF 1.59 million (approximately $1.69 million).
As of the date of this report the Company has borrowed CHF 32.27 million ($34.56 million) from
Aires.
Loan agreement Hans Rigendinger (current)
Hans
Rigendinger
gave
the
Company
a
short
term
loan
based
on
the
guarantee
agreement
as
described
in
Note
3.
On
this
current
loan,
which
has
been
contractually formalized
on
January 1,
2014,
the
Company
has
to
pay
3%
interest.
As
per
March
31,
2014
and
December
31,
2013,
$658,346 (CHF 583,700) and $600,000 (CHF 532,300) respectively, of this short term loan
remained due.
For
the
period
ended
March
31,
2014
and
March
31,
2013,
the
Company
paid
interest
to
Hans
Rigendinger of $3,789 (CHF 3,440) and $0 (CHF 0) related to this current loan.
21
SUNVESTA, INC.
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2014
9.
RECEIVABLES FROM AND PAYABLE TO RELATED PARTIES
–
Continued
Loans Dr. Max Rössler
On
June
7,
2012,
Dr.
Rössler
(board
member
of
the
Company)
gave
a
short
term
loan
of
$1.81
million
that
would
have
been
repayable
on
May
30,
2013,
or
on
demand
within
five
working
days.
The
Company
is
not
required
to
pay
any
interest
and
can
repay
the
loan
either
in
cash
or
with the delivery of 10,000 shares of Intershop Holding AG,
a publically traded entity,
regardless
of
actual
trading
value
on
the
date
of
delivery.
The
Company
concluded
on
April
19,
2013,
with
Dr. Rössler and Aires an act of transfer. Based on this act of transfer the loan has been transferred
to Aires and the balance has added to the existing loan agreement with Aires.
On
July
24,
2012,
Dr.
Rössler
gave
a
short
term
loan
of
$0.47
million
that
is
repayable
on
May
30,
2014,
or
on
demand
within
five
working
days. The
Company
is
not
required
to
pay
any
interest
and
can
repay
the
loan
either
in
cash
or
with
the
delivery
of
10,000
shares
of
Schindler
Holding AG,
a
publically traded
entity,
regardless
of actual
trading
value
on
the
date
of
delivery.
The
Company
therefore
might
recognize
a
gain
if
the
loan
is
repaid
in
Schindler
Holding
AG
shares
and
the
trading
price
of
the
shares
is
less
than
the
amount
due.
Based
on
the
trading
price
for
Schindler
Holding AG
shares
on
March
31,
2014,
the
Company
would
not
have
recognized
a
gain. Therefore the fair value of the loan approximates the carrying value of the loan.
On
August
8,
2012,
Dr.
Rössler
gave
a
further
short
term
loan
of
$0.4
million
that
is
repayable
also
on
May
30,
2014,
or
on
demand
within
five
working
days.
The
Company
is
not
required
to
pay
any
interest
and
can
repay
the
loan
either
in
cash
or
with
the
delivery
of
700
shares
of
Zug
Estates
Holding
AG,
a
publically
traded
entity,
regardless
of
actual
trading
value
on
the
date
of
delivery.
The
Company
therefore
might
recognize
a
gain
if
the
loan
is
repaid
in
Zug
Estates
Holding
AG
shares
and
the
trading
price
of
the
shares
is
less
than
the
amount
due.
Based
on
the
trading
price
for
Intershop
Holding
AG
shares
on
March
31,
2014,
the
Company
would
have
recognized a
gain,
which
has
been immaterial and not recognized by the Company.
Therefore the
fair value of the loan approximates the carrying value of the loan.
On March 1, 2013, Dr. Rössler gave a further short term loan of $0.05 million that is repayable on
May 30,
2014,
or
on
demand
within
five
working
days.
The
Company is
not
required
to
pay any
interest
and
can
repay
the
loan
either
in
cash
or
with
the
delivery
of
52,500
shares
of
Daetwyler
Holding AG,
a
publically traded
entity,
regardless
of actual
trading
value
on
the date
of
delivery.
The
Company
therefore
might
recognize
a
gain
if
the
loan
is
repaid
in
Datewyler
Holding
AG
shares
and
the
trading
price
of
the
shares
is
less
than
the
amount
due.
Based
on
the
trading
price
for
Daetwyler
Holding AG shares on March 31, 2014, the Company would
not
have
recognized a
gain. Therefore the fair value of the loan approximates the carrying value of the loan.
Subsequent
to
the
balance
sheet
date
on
April
30,
2014,
the
Company
agreed
with
Dr.
Rössler
that
all
personally given
loans
will be
transferred to Aires
and the
corresponding balances
will
be
added to the existing loan agreement with Aires.
22
SUNVESTA, INC.
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2014
11.
BONDS
Description
EUR (
€
) bond (old)
CHF
bond
Issuer:
SunVesta Holding AG
SunVesta Holding AG
Type of securities:
Bond in accordance with Swiss law
Bond in accordance with Swiss law
Approval by SunVesta AG BOD:
May 12, 2010
June 3, 2011
Volume:
Up to
€
25,000,000
Up to CHF 15,000,000
Units:
€
1,000
CHF 50,000
Offering period:
11/10/2010 – 04/30/2011
09/01/2011 – 02/28/2012
Due date:
November 30, 2013
August 31, 2015
Issuance price:
100 %
100%
Issuance day:
December 1, 2010
September 1, 2011
Interest rate:
8.25% p.a.
7.25% p.a.
Interest due dates:
November 30 of each year,
August 31 of each year,
the
first time November 30, 2011
the
first time August 31, 2012
Applicable
law:
Swiss
Swiss
Description
EUR (
€
) bond (new)
Issuer:
SunVesta Holding AG
Type of securities:
Bond in accordance with Swiss law
Approval by SunVesta AG BOD:
October 31, 2013
Volume:
Up to
€
15,000,000
Units:
€
10,000
Offering period:
11/07/2013 – 03/31/2014
Due date:
December 2, 2016
Issuance price:
100%
Issuance day::
December 2, 2013
Interest rate:
7.25% p.a.
Interest due dates:
December 2, 2013
Applicable
law:
Swiss
24
SUNVESTA, INC.
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2014
11.
BONDS -
Continued
The nominal amounts have changed as follows:
CHF
Bond
CHF Bond
2014
2013
$
$
Balances January 1
8,558,443
5,689,364
Cash inflows
4,725,017
2,650,882
Cash outflows
-
(52,424)
Foreign currency adjustments
445,603
528,145
Sub-total (Fair value)
13,729,063
8,815,967
Discounts (commissions paid to bondholders)
(777,248)
(476,636)
Accumulated amortization of discounts
284,213
219,112
Unamortized discounts
(493,035)
(257,524)
Balances March 31 and December 31
(Carrying value)
13,236,028
8,558,443
As per date of this report the Company has realized a cumulative amount of
CHF 14.78 million ($16.67 million).
EUR-Bond
EUR-Bond
(new)
(new)
2014
2013
$
$
Balances January 1, 2014 and December 2, 2013
6,757,056
0
Cash inflows
1,378,650
6,603,097
Cash outflows
-
-
Foreign currency adjustments
118,406
153,968
Sub-total (Fair value)
8,254,122
6,757,065
Discounts (commissions paid to bondholders)
-
-
Amortization of discounts
-
-
Unamortized discounts
-
-
Balances March 31 and December 31, 2013
(Carrying value)
8,254,122
6,757,056
As per date of this report the Company has realized a cumulative amount of
EUR 6.74 million ($9.26 million).
25
SUNVESTA, INC.
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2014
11.
BONDS -
Continued
EUR-Bond
EUR-Bond
(old)
(old)
2014
2013
$
$
Balances January 1
5,786,248
14,216,707
Cash inflows
-
792,740
Cash outflows
(4,989,073)
(9,727,189)
Foreign currency adjustments
(42,843)
503,991
Sub-total (Fair value)
754,332
5,786,249
Discounts (commissions paid to bondholders)
(248,195)
(248,195)
Amortization of discounts
248,195
248,195
Unamortized discounts
-
-
Balance March 31 and December 31
(Carrying value)
754,332
5,786,248
As
of
March
31,
2014,
SunVesta AG
has
not
been
able
to
fully repay the
old EURO
Bond
which
was
due
on
November
30,
2013.
As
per
March
31,
2014,
the
Company
had
overdue
bonds
to
repay of $754,332 (EUR 540,000).
Subsequent
to
the
balance
sheet
date
on
April
7,
2014
the
Company
was
able
to
repay
the
last
outstanding bond of $754,332 (EUR 540,000).
26
SUNVESTA, INC.
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2014
12.
PENSION PLAN
The
Company maintains
a
pension
plan
covering
all
employees
in
Switzerland;
it
is
considered
a
defined
benefit
plan
and
accounted
in
accordance
with
ASC
715
("compensation
-
retirement
benefits").
This
model
allocates
pension
costs
over
the
service
period
of
employees
in
the
plan.
The
underlying
principle
is
that
employees
render
services
rateably
over
this
period,
and
therefore,
the
income
statement
effects
of
pensions
should
follow
a
similar
pattern.
ASC
715
requires
recognition
of
the
funded
status,
or
difference
between
the
fair
value
of
plan
assets
and
the
projected
benefit
obligations
of
the
pension
plan
on
the
balance
sheet,
with
a
corresponding
adjustment
to
accumulate
other
comprehensive
income.
If
the
projected
benefit
obligation
exceeds the fair value of plan assets, then that difference or unfunded status represents the
pension liability.
The
Company
records
a
net
periodic
pension
cost
in
the
statement
of
operations.
The
liabilities
and annual income or expense of the pension plan is determined using methodologies that involve
several
actuarial
assumptions,
the
most
significant
of
which
are
the
discount
rate
and
the
long-
term
rate
of
asset
return
(based
on
the
market-related
value
of
assets).
The
fair
values
of
plan
assets are determined based on prevailing market prices.
