Attached files
| file | filename |
|---|---|
| EXCEL - IDEA: XBRL DOCUMENT - SUNVESTA, INC. | Financial_Report.xls |
| EX-32 - SUNVESTA CERTIFICATION - SUNVESTA, INC. | exhibit32.htm |
| EX-31 - SUNVESTA CERTIFICATION - SUNVESTA, INC. | exhibit31.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2013.
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
to
.
Commission file number: 000-28731
SUNVESTA, INC.
(Exact name of registrant as specified in its charter)
Florida
98-0211356
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)
Seestrasse 97, Oberrieden, Switzerland CH-8942
(Address of principal executive offices) (Zip Code)
011 41 43 388 40 60
(Registrant’s telephone number, including area code)
n/a
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes o No þ
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web
site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files). Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and
“smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o Accelerated filer o Non-accelerated filer o Smaller reporting company þ
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes o No þ
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest
practicable date. The number of shares outstanding of the issuer’s common stock, $0.01 par value (the only
class of voting stock), at November 25, 2013, was 83,541,600.
1
TABLE OF CONTENTS
PART 1- FINANCIAL INFORMATION
Item1.
3
Consolidated Balance Sheets as of June 30, 2013 (Unaudited) and December 31,
4
2012
Unaudited Consolidated Statements of Operations and Comprehensive Loss for the
5
three and six months ended June 30, 2013 and June 30, 2012 and cumulative
amounts
Unaudited Consolidated Statements of Stockholders’ Equity (Deficit)
6
Unaudited Consolidated Statements of Cash Flows for the six months ended June
7
30, 2013 and June 30, 2012 and cumulative amounts
Notes to Unaudited Consolidated Financial Statements
8
Management’s Discussion and Analysis of Financial Condition and Results of
36
Operations
Quantitative and Qualitative Disclosures about Market Risk
48
Controls and Procedures
48
PART II-OTHER INFORMATION
Legal Proceedings
49
Risk Factors
49
Unregistered Sales of Equity Securities and Use of Proceeds
49
Defaults Upon Senior Securities
49
Mine Safety Disclosures
50
Other Information
50
Exhibits
50
51
52
2
PART I – FINANCIAL INFORMATION
ITEM 1.
FINANCIAL STATEMENTS
As used herein, the terms “Company,” “we,” “our,” and “us” refer to SunVesta, Inc., a Florida
corporation, and its predecessors and subsidiaries, unless otherwise indicated. In the opinion of
management, the accompanying unaudited, consolidated financial statements included in this Form 10-Q
reflect all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of
the results of operations for the periods presented. The results of operations for the periods presented are
not necessarily indicative of the results to be expected for the full year.
3
SUNVESTA, INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
June 30, 2013
December 31, 2012
(Unaudited)
Assets
Current assets
Cash and cash equivalents
$
200,926 $
260,520
Other assets
44,300
39,238
Receivable from related parties
656,057
-
Total current assets
901,283
299,758
Non-current assets
Property and equipment - net
33,967,228
16,799,540
Deposits related to construction work
507,000
-
Debt issuance costs - net
1,269,049
1,649,216
Down payment for property and equipment
2,419,841
10,320,144
Restricted cash
1,663,497
241,500
Total non-current assets
39,826,615
29,010,400
Total assets
$
40,727,898
29,310,158
Liabilities and stockholders' equity (deficit)
Current liabilities
Accounts payable
2,158,005
827,102
Accrued expenses
2,481,850
3,868,914
Note payable
2,010,196
-
Notes payable to related parties
1,519,538
3,432,064
EUR-Bond
12,296,830
14,216,707
Total current liabilities
20,466,419
22,344,787
Non-current liabilities
CHF-Bond
5,626,997
5,689,364
Notes payable to related parties
24,919,934
11,125,741
Fair value of conversion feature
13,874
-
Pension liabilities
71,117
74,075
Total non-current liabilities
30,631,922
16,889,180
Total liabilities
51,098,341
39,233,967
Stockholders' equity (deficit)
Preferred stock, $0.01 par value;
50,000,000 share authorized no shares issued
and outstanding
-
-
Common stock, $0.01 par value;
200,000,000 shares authorized; 75,541,600 and
54,092,186 shares issued and outstanding
755,416
540,922
Additional paid-in capital
20,409,850
19,446,367
Accumulated other comprehensive gain/loss
78,880
(1,102,408)
Retained earnings prior to development stage
1,602
1,602
Deficit accumulated during the development stage
(31,592,436)
(28,786,537)
Treasury stock, 157,220 and 157,220 shares
(23,755)
(23,755)
Total stockholders' equity (deficit)
(10,370,443)
(9,923,809)
Total liabilities and stockholders' equity (deficit) $
40,727,898
29,310,158
4
SUNVESTA, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
Three months ended June 30,
Six months ended June 30,
Cumulative
2013
2012
2013
2012
amounts*
(Unaudited)
(Unaudited
& restated)
(Unaudited)
(Unaudited
& restated)
(Unaudited)
Revenues
Revenues, net
$
-
-
-
-
-
Cost of revenues
-
-
-
-
-
Gross profit
-
-
-
-
-
Operating expenses
General and administrative expenses
$ (1,194,746)
(1,483,795)
(2,499,703)
(2,455,423)
(23,708,960)
Sales and