Actuarial valuation
Net periodic pension cost has been included in the Company’s results as follows:
Three months ended
Three months ended
Pension expense
March 31, 2014
March 31, 2013
$
$
Current service cost
14,147
13,632
Net actuarial (gain) loss recognized
(169)
(268)
Interest cost
1,494
1,181
Expected return on assets
(1,550)
(1,208)
Employee contributions
(5,918)
(5,448)
Net periodic pension cost
8,004
7,890
During
the
three
months
periods
ended
March
31,
2014
and
March
31,
2013
the
Company
made
cash contributions of $5,915 and $5,500, respectively, to its defined benefit pension plan.
All
of
the
assets
are
held
under
the
collective
contract
by
the
plan’s
re-insurer
Company
and
are
invested
in
a
mix
of
Swiss
and
international
bond
and
equity securities
within
the
limits
prescribed by the Swiss Pension Law.
The expected future cash flows to be paid by the Company
in respect of employer contributions to
the pension plan for the year ended December 31, 2014 are $17,745.
27
SUNVESTA, INC.
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2014
13.
STOCK COMPENSATION
The Company has included share based remuneration based on “SunVesta Inc. Stock Option Plan
2013”
as part
of the total
remuneration
in some new employment
and
board
of director’s
contracts.
Based
on
this
stock
option
plan
the
Company
has
the
possibility since
January 1,
2013
to issue up to 50,000,000 common stock shares under the plan.
The
purpose
of
these
share
based
remuneration
is
to
advance
the
interests
of
the
Company
by
encouraging
its
employees
to
remain
associated
with
the
Company
and
assist
the
Company
in
building value.
Such share based remuneration includes
either
shares
or
options
to acquire
shares
of the Company’s common stock.
For
all
employees
fair
value
is
estimated
at
the
grant
date. Compensation
costs
for
unvested
shares are expensed over the requisite service period on a straight-line-basis.
Share Grants – Mr. Hans Rigendinger
On
January
1,
2013
the
Company
issued
3,500,000
common
shares,
valued
at
$0.08
which
has
been the share price and therefore the fair value on grant
date, to Hans Rigendinger in connection
with
his
employment
agreement
of
even
date
as
so-called
signing
bonus.
Additionally the
Company
granted
2,500,000
common
shares
as
a
retention
award
for
each
completed
year
of
employment
(e.g.
first
time
as
per
January
1,
2014).
The
employment
contract
has
been
concluded
for
three
years
with
an
additional
bilateral
option
for
another
two
years.
Therefore
in
total the Company could be requested to issue maximal 12,500,000 common shares up to January
1, 2018 to Hans Rigendinger related to this retention bonus.
Share Grants – Dr. Max Rössler
On July 3, 2013 the Company granted 3,000,000 common shares, valued at $0.07 which has been
the
share
price
and
therefore
the
fair
value
on
grant
date,
to
Dr.
Max
Rössler
in
connection
with
his
election
to
the
board
of
directors
as
so-called
signing
bonus.
These
shares
were
officially
issued on October 15, 2013.
Share Grants – Mr. Josef Mettler
On July 4, 2013 the Company granted 5,000,000 common shares, valued at $0.07 which has been
the
share
price
and
therefore
the
fair
value
on
grant
date,
to
Josef
Mettler
in
connection
with
his
employment
agreement
as
so-called
signing
bonus.
These
shares
were
officially
issued
on
October
15,
2013.
Additionally
the
Company
granted
3,000,000
common
shares
as
a
retention
award
for
each
completed
year
of
employment
(e.g.
first
time
as
per
July
4,
2014).
The
employment
contract
has
been
concluded
for
three
years
with
an
additional
bilateral
option
for
another
two
times
two
year
periods,
but
not
longer
than
December
31,
2020.
Therefore,
in
total
the
Company
could
be
requested
to
issue
maximal
21,000,000
common
shares
up
to
December
31, 2020, to Josef Mettler related to his retention bonus.
28
SUNVESTA, INC.
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2014
13.
STOCK COMPENSATION -
Continued
Share Grants – Mr. José María Figueres Olsen
On
March
10,
2014,
the
Company authorized
the
issuance
of
500,000
common
shares,
valued
at
$0.10
which
has
been
the
share
price
and
therefore
the
fair
value
on
grant
date,
to
José
María
Figueres
Olsen
in
connection
with
his
appointment
to
the
board
of
directors.
These
shares
were
not
issued
as
per
balance
sheet
date
and
also
not
as
per
date
of
this
report.
Additionally,
the
Company agreed to a retention award of 200,000 common shares for each fully completed year of
service,
which
initial
year
would
be
completed
on
March
10,
2015.
Therefore
the
Company may
be
obligated
to
issue
an
additional
200,000
common
shares
on
March
10,
2015,
to
José
María
Figueres Olsen related to his retention award.
Share Grants – Mr. Howard M. Glicken
On
March
10,
2014,
the
Company authorized
the
issuance
of
500,000
common
shares,
valued
at
$0.10
which
has
been
the
share
price
and
therefore
the
fair
value
on
grant
date,
to
Howard
M.
Glicken
in
connection
with
his
appointment
to
the
board
of
directors.
These
shares
were
not
issued as per balance sheet date and also not as per date of this report. Additionally, the Company
agreed
to
a
retention
award
of
200,000
common
shares
for
each
fully
completed
year
of
service,
which initial year would
be completed
on
March
10, 2015.
Therefore
the
Company
may
be
obligated
to
issue
an
additional 200,000
common
shares
on
March
10, 2015,
to
Howard
M.
Glicken related to his retention award.
Share Grants – Summary
Based
on
these
contracts
the
Company
has
included
the
following
stock-based
compensation
in
the Company’s results:
Stock-based compensation (shares)
Three months
Three months
ended March 31, 2014
ended March 31, 2013
Shares granted
46,400,000 shares
16,000,000 shares
Fair Value respectively market price on grant date
$0.0744
$0.0800
Total maximal expenses (2013-2020)
$3,450,000
$1,280,000
Shares vested
15,000,000 shares
3,500,000 shares
Unvested shares
31,400,000 shares
12,500,000 shares
As
of
March
31,
2014,
the
Company expects
to
record
compensation
expense
in
the
future
up
to
$2,100,166 as follows:
Year ending December 31,
Stock-based
Through
compensation
December 31,
(shares)
2014
2015
2016
2017
2018
2019
2020
$
$
$
$
$
$
$
Unrecognized
compensation
337,500
417,666
410,000
410,000
210,000
210,000
105,000
expense
29
SUNVESTA, INC.
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2014
13.
STOCK COMPENSATION -
Continued
Stock Options – Mr. Hans Rigendinger
The
Company
granted
to
Hans
Rigendinger,
in
connection
with
his
employment
contract,
10,000,000
options
on
January 1,
2013.
Each
option
entitles
Mr.
Rigendinger
to
buy
one
Company
share
at
a
strike
price
of
$0.05.
These
options
will
be
vested
in
two
identical
installments (installment A and B) of 5,000,000 options.
For
installment
A,
is
required
to
complete
a
financing
arrangement
with
a
specific
counterparty.
As
of grant date,
the fair value was
$300,000. As
of July 4,
2013,
the Company assessed that
this
financing
arrangement
with
the
specific
counterparty
will
not
be
completed.
Therefore
the
Company
assessed
the
probability
of
completion
to
be
zero
and
therefore
no
expense
has
been
recognized
for
the
stock
options
with
installment
A
up
to
July
4,
2013.
On
July
4,
2013,
the
Company
authorized a revised stock option agreement with Hans Rigendinger. This revised
agreement
does
not
longer
require
that
the
financing
arrangement
needs
to
be
concluded
with
a
specific
counterparty.
Therefore
the
options
could
be
vested
if
such
financing
arrangement
(so-
called main financing arrangement for Paradisus Papagayo Bay Resort & Luxury Villas) has been
concluded with any counterparty.
As of date
of
the revised stock
option
agreement
(July 4,
2013)
the
fair
value
was
$246,000.
Installment
A
granted
to
Mr.
Rigendinger
was
modified
on
July
4,
2013,
since
the
initial
performance
condition
was
improbable
to
be
met.
Since
the
modification
changed the expectation
that the
options
will ultimately vest
and no expense had been recognized
for
the
original
award,
the
fair
value
of
the
modified
award
will
be
expensed
on
a
straight
line
basis
over
the
expected
vesting
period.
As
of
March
31,
2014
the
Company
still
assesses
the
probability that this performance conditions will be met at 100%.
For
installment B, it was originally required that the Company completes the
Paradisus
Papagayo
Bay Resort & Luxury Villas (see Note 17) by the thereinafter mentioned date of July 1, 2015, and
Meliá
assumes
management
responsibilities
for
the
property.
As
of
grant
date,
the
fair
value
was
$340,000.
As
of
March
6,
2014,
the
Company still
assesses
the
probability that
this
performance
condition
will
be
met
at
100%
but
as
the
opening
was
postponed
(see
Note
17).
The
corresponding relevant date for this performance condition is now the fourth Quarter 2015.
Hence,
the
remaining
fair
value
of
the
award
will
be
expensed
on
a
straight-line
basis
over
the
recalculated expected remaining vesting-period.
Stock Options – Dr. Max Rössler
The
Company
granted
to
Dr.
Max
Rössler,
in
connection
with
his
appointment
to
the
board
of
directors, 10,000,000 options on July
3, 2013. Each option entitles Mr. Rössler to buy
one
Company
share
at
a
strike
price
of
$0.05.
These
options
will
be
vested
in
two
identical
installments (installment A and B) of 5,000,000 options.
For
installment
A
(5,000,000
options),
it
is
required
to
complete
a
financing
arrangement
(main
financing arrangement for Paradisus Papagayo Bay Resort & Luxury Villas). As of grant date, the
fair
value
was
$249,835.
As
of
March
31,
2014
the
Company
still
assesses
the
probability
that
this performance
conditions will be met at 100% and will expense
the
total fair value on
a
straight-line basis over the expected vesting period.
30
SUNVESTA, INC.
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2014
13.
STOCK COMPENSATION -
Continued
Stock Options – Dr. Max Rössler - continued
For
installment
B
(5,000,000
options),
it
is
required
that
the
Company
completes
the
Paradisus
Papagayo Bay Resort & Luxury Villas (see Note 17) by the thereinafter mentioned date of July 1,
2015
and
Meliá
assumes
management
responsibilities
for
the
property.
As
of
grant
date
the
fair
value
was
$258,210.
As
of
March
6,
2014,
the
Company
still
assesses
the
probability
that
this
performance
condition
will
be
met
at
100% but
as
the opening was
postponed (see
Note 17).
The
corresponding relevant date for this performance condition is now the fourth Quarter 2015.
Hence,
the
remaining
fair
value
of
the
award
will
be
expensed
on
a
straight-line
basis
over
the
recalculated expected remaining vesting-period.
Stock Options – Mr. Josef Mettler
The
Company
granted
to
Josef
Mettler,
in
connection
with
his
employment
contract,
12,000,000
options
on
July
4,
2013.
Each
option
entitles
Mr.
Mettler
to
buy
one
Company
share
at
a
strike
price
of
$0.05.
These
options
will
be
vested
in
three
installments.
Installment
A
includes
3,000,000 options, installment B 4,000,000 options and installment C 5,000,000 options.
For
installment
A
(3,000,000
options),
it
is
required
to
complete
a
financing arrangement
(bridge
financing). As of grant date the fair value was $149,000. As of March 31, 2014 the Company still
assesses
the
probability
that
this
performance
conditions
will
be
met
at
100%
and
will
expense
the total fair value on a straight-line basis over the expected vesting period.
For
installment
B
(4,000,000
options),
it
is
required
to
complete
a
financing
arrangement
(main
financing arrangement for Paradisus
Papagayo
Bay Resort & Luxury Villas). As of grant
date the
fair
value
was
$200,000.
As
of
March
31,
2014
the
Company
still
assesses
the
probability
that
this performance
conditions will be met at 100% and will expense
the
total fair value on
a
straight-line basis over the expected vesting period.
For
installment
C
(5,000,000
options),
it
is
required
that
the
Company
completes
the
Paradisus
Papagayo Bay Resort & Luxury Villas (see Note 17) by the thereinafter mentioned date of July 1,
2015
and
Meliá
assumes
management
responsibilities
for
the
property.
As
of
grant
date
the
fair
value was $258,000. As of date of December 31, 2013, the Company assessed the probability that
this performance condition will be met at 100%. As of March 31, 2014, the Company
still
assesses
the
probability
that
this
performance
condition
will
be
met
at
100%
but
as
the
opening
was
postponed
(see
Note
17).
The
corresponding
relevant
date
for
this
performance
condition
is
now
the
fourth
Quarter
2015.
Hence,
the
fair
value
of
the
award
will
be
expensed
on
a
straight-
line basis over the recalculated expected vesting-period.
31
SUNVESTA, INC.
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2014
13.
STOCK COMPENSATION -
Continued
Stock Options – Summary
A
summary
of
stock
options
outstanding
as
per
March
31,
2014
is
as
follows
(for
the
previous
year no stock options have been granted):
Options outstanding
Number of
Weighted average
Weighted average
Options
exercise price
remaining
contractual life
Outstanding
January 1, 2014
32,000,000
$ 0.05
9.17 years
Granted
-
Exercised
-
Forfeited or expired
-
Outstanding
March 31, 2014
32,000,000
$ 0.05
9.17 years
Exercisable March 31, 2014
-
The following table depicts the Company’s non-vested options as of March 31, 2014 and changes
during the period:
Non-vested options
Shares under Options
Weighted average grant date
fair value
Non-vested at December 31, 2013
32,000,000
$ 0.053
Non-vested-granted
-
-
Vested
-
-
Non-vested, forfeited or cancelled
-
-
Non-vested at March 31, 2014
32,000,000
$ 0.053
Under
the provisions
of FASB
ASC Topic
718,
the Company is
required to
measure
and
recognize compensation expense related to any
outstanding and unvested stock options
previously
granted,
and
thereafter
recognize,
in
its
consolidated
financial
statements,
compensation
expense
related
to
any
new
stock
options
granted
after
implementation
using
a
calculated
fair
value
based
option-pricing
model.
The
Company
uses
the
Black-Scholes
option-
pricing model to calculate the fair value of all of its stock options and its assumption are based on
historical
and
or if
available
market
information. The
following assumptions
were
used
to
calculate the compensation expense and the calculated fair value of stock options granted:
Assumption
March 31, 2014
March 31, 2013
Dividend yield
-
None
Risk-free interest rate used (average)
-
1.00%
Expected market price volatility
-
80.00%
Average expected life of stock options
-
6.0 years
The
computation
of
the
expected
volatility
assumption
used
in
the
Black-Scholes
calculation
for
new
grants
is
based
on
historical
volatilities
of
a
peer
group
of
similar
companies
in
the
same
industry. The expected life assumptions are based on underlying contracts.
32
SUNVESTA, INC.
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2014
13.
STOCK COMPENSATION -
Continued
Stock Options – Summary - Continued
As
of
March
31,
2014,
the
Company
had
unrecognized
compensation
expenses
related
to
stock
options currently outstanding, to be recognized in future quarters respectively years as follows:
Through to December
Year ending December 31,
Stock-based compensation (options)
31, 2014
2015
$
$
Unrecognized compensation expense
208,212
277,616
14.
SUMMARY OF SHARE AND OPTION COMPENSATION EXPENSE
The Company
recorded the following amounts related to stock
based compensation expense
during the periods ended March 31, 2014 respectively March 31, 2013:
Summary of share and option based compensation
Three months
Three months
expense
March 31, 2014
March 31, 2013
$
$
Share grants (see Note 12 for details)
204,834
330,000
Option grants (see Note 13 for details)
378,758
40,000
Total
(recorded under general & administrative expense)
583,592
370,000
15.
FUTURE LEASE COMMITTMENTS
On December 1,
2012,
the Company entered into a lease
agreement
for the premises for its
Swiss
office
with an unrelated entity.
The
annual rental expense
amounts
to approximately $130,000 on
a fixed term expiring on December 31, 2017.
16.
NOTE PAYABLE
March 31, 2014
December 31, 2013
$
$
Promissory note
2,000,000
2,000,000
Swisshome Real Estate AG
2,818,172
-
Total
4,818,172
2,000,000
Promissory Note
As
part
of
the
completion
of
the
purchase
of
AdR
(refer
to
note
6)
on
March
9,
2013,
the
parties
have
agreed
that
a
remaining
part
of
the
purchase
price
of
$2,000,000
are
converted
into
a
non
interest bearing and uncollateralized loan payable which was originally
due for payment on
March
8,
2014.
On
February
19,
2014
the
Company
agreed
with
the
counterparty
to
prolong
the
due date for the note payable up to February 19, 2015.
33
SUNVESTA, INC.
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2014
16.
NOTE PAYABLE -
Continued
Loan agreement Swisshome Real Estate AG
On January 20, 2014,
the Company concluded
a short term loan agreement with Swisshome
Real
Estate
AG,
Zurich
in
the
amount
of
CHF
3.0
million
(approximately
$3.35
million).
This
short
term
loan
is
repayable
on
April
30,
2014.
Instead
of
interest
Swisshome
Real
Estate
AG
will
receive
a
lump
sum
of CHF
100,000
(approximately $111,000)
as
reimbursement,
which
amount
is equivalent to an approximate effective yearly interest of 11.98%.
As
per
March
31,
2014,
the
outstanding
loan
amount
was
CHF
2.5
million
(approximately $2.82
Mio.)
and
the
pro
rata
interest
expense
recorded
in
the
period
ended
March
31,
2014,
is
CHF
75,000 (approximately
$82,600). On April
22,
2014
the Company repaid
the
loan including
lump sum as reimbursement.
17.
OPENING DATE “Paradisus Papagayo Bay Resort & Luxury Villas”
The
official
opening of the
“Paradisius
Papagayo
Bay Resort
&
Luxury Villas”
has
been
delayed
by a few months due to geological difficulties encountered during earthwork operations in August
and
September
2013.
Due
to
these
geological
difficulties
some
rock
demolition
became
necessary.
On
September
6,
2013,
the
Company amended
its
agreement
with
Melía
(“5th
addendum
to
the
management
agreement
of
March
8,
2011”)
to
postpone
the
opening
date
as
follows:
—
The construction of the “Paradisus” will be completed by July 1, 2015
—
Should the “Paradisus” not be completed by July 1, 2015, (subject to force majeure) and should an extension
date not be agreed, subsequent to July 1, 2015, the Company will be obligated to pay Melía a daily amount of
$2,000 as liquidated damages
—
Should the Company be unable to complete
the construction of the “Paradisus” by October 1, 2015, Melía, can
terminate the management agreement obligating the Company to compensate Melía in the amount of $5,000,000
unless the respective parties agree to extend such date.
On March 6,
2014,
the Company has
been
forced
to postpone
the opening date
of the “Paradisius
Papagayo
Bay
Resort
&
Luxury
Villas”.
The
opening
is
now
expected
to
be
not
before
the
4
th
Quarter 2015. Reasons for this further postponing are amongst others:
—
Major changes within the project, which has been requested by Melía.
—
Further geotechnical difficulties.
—
Unexpected special permit has been necessary for earth works towards the beach (so-called maritime law 21 in
Costa Rica).
The
Company
is
in
negotiations
and
discussions
with
Melía
to
amend
the
contract
and
to
avoid
potential penalties and compensation as mentioned above.
34
SUNVESTA, INC.
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2014
18.
MANGEMENT AGREEMENT WITH MELIA HOTELS & RESORTS
In
March
2011,
the
Company
concluded
a
management
agreement
for
the
management
of
the
planned
resort
in
Guanacaste,
Costa
Rica.
This
agreement
has
included
a
clause
saying
that
if
SunVesta
AG
were
not
able
to
conclude
the
purchase
of
the
related
property
by
November
30,
2011,
then
a
penalty of
$1
million
would
become
due to
Sol
Meliá,
S.A.
Therefore
the
Company
has recorded
a liability in
accrued expenses in the
full amount
as of December
31, 2011,
with the
corresponding
expense,
which
was
recorded
in
general
and
administrative
expense
in
the
year
ended
December
31,
2011.
On
March
3,
2012,
the
deadline
to
pay the
penalty of
$1
million
was
extended
by Sol
Meliá,
S.A.
to June
30,
2012.
On
June
30,
2012,
neither
the
whole
penalty nor
a
part of the penalty was paid. Therefore the deadline to pay the penalty of $1 million was extended
on
June
30,
2012,
up
to
August
31,
2012.
Neither
on
August
31,
2012,
nor
on
December
31,
2012, was the whole penalty or a part of the penalty was paid although the deadline of August 31,
2012,
to
pay the
penalty of
$1
million
was
expired.
Hence,
the
penalty of
$1
million
remained
in
accrued
expenses
as
of
December
31,
2012.
On
February
5,
2013,
the
Company
extended
the
deadline
to
complete
the
purchase of
the
property
pursuant
to
the
terms of
the management
agreement
with
Sol
Meliá,
S.A.,
to
March
15,
2013,
and
agreed
that
the
penalty
of
$1
million
would be waived if the purchase was completed by March 15, 2013. The purchase of the property
was
finally
concluded
on
March
9, 2013.
Since
the
Company
concluded
the
purchase
of
the
property
within
the
extension
period
the
penalty
otherwise
payable
to
Sol
Meliá,
S.A.
and
the
corresponding allowance was eliminated as of March 9, 2013. Therefore, the Company
has
released
the
accrual
of
$1
million
related
to
this
transaction
in
the
three
months
period
ended
March 31, 2013.
35
SUNVESTA, INC.
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2014
19.
EARNINGS PER SHARE
Basic
earnings
per
share
are
the
result
of
dividing
the Company’s
net
income
(or
net
loss)
by the
weighted average number of shares outstanding for the contemplated period. Diluted earnings per
share
are
calculated
applying
the
treasury
stock
method.
When
there
is
a
net
income
dilutive
effect
all
stock-based
compensation
awards
or
participating
financial
instruments
are
considered.
When the Company posts
a loss,
basic loss
per
share
equals diluted loss
per
share.
The
following
table
depicts
how the
denominator
for
the
calculation of
basic
and
diluted
earnings
per
share
was
determined under the treasury stock method.
Three-month
Three-month
Earnings per share
period ended
period ended
March 31, 2014
March, 31 2013
Company posted
Net loss
Net loss
Basic weighted average shares outstanding
86,247,159
71,251,720
Dilutive effect of common stock equivalents
None
None
Dilutive weighted average shares outstanding
86,247,159
71,251,720
The
following
table
shows
the
number
of
stock
equivalents
that
were
excluded
from
the
computation of diluted earnings per share for the respective
period because the
effect would have
been anti-dilutive.
Three-month
Three-month
Earnings per share
period ended
period ended
March 31, 2014
March, 31 2013
Conversion feature loan to Aires International
Investment Inc. (Options)
-
10,818,437
Options to Hans Rigendinger
10,000,000
10,000,000
Options to Dr. M. Rössler
10,000,000
-
Options to Josef Mettler
12,000,000
-
Total Options
32,000,000
20,818,437
Shares to Hans Rigendinger
(retention bonus – non vested)
10,000,000
12,500,000
Shares to Josef Mettler (retention
award)
21,000,000
-
Shares to Howard M. Glicken (retention award)
200,000
-
Shares to Jose Maria Figueres Olsen (retention award)
200,000
-
Total Shares
31,400,000
12,500,000
Total Options and Shares
63,400,000
33,318,437
Additional
information
regarding
“Conversion
feature loan
to Aires
International
Investment
Inc.
(Options)”
see
Note
9,
receivables
from
and
payables
to
related
parties.
For
further
information
regarding
share
and
option
based
payments
see
Note
13
for
stock
compensation,
Note
14
for
option based compensation and Note 15 for a summary of option and share based remuneration.
36
SUNVESTA, INC.
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2014
20.
GENERAL AND ADMINISTRATIVE EXPENSES
General
and
administrative
expenses
according
consolidated
statement
of
comprehensive
loss
include:
Three-month period
Three-month period
General and administrative expenses
ended
ended
March 31, 2014
March, 31 2013
$
$
Rental & related expenses
(44,636)
(36,989)
Audit
(90,112)
(47,231)
Consulting
(602,106)
(273,396)
Marketing, Investor & public relations
(7,863)
(3,826)
Travel expenses
(104,759)
(147,053)
Personnel costs including social security’s costs and
share based remuneration
(898,478)
(635,874)
Various other operating expenditures
(304,038)
(160,588)
Write-off Hotel Project Atlanta
-
-
Total according statement of comprehensive loss
(2,051,992)
(1,304,957)
21.
SUBSEQUENT EVENTS
Management has evaluated subsequent events after the balance sheet date, through the issuance of
the financial statements, for appropriate accounting and disclosure. The Company has determined
that
there
were
no
such
events
that
warrant
disclosure
or
recognition
in
the
financial
statements,
except for the below:
Loan agreement with Specogna Holding AG
On May
15, 2014, the Company
entered into a
short term
loan
agreement for
CHF
1.0
million
(approximately
$
1.13
million)
with
Specogna
Holding
AG.
This
loan
will
be
repayable on July 31,
2014, and bears lump
sum remuneration as interest of CHF 30,000
(approximately
$33,800).
This
loan
has
been
secured
with
individual
and
joint
liability
by
Dr.
Max Rössler, Mr. Josef Mettler and Mr. Hans Rigendinger.
37
ITEM 2.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This
Management’s Discussion and Analysis of Financial Condition and Results of Operations
and other
parts of this quarterly report contain forward-looking statements that involve risks and uncertainties.
Forward-looking statements can be identified by words such as “anticipates,” “expects,” “believes,”
“plans,” “predicts,” and similar terms. Forward-looking statements are not guarantees of future
performance and our actual results may differ significantly from the results discussed in the forward-
looking statements. Factors that might cause such differences include but are not limited to those
discussed in the subsection entitled
Forward-Looking Statements and Factors That May Affect Future
Results and Financial Condition
below. The following discussion should be read in conjunction with our
financial statements and notes hereto included in this report. All information presented herein is based on
our three month periods ended March 31, 2014 and March 31, 2013. Our fiscal year end is December 31.
Discussion and Analysis
Business Overview
We are in the process of developing high-end luxury hotels and resorts worldwide. Our initial focus is
concentrated on offering luxury hotel products located in attractive, top-class coastal vacation destinations
in countries such as Costa Rica that are fast emerging as popular tourist destinations. Each prospective
development takes into consideration country specific conditions and general considerations that include
the stability of local political conditions, geologically useful cultivability, and the types of destinations
that attract a five-star clientele. Once identified as eligible, prospective developments are compared
against a validation checklist and then, if warranted, subjected to a substantial due diligence process.
Since location is the key to the success of any tourist based luxury real estate project, each development
will be carefully considered during the eligibility process.
Initial Development
Our initial real estate development, to be constructed on 20.5 hectares of prime land located in
Guanacaste Province, Costa Rica, is the Paradisus Papagayo Bay Resort & Luxury Villas, a five star
luxury hotel scheduled to open in the 4
th
quarter of 2015 subject to requisite financing.
Specifications
Paradisus Papagayo Bay Resort & Luxury Villas’ initial specifications are to be as follows:
—
eco-luxury all-inclusive resort
—
382-keys
—
direct beach access
—
five restaurants and five bars
—
Yhi Spa and Health Club
—
Paradisus’ adults-only “Royal Service” level of accommodations
—
Paradisus’ “Family Concierge” program
—
19,000 square feet of meeting facilities with the business traveler in mind
Royal Service
Our Royal Service will include an extensive range of services such as butler service, private pools for
each Garden Villa and/or a Jacuzzi in every suite.
38
The Royal Service area will include:
— 108 Junior Suites Grand Deluxe
(43-60* square meters)
— 2 Junior Suites Grand Deluxe for Handicapped Guests
(53* square meters)
— 6 Grand Master Suites
(87* square meters)
— 2 Deluxe Suites Presidential
(60 square meters)
— 1 Grand Presidential Suite (4 bedrooms)
(145* square meters)
— 20 one or two bedroom Garden Villas
(91–212* square meters)
* Room size does not include balconies and terraces.
All ground floor suites will have direct access to swim-up pools. Each of the suites and villas will have a
full view of the sea. Royal Service guests will furthermore have access to restaurants, bars, lounges,
fitness equipment, spas and outside massage areas.
Family Concierge
The Family Concierge will be the family orientated part of the Paradisus Papagayo Bay Resort & Luxury
Villas. The accommodations will be designed to satisfy the needs of the modern family.
—
166 Junior Suites Deluxe
(47* square meters)
—
34 Suites Deluxe
(87* square meters)
—
33 Suites Premium
(93* square meters)
—
6 Handicapped Junior Suites Deluxe
(47* square meters)
—
1 Bridal Suites
(93* square meters)
—
2 Deluxe Suites Presidential
(88* square meters)
—
1 Presidential Suite
(194* square meters)
*
Room size does not include balconies and terraces.
All ground floor suites will have direct access to swim-up pools. Each of the suites will have a full view
of the sea. Family Concierge guests will furthermore have access to restaurants, bars, and lounges. The
intended Onyx Night Club and the Gabi Club will be located near the beach.
The Paradisus Papagayo Bay Resort & Luxury Villa’s will feature other highlights including:
—
over 65 private, swim up and resort pools including the world’s second largest Infinity Pool all
within idyllic landscaped grounds
—
a wedding chapel with a stunning ocean view
—
rain forest walkways that permit guests to experience the flora and fauna of the rain forest
—
a multipurpose convention hall with over 2,000 square meters of space that can be utilized as a
whole or divided to create smaller meeting rooms
—
a full service spa committed to providing for the wellbeing of our guests. The spa will be located
with a 180 degree sea view within approximately 1,000 square meters that will include 12 large
treatment rooms, a hairdresser, relaxation areas, pools, saunas and steam rooms
—
the 20 private villas will be located within the Royal Service area of the resort. The present
intention being that these villas will be sold to individuals who will then let them back to the
resort when not occupied by the owners.
39
A comprehensive market analysis undertaken by HVS, an international hotel consulting and valuation
firm, concluded in September of 2013, that the Paradisus Papagayo Bay Resort & Luxury Villa’s on
stabilization of operations would operate as a profitable business, with net income of 35.3% of total
revenue.
Management
Overall project development is lead by Josef Mettler, our chief executive officer, Charles Fessel, project
director Paradisus Papagayo Bay Resort & Luxury Villas, Hans Rigendinger, chairman of the board and
chief operating officer of SunVesta AG and Ernst Rosenberger, the Company’s corporate controller. The
lead architect is Ossenbach, Pendones & Bonilla, one of Costa Rica’s largest architectural offices with
over 45 architects and designers. Civil engineering services are provided by DEHC Engineers and
structural engineering services by IEAC. Landscape architects are TPA and interior designers are led by
Concreta Srl.
Resort management is to be provided by Melía Hotels International (“Melía”). “Paradisus” is Melía’s five
star all-inclusive luxury hotel brand that is well recognized in the hospitality industry around the world.
Melía was founded in 1956 in Palma de Mallorca, Spain and is today one of the world’s largest resort
hotel chains, as well as Spain’s leading hotel chain for business or leisure. The company currently offers
more than 300 hotels in 26 countries over four continents under its Gran Sol Melía, Sol Melía, ME by Sol
Melía, Innside by Sol Melía, Tryp, Sol Melía, Sol Melía Vacation Club, and Paradisus brands. The
Paradisus brand represents all-inclusive luxury resorts with hotels in Mexico and the Dominican
Republic, including:
Paradisus Palma Real (Dominican Republic):
—
496 oversized suites
—
numerous pools and whirlpools, five tennis courts, casino, beach, golf, meeting space, five
restaurants, two buffets, nine bars, etc.
The Reserve at Palma Real (Dominican Republic):
—
184 rooms “Residential Concierge Suites”
—
private beach, swimming pools, 7800 sq ft “Kids Zone”, 24,000 sq. ft. Yhi Spa, three
restaurants, two buffets, two bars, etc.
Paradisus Punta Cana (Dominican Republic):
—
884 oversized suites (500 - 1000+ sq ft)
—
seven pools, four tennis courts, casino, beach, “Kids Zone”, Yhi Spa and fitness, meeting
rooms, 12 restaurants, eight bars, etc.
The Reserve at Punta Cana (Dominican Republic):
—
132 residential suites
—
pools (with partially underwater pool beds, water features, etc), private beach, spa, cabanas,
etc.
40
La Esmeralda at Playa del Carmen
—
512 suites including 56 swim-up suites
—
spas, meeting spaces, 11 restaurants, 10 bars, etc. (partially shared with La Perla
at Playa
del Carmen).
La Perla at Playa del Carmen
—
394 suites including 60 swim-up suites
—
Paradisus’ adults-only “Royal Service” level of accommodations
—
spas, meeting spaces, 11 restaurants, 10 bars, etc. (partially shared with La Esmeralda at
Playa del Carmen)
Our Paradisus Papagayo Bay Resort & Luxury Villas development is intended to replace Paradisus
Resorts’ former Paradisus Playa Conchal in Guanacaste, Costa Rica which property was operated by Sol
Meliá until April 30, 2011. Our project is part of Sol Meliá’s master expansion plan, which includes the
opening of two resorts in Playa del Carmen, Mexico in November of 2011. Sol Meliá aims to solidify
Paradisus Resorts as a leader in the luxury all-inclusive market segment with the new properties in Playa
del Carman and our own Paradisus Papagayo Bay Resort & Luxury Villas project.
Additional Concession Properties
On April 20, 2012, SunVesta AG entered into an agreement with Meridian IBG (“Meridian”) to purchase
two additional concession properties in Polo Papagayo, Gunacaste. The additional concession properties
with a total surface of approximately 230,000 square metres, were to be purchased for a total of
$22,895,806 in addition to equity in the Polo Papagayo concession properties and the Paradisus Papagayo
Bay Resort & Luxury Villas. The agreement was amended on November 13, 2012, to eliminate the
agreed equity payments, to decrease the total purchase price to $17,200,000 and to provide that all
payments for the purchase were refundable in the event SunVesta AG determined not to complete the
purchase. On May 7, 2013, the parties entered into a new agreement to replace the original amended
agreement that included the following terms and conditions:
—
New purchase price of $17,500,000 of which amount $16,130,000 outstanding as of the
date of the new agreement.
—
Payment of $8,000,000 to be paid directly by SunVesta AG to third party.
—
Payment of the $8,130,000 to be paid by SunVesta to Meridian.
—
Payments to be made according to a fixed schedule.
Third Party Payment Schedule
—
$300,000 on May 4, 2013, which was paid on May 3, 2013 and is non-refundable.
—
$1,000,000 on June 30, 2013, which is refundable, $700,000 of which amount was paid on
October 29, 2013. The remaining $300,000 is unpaid.
—
$1,000,000 on July 31, 2013, which is refundable and unpaid.
—
$1,000,000 on August 31, 2013, which is refundable and unpaid.
—
$1,500,000 on September 30, 2013, which is refundable and unpaid.
—
$1,500,000 on October 31, 2013, which is refundable and unpaid.
—
$1,700,000 on November 30, 2013, which is refundable and unpaid.
$8,000,000 in total to be paid to Third Party
41
Meridian Payment Schedule
—
$1,000,000 on January 31, 2014, which is non-refundable and unpaid
—
$1,000,000 on February 28, 2014, which is non-refundable and unpaid
—
$1,000,000 on March 31, 2014, which is non-refundable and unpaid.
—
$1,000,000 on April 30, 2014, which is non-refundable.
—
$1,000,000 on May 31, 2014, which is non-refundable.
—
$1,000,000 on June 30, 2014, which is non-refundable.
—
$1,000,000 on July 31, 2014, which is non-refundable.
—
$1,130,000 on August 31, 2014, which is non-refundable
$8,130,000 in total to be paid to Meridian
SunVesta AG had paid down-payments on the purchase of these properties of $2,369,816 as of March 31,
2014 and is delinquent in its obligations to Meridian. SunVesta AG is in negotiations with Meridian to re-
design and re-schedule payment of the purchase agreement.
Hotel and Entertainment Complex (Atlanta, Georgia, U.S.A)
On September 19, 2012, SunVesta AG entered into an agreement, as amended, with Fundus America
(Atlanta) Limited Partnership (“Fundus) to purchase a hotel and entertainment complex in Atlanta,
Georgia (United States of America). The entire purchase amount of $26 million for the assets had no firm
financing commitment. Additionally, an additional amount of approximately $18 million for renovations
would need to be invested in the hotel and entertainment complex. SunVesta AG pursued negotiations
with various parties to procure a financing package to purchase and renovate the project but was unable to
conclude the transaction. On October 15, 2013, the fifth amendment expired, causing the Company to fall
into default. Therefore, those amounts paid as non-refundable deposits and taxes related to the property of
total $1,573,957 were expensed on October 16, 2013. On October 28, 2013, SunVesta AG entered into a
sixth amendment to the original purchase agreement with Fundus that required it to pay $2,500,000 by
November 12, 2013, as an initial installment against the purchase price and to pay the remaining
$22,500,000, taking into effect the $1,000,000 paid in deposits, by January 31, 2014. Since November 12,
2013, SunVesta AG was also obligated to pay six percent (6%) interest on the unpaid initial installment of
$2,500,000 to be paid with the remainder of the purchase price on January 31, 2014. On March 28, 2014,
the Company decided not to continue with the project due to the changes in the conditions related to the
acquisition and an inability to adjust a financing package to the new conditions. As part of the termination
and to avoid potential litigation, the Company agreed to pay the counterparty EUR 100,000
(approximately $124,500) to settle any further obligation. The amount of EUR 100,000 (approximately
$124,500) has been expensed within the actual quarter and is included in other operating expenses.
Subsequent to period end, on April 7, 2014, the Company paid the EUR 100,000 settlement amount to
Fundus.
Finance
The anticipated completion of the Paradisus Papagayo Bay Resort & Luxury Villas in the fourth quarter
of 2015 will require a net investment of approximately $171 million (excluding non-recuperated overhead
expenses), of which approximately $46 million has been expended as of March 31, 2014. We expect to
realize a minimum of $125 million in new funding over the next twelve months. New funding over the
next twelve months is expected to be raised from a construction loan (see paragraph regarding Banco
Nacional hereinafter), debt financing through bonds, shareholder loans and, if necessary, the guaranty
agreement in place as described herein.
42
Bonds
SunVesta AG, has three bond issues outstanding as of period end, denominated in either EUR (
€
) or
Swiss Francs (CHF).
EUR (
€
) Bonds
SunVesta AG initiated the offering of unsecured EUR bonds on December 1, 2010, of up to
€
25,000,000
in units of
€
1,000 that bore interest at 8.25% per annum payable each November 30 over a three year term
that expired on November 30, 2013. SunVesta AG raised $792,740 for the year ended December 31, 2013
and $4,015,549 for the year ended December 31, 2012, for a cumulative total raise of $15,009,447 as of
December 31, 2013, in connection with this offering. SunVesta AG was unable to repay $754,332
of that
amount due for repayment on November 30, 2013, as of March 31, 2014. Subsequent to period end, on
April 7, 2014, the remaining amount due on the Euro bonds was paid in full.
SunVesta AG initiated a second offering of unsecured EUR bonds on December 2, 2013, of up to
€
15,000,000 in units of
€
10,000 that bear interest at 7.25% per annum payable each December 1 over a
three year term that expires on December 2, 2016. SunVesta AG raised $6,603,097 for the year ended
December 31, 2013, and $1,378,650 in the three month period ended March 31, 2014 for a cumulative
amount of $9,260,000 as of the date of this report.
Swiss Francs (CHF) Bonds
SunVesta AG initiated the offering of CHF bonds on September 1, 2011, of up to CHF 15,000,000 in
units of CHF 50,000 that bear interest at 7.25% per annum payable each August 31 over a four year term
that expires on August 31, 2015. SunVesta AG raised $4,725,017 in the three month period ended March
31, 2014 and $2,650,882 in the year ended December 31, 2013, for a total cumulative raise of
$16,666,000 as of the date of this report.
Aires International Investment, Inc.
On July 27, 2011, SunVesta AG entered into a line of credit agreement with Aires International
Investment, Inc. (“Aires”), a company owned by a board member of the Company. The agreement was
amended on May 11, 2012, and on June 21, 2012. The amended agreement includes the following
provisions:
—
Aires grants SunVesta AG a terminable, interest bearing and non-secured line of credit up to
a maximum amount of CHF 10,000,000.
—
the conversion right to convert the balance of the line of credit into a 10% ownership interest
in Rich Land was cancelled.
—
once the maximum amount has been drawn down, Aires has the right to convert that amount
into 20% shares of the Company (instead of Richland).
—
the repayment of the line of credit is due on September 30, 2015, until such time Aires can
exercise its conversion option subject to the subordination noted in the following.
—
CHF 10,000,000 of this line of credit is subordinated in favour of other creditors.
—
the interest rate is 7.25% and interest is due on September 30 of each year.
43
On October 31, 2013, SunVesta AG and Aires signed a new loan agreement that includes the following
main clauses:
—
All existing loan agreements, including amendments, between SunVesta AG and Aires
were cancelled and superseded by the new agreement.
—
The loan shall not be due before December 31, 2015, but at the latest on December 31,
2020.
—
Both parties have the option, despite of the scheduled repayment dates, to cancel the loan
agreement with a notice period of 90 days, and in the case of SunVesta AG full repayment.
—
The complete loan amount including further additions is subordinated.
—
Yearly interest on the loan is 7.25% that will be credited to the loan account.
Effective December 31, 2012, SunVesta AG, Aires and the Company entered into an assignment of debt
agreement, whereby the parties agreed that SunVesta AG’s debt to Aires as of December 31, 2012, in the
amount of CHF 10,044,370, including accrued interest, be assumed by the Company with the following
conditions:
—
The principal amount together with any interest shall be payable on December 31, 2015.
—
The interest rate is 7.25%
—
Any amount of principal or interest which is not paid when due shall bear interest at the
rate of 10% per year from the due date until paid
Effective December 31, 2013, SunVesta AG, Aires and the Company entered into an additional
assignment of debt agreement, whereby the parties agreed that a portion of SunVesta AG’s debt to Aires
as of December 31, 2013, in the amount of CHF 10,000,000, including accrued interest, be assumed by
the Company with the following conditions:
—
The effective date is December 31, 2013. However, since the promissory note was signed
in March 2014 this is the relevant date for accounting purposes.
—
The principal amount together with any interest will be payable on December 31, 2015
(the maturity date)
—
The interest rate is 7.25%.
—
Any amount of principal or interest which is not paid when due shall bear interest at the
rate of 10% per year from the due date until it is paid.
—
The following covenants have been agreed:
(A) So long as the Company shall have any obligation under this Note, the Company shall
not without the Aires’ written consent (a) pay, declare or set apart for such payment, any
dividend or other distribution (whether in cash, property or other securities) on shares of
capital stock or (b) directly or indirectly or through any subsidiary make any other
payment or distribution in respect of its capital stock.
(B) So long as the Company shall have any obligation under this Note, the Company shall
not without the Airess’ written consent redeem, repurchase or otherwise acquire (whether
for cash or in exchange for property or other securities or otherwise) in any one
transaction or series of related transactions any shares of capital stock of the Company or
any warrants, rights or options to purchase or acquire any such shares.
The Company has borrowed from Aires on a consolidated cumulative basis approximately $34,100,000 as
of March 31, 2014, $33,410,000 as of December 31, 2013, and $10,407,764 as of December 31, 2012.
44
Dr. Max Rössler
During 2012 up to the current year end period, SunVesta AG entered into a series of interest free loans
with Dr. Max Rössler, a director of the Company and a principal of Aires. The loans were originally due
either on predetermined dates or on demand, repayable in cash or in a fixed number of shares of certain
publically traded entities, as follows:
Date
Amount
Shares
Due Date
Public Entity
June 7, 2012
$1,810,000
10,000
May 30, 2013*
Intershop Holding AG
*Debt obligation transferred to Aires on April 19, 2013, now governed by the terms and conditions of the loan
agreement with Aires dated October 31, 2013.
Date
Amount
Shares
Due Date
Public Entity
July 24, 2012
$470,000
10,000
May 30, 2014*
Schindler Holding AG
August 8, 2012
$400,000
700
May 30, 2014*
Zug Estates Holding AG
March 1, 2013
$50,000
52,500
May 30, 2014*
Datewyler Holding AG
*Debt obligations transferred to Aires on April 30, 2014, now governed by the terms and conditions of the
loan agreement with
Aires dated October 31, 2013
Guaranty Agreement
During the period ended December 31, 2013, the Company borrowed $1,065,693 at 3% interest from
Josef Mettler pursuant to the terms and conditions of the guaranty agreement dated July 16, 2012. The
amount borrowed had decreased to $499,987
as of March 31, 2014.
During the period ended December 31, 2013, the Company borrowed $600,000 at 3% interest from Hans
Rigendinger pursuant to the terms and conditions of the guaranty agreement dated July 16, 2013. The
amount borrowed had increased to $658,346 as of March 31, 2014.
Swisshome Real Estate AG
On January 20, 2014, the Company concluded a short term loan agreement with Swisshome Real Estate
AG, Zurich in the amount of CHF 3.0 million (approximately $3.35 million) repayable on April 30, 2014.
Instead of interest Swisshome Real Estate AG will receive a lump sum of CHF 100,000 (approximately
$111,000) as consideration for the loan, which amount is equivalent to an approximate effective yearly
interest of 11.98%. As per March 31, 2014, the outstanding loan amount was CHF 2.5 million
(approximately $2.82 Mio.) and the pro rata interest expense recorded in the period ended March 31,
2014, is CHF 75,000 (approximately $82,600). The loan (including lump sum as consideration for the
loan) has been repaid subsequent March 31, 2014 on April 22, 2014.
Promissory Note
On March 8, 2013, SunVesta AG entered into an interest free loan agreement (promissory note) in the
amount of $2,000,000 payable on March 8, 2014, in connection with the purchase of land adjacent to the
Paradisus Papagayo Bay Resort & Luxury Villas from Altos held in the name of Altos del Risco S.A. The
terms of the loan agreement were amended on February 19, 2014, to extend the due date for said payable
until February of 2015.
45
Banco Nacional
On March 13, 2014, the Company received conditional approval for a credit facility of $50,000,000 from
Banco Nacional, San José, Costa Rica, subject to the fulfillment of certain legal and financial conditions,
including but not limited to, increasing the capitalization of AdR to a minimum of $10,000,000. The
Company expects to fulfill all these conditions. The credit facility is expected to be part of a syndicated
loan in the aggregate amount of $100,000,000 which amount may be allocated in equal shares between
Banco de Costa Rica and Banco Nacional. However, we have not received notice of Banco Costa Rica’s
conditional participation. Should we meet the conditions of the loan and the anticipated credit facility
made available to us, we do not expect to be able to draw against same before the middle of 2014.
Specogna Holding AG
Subsequent to period end, on May 15, 2014, the Company entered into a short term loan agreement for
CHF 1.0 million (approximately $ 1.13 million) with Specogna Holding AG repayable on July 31, 2014.
Instead of interest Specogna Holding AG will receive a lump sum of CHF 30,000 (approximately
$33,800) as consideration for the loan. This loan has been secured with individual and joint liability by
Dr. Max Rössler, Mr. Josef Mettler and Mr. Hans Rigendinger.
Timeline
Our expected timeline for developing the Paradisus Papagayo Bay Resort & Luxury Villas is as follows:
—
complete architectural plans in the 2
nd
quarter of 2014
—
secure construction loan in the 3
rd
quarter of 2014
—
commence onsite vertical construction in the 3
rd
quarter of 2014
—
complete construction in the 4
th
quarter of 2015
—
handover to Melía in the 4
th
quarter of 2015
Discussion and Analysis
Our plan of operation through the fourth quarter of 2015 is to complete the Paradisus Papagayo Bay
Resort & Luxury Villas project that will require a total net investment of approximately $171 million
(excluding non-recuperated overhead expenses). We expect to realize a minimum of $125 million in new
funding over the next twelve months, though our actual financing requirements may be adjusted to suit
that amount realized, and an additional $56 million in funding by the time the development is completed.
New funding over the next twelve months is expected to be raised from debt financing through bonds,
shareholder loans and the guaranty agreement in place as described herein.
Results of Operations
During the three month periods ended March 31, 2014, our operations were focused on (i) finalizing
architectural plans, (ii) obtaining building permits, (iii) progressing earth work excavations on the
Paradisus Papagayo Bay Resort & Luxury Villas property; (iv) securing a credit facility with the Banco
National (v) pursuing additional debt and equity financing arrangements including a CHF bond offering
through SunVesta AG in Europe and loans from related parties; and (vi) repaying the remainder due on
the original Euro bonds.
46
The Company has been funded since inception from debt or equity placements and by shareholders or
partners in the form of loans. All of the capital raised to date has been allocated to the development of the
Costa Rican property including the purchase of the land and general and administrative costs.
Comprehensive Income/Loss
For the period from the date of inception of development stage on January 1, 2005, until March 31, 2014,
the Company had incurred comprehensive losses of $45,008,018.
Comprehensive loss for the three month period ended March 31, 2014, was $3,100,907 as compared to
comprehensive income of $533,810 for the three month period ended March 31, 2013. The transition to
comprehensive loss in the current three month period from comprehensive income in the prior three
month period can be primarily attributed to a gain of $1,000,000 in the prior three month period related to
the release of an accrual for a penalty that was to be paid to Melía, the change in foreign currency
translation to a loss $204,812 in the current three month period from a gain of $1,281,405 in the prior
three month period, which change is due to volatility between Swiss Francs and US Dollars and the
related foreign currency translation difference on intercompany loans which is classified as a permanent
investment and the translation of the balance sheet and results of operations of our foreign subsidiaries.
and the increase in general and administrative expenses to $2,051,992 from $1,304,957, which increase
can be attributed to the increase in rental expenses to $44,636 from $36,989, the increase in audit fees to
$90,112 from $47,231, the increase in consulting expenses to $602,106 from $273,396, the increase in
marketing expenses to $7,863 from $3,826 and the increase in various other operating expenditures to
$304,038 from $160,588, offset by the decrease in travel expenses to $104,759 from $147,053, and the
increase in personnel costs from $635,874 to $898,478. Other contributing factors to the transition to
comprehensive loss in the current three month period from comprehensive income in the prior three
month period include the increase in interest expense to $554,626 from $426,656, due to interest accruing
on bonds and notes, the loss on currency exchange difference of $157,157 from a gain of $143,872, and
the increase in other expenses to $58,523 from $27,032, offset by the decrease in amortization of debt to
$73,797 from $82,815 and the decrease to nil from the $50,181 loss associated with the change in fair
value conversion feature in the prior three month period.
We did not generate revenue during this period and we expect to continue to incur losses through the year
ended December 31, 2014.
Income Tax Expense (Benefit)
The Company has a prospective income tax benefit resulting from a net operating loss carry-forward and
startup costs that will offset future operating profits.
Capital Expenditures
The Company expended a significant amount on capital expenditures for the period from January 1, 2005
to March 31, 2014, in connection with the purchase of land that includes a hotel concession in Costa Rica
and expects to incur future cash outflows on capital expenditure as discussed in the "Liquidity and Capital
Resources" and the "Going Concern" paragraphs below.
Liquidity and Capital Resources
The Company has been in the development stage since inception and has experienced significant changes
in liquidity, capital resources, and stockholders’ equity.
47
As of March 31, 2014, we had a working capital deficit of $18,865,312. We had current assets of
$302,775 and total assets of $53,109,674. Our current assets consisted of $242,860 in cash, and $59,915
in other assets. Our non-current assets consisted of property and equipment of $46,168,349, deposits
related to construction work of $608,224, net debt issuance costs of $1,963,159, down payments for
property and equipment of $2,369,816 and restricted cash of $1,697,351. We had current liabilities of
$19,168,087 and total liabilities of $74,878,871. Our current liabilities consisted of $6,685,659 in
accounts payable, $4,772,224 in accrued expenses, $4,818,172 in a note payable, $2,137,700 in notes
payable to related parties and $754,332 in Euro bond debt. Our non-current liabilities consisted of Euro
bond debt of $8,254,122, CHF bond debt of $13,236,028, notes payable to related parties of $34,103,862,
other long term debts of $25,238 and pension liabilities of $91,534.
Total stockholders’ deficit in the
Company was $21,769,197
at March 31, 2014.
For the period from January 1, 2005 to March 31, 2014, net cash used in operating activities was
$19,953,285.
Net cash used in operating activities for the three months ended March 31, 2014, was $986,698 as
compared to $1,280,513 for the three months ended March 31, 2013, which differences reflect the
changes in working capital and the increase in stock compensation expenses (non-cash). Net cash used in
operating activities in the current three month period is comprised of general and administrative expenses
that include but are not limited to, personnel costs, accounting fees, consulting expenses, finder’s fees and
professional fees, such as for auditing purposes and legal consultation, changes in other assets, accounts
payable and accrued expenses. Net cash used in operating activities in the prior three month period can
also be primarily attributed to general and administrative expenses and changes in other assets, accounts
payable and accrued expenses.
We expect to use net cash in operating activities until such time as net losses transition to net income
which transition is not anticipated until we complete the Paradisus Papagayo Bay Resort & Luxury Villas
project.
For the period from January 1, 2005 to March 31, 2014, net cash used in investing activities was
$49,870,870.
Net cash used in investing activities for the three months ended March 31, 2014, was $2,155,675 as
compared to $4,033,361 for the three months ended March 31, 2013. Net cash used in investing activities
in the current three month period can be attributed to the purchase of property and equipment, deposits
related to construction, and restricted cash. Net cash used in investing activities in the prior three month
period ended March 31, 2013, can be attributed to receivables from related parties, the purchase of
property or equipment, down payments for property and restricted cash.
We expect negative net cash in investing activities while in the process of developing the Paradisus
Papagayo Bay Resort & Luxury Villas and looking to additional projects.
For the period January 1, 2005 to March 31, 2014, net cash provided by financing activities was
$70,654,472.
48
Net cash provided by financing activities for the three months ended March 31, 2014, was $2,747,242
as
compared to $5,239,021
for the three months ended March 31, 2013. Net cash provided by financing
activities in the current three month period can be attributed to proceeds from notes payable to related
parties, note payable, proceeds from SunVesta AG’s bond issuance and the sale of treasury stock, offset
by net cash used in financing activities that can be attributed to the repayment of notes payable to related
parties, the repayment of bonds and the payment of debt issuance costs. Net cash provided by financing
activities in the prior three month period can be attributed to proceeds from notes payable to related
parties, and proceeds from SunVesta AG’s bond issuance, offset by net cash used in financing activities
that can be attributed to the repayment of bonds and the payment of debt issuance costs.
We expect net cash flow provided by financing activities in future periods from those debt and equity
infusions necessary to complete the development of the Paradisus Papagayo Bay Resort & Luxury Villas.
Management believes that our cash on hand, ongoing proceeds from our new Euro bond offering, short
term related party loans and the assurance of the guaranty agreement as described in the going concern
paragraph below are sufficient for us to conduct operations over the next twelve months.
We had no lines of credit or other bank financing arrangements as of March 31, 2014.
We have commitments for executed purchase orders and agreements in the amount of $57 million as of
March 31, 2014, in connection with the development of the Paradisus Papagayo Bay Resort & Luxury
Villas, which commitments are included in the required financing of $185 million to complete the project.
Most material commitments were not contractually agreed as of the end of the period.
The fifth addendum (dated September 6, 2013) to the management agreement with Melía stipulates that
should the completion of the construction not occur by July 1, 2015, and should an extension date not be
agreed, subsequent to July 1, 2015, Melía will be entitled to receive a daily amount of $2,000 as
liquidated damages. Should the completion of the construction not occur by October 1, 2015 Melía will
be entitled to terminate the management agreement and to receive a termination amount of $5 million
unless the parties agree in writing to extend such date. Management is in negotiations with Melía to have
the prospective penalty abated due to delays associated with architectural changes requested by Melía.
We have cancellable commitments that are not included in the required financing for the development of
the Paradisus Papagayo Bay Resort & Luxury Villas of approximately $15,000,000 as of March 31, 2014,
to Meridian for the purchase of two additional concession properties in Polo Papagayo, Guanacaste, Costa
Rica.
We maintain a defined benefit plan that covers all of our Swiss employees and have an employment
agreement with our chief executive officer and chief operating officer as of March 31, 2014.
We have no current plans for significant purchases or sales of plant or equipment, except in connection
with the planned construction of the Paradisus Papagayo Bay Resort & Luxury Villas as discussed above.
We have no current plans to make any changes in the number of our employees as of March 31, 2014.
49
Future Financings
We have received conditional approval for a credit facility of $50,000,000 from Banco Nacional, San
José, Costa Rica, subject to the Company’s fulfillment of certain legal and financial conditions which it
believes can be met. Further, the credit facility is expected to be part of a syndicated loan in the aggregate
amount of $100,000,000 which amount may be allocated in equal shares between Banco de Costa Rica
and Banco Nacional. However, we have not received notice of Banco Costa Rica conditional participation
in this loan. Should we meet the conditions of the loan – one of which is to capitalize AdR with a
minimum of $10,000,000 in equity –and the anticipated credit facility made available to us, we do not
expect to be able to draw against same before the middle of 2014. Further, we will continue to rely on
debt financing through bonds, shareholder loans and, if necessary, the guaranty agreement in place as
described herein to finance our on-going business, as well as we expect to raise the $10,000,000
additional equity funds for AdR through these sources of finance.
Off-Balance Sheet Arrangements
As of March 31, 2014, we had no significant off-balance sheet arrangements that have or are reasonably
likely to have a current or future effect on our financial condition, changes in financial condition,
revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that are
material to stockholders.
Going Concern
The Company intends to build a hotel in the Papagayo Gulf Tourism Project area of Guanacaste, Costa
Rica. The total net investment is estimated to be approximately $171 million.
The project is expected to open in the fourth quarter of 2015. Until the completion of the project, the
following expenditures are estimated to be incurred:
a.
Gross project cost
$ 195,000,000
b. Less: Proceeds from sale of villas
(24,000,000)
c.
Net project cost
171,000,000
d. Overhead expenses
26,000,000
e.
Less: Recuperated in gross project cost
(12,000,000)
f Total, excluding other potential projects
$ 185,000,000
Sixty percent (60%) of “Net Project Cost is expected to be financed by traditional mortgage loans, for
which negotiations have been initiated. The remaining forty percent (40%) of the “Net Project Cost”, as
well as non-recuperated overhead expenses are expected to be financed by the main shareholders of the
project, i.e. Zypam Ltd., shareholder, Mr. Hans Rigendinger, shareholder, director and officer, Mr. Max
Rössler, shareholder, director and majority shareholder of Aires, Mr. Josef Mettler, shareholder, director
and officer.
On July 16, 2012, certain principal shareholders of the Company or principal lenders to the project
entered into a guaranty agreement in favour of SunVesta AG. The purpose of the guarantee is to ensure
that until such time as financing is secured for the entire project that they will act as a guarantor to
creditors to the extent of the project’s ongoing capital requirements. The guaranty agreement requires that
within 30 days of receiving a demand notice, the guarantors are required to pay to SunVesta AG that
amount required for ongoing capital requirements, until such time as financing of the project is secured.
50
The guaranty may not be terminated until such time as SunVesta Holding AG has secured financing for
the completion of the project.
Based on this guaranty agreement, management therefore believes that available funds are sufficient to
finance cash flows for the twelve months subsequent to March 31, 2014 and the filing date though future
anticipated cash outflows for investing activities will continue to depend on the availability of financing
and can be adjusted as necessary.
Forward-Looking Statements and Factors That May Affect Future Results and Financial Condition
The statements contained in the section titled
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
and elsewhere in this current report, with the exception of historical
facts, are forward-looking statements. We are ineligible to rely on the safe-harbor provision of the Private
Litigation Reform Act of 1995 for forward looking statements made in this current report. Forward-
looking statements reflect our current expectations and beliefs regarding our future results of operations,
performance, and achievements. These statements are subject to risks and uncertainties and are based
upon assumptions and beliefs that may or may not materialize. These statements include, but are not
limited to, statements concerning:
—
our anticipated financial performance and business plan
—
the sufficiency of existing capital resources
—
our ability to raise additional capital to fund cash requirements for future operations
—
uncertainties related to our future business prospects
—
our ability to generate revenues to fund future operations
—
the volatility of the stock market
—
general economic conditions
We wish to caution readers that our operating results are subject to various risks and uncertainties that
could cause our actual results to differ materially from those discussed or anticipated. We also wish to
advise readers not to place any undue reliance on the forward-looking statements contained in this report,
which reflect our beliefs and expectations only as of the date of this report. We assume no obligation to
update or revise these forward-looking statements to reflect new events or circumstances or any changes
in our beliefs or expectations, other than as required by law.
Recent Accounting Pronouncements
Please see Note 2 to the accompanying consolidated financial statements for recent accounting
pronouncements.
ITEM 3.
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
51
ITEM 4.
CONTROLS
AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
In connection with the preparation of this annual report, an evaluation was carried out by the Company’s
management, with the participation of the chief executive officer and chief financial officer, of the
effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) under
the Securities Exchange Act of 1934 (“Exchange Act”)). Disclosure controls and procedures are designed
to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is
recorded, processed, summarized, and reported within the time periods specified in the Commission’s
rules and forms, and that such information is accumulated and communicated to management, including
the chief executive officer and chief financial officer, to allow timely decisions regarding required
disclosures.
Based on that evaluation, the Company’s management concluded that, due to a lack of independent
oversights, failure to segregate duties and insufficient accounting resources as of the end of the period
covered by this report, Company’s disclosure controls and procedures were ineffective in recording,
processing, summarizing, and reporting information required to be disclosed, within the time periods
specified in the Commission’s rules and forms, and such information was not accumulated and
communicated to management, including the chief executive officer and the chief financial officer, to
allow timely decisions regarding required disclosures.
Changes in Internal Control over Financial Reporting
During the period ended March 31, 2014, there has been no change in internal control over financial
reporting that has materially affected, or is reasonably likely to materially affect our internal control over
financial reporting, except the appointment of two independent directors for the purpose of maintaining
appropriate independent oversight of the Company’s consolidated financial reporting and procedures for
internal control over financial reporting, including challenging management’s accounting for and
reporting of transactions.
The Company’s management concluded that an increase in the effectiveness and quality of their internal
controls and procedures should be reached by corresponding internal projects within the remaining
financial year 2014.
52
PART II – OTHER INFORMATION
ITEM 1.
LEGAL
PROCEEDINGS
None.
ITEM 1A.
RISK
FACTORS
Not required of smaller reporting companies.
ITEM 2.
UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On March 10, 2014, the Company authorized the issuance of 500,000 shares of restricted common shares,
valued at $0.10 a share to Mr. José Maria Figueres, in connection his appointment to the board of
directors in reliance upon the exemptions from registration provided by Section 4(2) and Regulation S of
the Securities Act of 1933, as amended (“Securities Act).
The Company complied with the exemption requirements of Section 4(2) of the Securities Act based on
the following factors: (1) the issuance and grant was an isolated private transaction by the Company
which did not involve a public offering; (2) the offeree had access to the kind of information which
registration would disclose; and (3) the offeree was financially sophisticated and with the exemption
requirements of Regulation S by having directed no offering efforts in the United States, by offering
securities only to an offeree who was outside the United States at the time of the offering, and ensuring
that the offeree to whom the securities were offered and authorized was a non-U.S. offeree with an
address in a foreign country.
On March 10, 2014, the Company authorized the issuance of 500,000 shares of restricted common shares,
valued at $0.10 a share to Mr. Howard Glicken in connection his appointment to the board of directors in
reliance upon the exemptions from registration provided by Section 4(2) of the Securities Act.
The Company complied with the exemption requirements of Section 4(2) of the Securities Act based on
the following factors: (1) the issuance and grant was an isolated private transaction by the Company
which did not involve a public offering; (2) the offeree had access to the kind of information which
registration would disclose; and (3) the offeree was financially sophisticated.
ITEM 3.
DEFAULTS
ON SENIOR SECURITIES
None.
ITEM 4.
MINE
SAFETY DISCLOSURES
Not applicable.
ITEM 5.
OTHER
INFORMATION
None.
ITEM 6.
EXHIBITS
Exhibits required to be attached by Item 601 of Regulation S-K are listed in the
Index to Exhibits
on page 55 of this Form 10-Q, and are incorporated herein by this reference.
53
SIGNATURES
Pursuant
to
the
requirements
of
the
Securities
Exchange
Act
of
1934,
the
registrant
has
duly
caused
this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
SunVesta, Inc.
Date
/s/ Josef Mettler
May 20, 2014
Josef Mettler
Chief Executive Officer, Chief Financial Officer,
Principal Accounting Officer and Director
/s/ Hans Rigendinger
May 20, 2014
Hans Rigendinger
Chief Operating Officer and Director
54
INDEX
TO EXHIBITS
Exhibit
Description
3.1.1*
Articles of Incorporation (incorporated by reference from the Form 10-SB filed with the Commission on
December 31, 1999).
3.1.2*
Amended Articles of Incorporation (incorporated by reference from the Form 10-KSB filed with the
Commission on April 9, 2003).
3.1.3*
Amended Articles of Incorporation (incorporated by reference from the Form 10-QSB filed with the
Commission on November 17, 2003).
3.1.4*
Amended Articles of Incorporation (incorporated by reference from the Form 8-K filed with the Commission
on September 27, 2007).
3.2.1*
Bylaws (incorporated by reference from the Form 10-SB filed with the Commission on December 31, 1999).
3.2.2*
Amended Bylaws (incorporated by reference from the Form 10-QSB filed with the
Commission on
November 17, 2003).
10.1*
Securities Exchange Agreement and Plan of Exchange dated June 18, 2007 between the Company and
SunVesta AG (formerly ZAG Holdings AG) (incorporated by reference from the Form 8-K filed with the
Commission on June 21, 2007).
10.2*
Purchase and Sale Agreement between ZAG Holding AG and Trust Rich Land Investments, Mauricio Rivera
Lang dated May 1, 2006, for the acquisition of Rich Land Investments Limitada.
10.3*
Debt Settlement Agreement dated March 1, 2010, between the Company and Zypam, Ltd. (incorporated by
reference from the Form 8-K filed with the Commission on March 10, 2010).
10.4*
Debt Settlement Agreement dated March 1, 2010, between the Company and Hans Rigendinger (incorporated
by reference from the
Form 8-K filed with the Commission on March 10, 2010).
10.5*
Guaranty Agreement dated July 16, 2012, between SunVesta AG, Josef Mettler, Hans Rigendinger and Max
Rössler.
10.6*
Employment Agreement dated January 1, 2013 between the Company and Hans Rigendinger (incorporated
by reference to the Form 8-K filed with the Commission on February 4, 2013.
10.7*
Employment Agreement dated July 4, 2013 between the Company and Josef Mettler (incorporated by
reference to the Form 10-Q filed with the Commission on October 10, 2013).
10.8*
Assignment of Debt Agreement dated December 31, 2012, between the Company, SunVesta AG and Aires
International Investments, Inc. (incorporated by reference to the
Form 10-Q filed with the Commission on
December 13, 2013).
10.9*
Debt Settlement Agreement dated December 31, 2012, between the Company and Hans Rigendinger
(incorporated by reference to the Form
10-Q filed with the Commission on December 13, 2013).
10.10*
Loan Agreement dated October 31, 2013, between SunVesta AG and Aires International Investments, Inc.
(incorporated by reference to the Form
10-Q filed with the Commission on December 13, 2013).
10.11
Assignment of Debt Agreement dated December 31, 2013, between the Company, SunVesta AG and Aires
International Investments, Inc.
14*
Code of Ethics adopted March 1, 2004 (incorporated by reference from the 10-KSB filed with the
Commission on April 14, 2004).
21*
Subsidiaries of the Company (incorporated by reference from the
Form 10-K filed with the Commission on
June 20, 2013).
31
Certification of the
Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14 of the
Securities and Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
32
Certification of the
Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99*
SunVesta, Inc. 2013 Stock Option Plan (incorporated by reference to the
Form 10-Q filed with the
Commission on October 10, 2013).
101. INS
XBRL Instance Document
†
101. PRE
XBRL Taxonomy Extension Presentation Linkbase
†
101. LAB
XBRL Taxonomy Extension Label Linkbase
†
101. DEF
XBRL Taxonomy Extension Label Linkbase
†
101. CAL
XBRL Taxonomy Extension Label Linkbase
†
101. SCH
XBRL Taxonomy Extension Schema
†
*
Incorporated by
reference to previous filings of the Company.
†
Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed “furnished” and not “filed” or part of a
registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, or deemed “furnished”
and not “filed” for purposes of Section 18 of the
Securities and Exchange Act of 1934,
and otherwise is not subject
to liability
under these sections.
55
![[EXHIBIT1011002.GIF]](https://content.edgar-online.com/edgar_conv_img/2014/05/20/0001211524-14-000068_EXHIBIT1011002.GIF){kind=small}
![[EXHIBIT1011004.GIF]](https://content.edgar-online.com/edgar_conv_img/2014/05/20/0001211524-14-000068_EXHIBIT1011004.GIF)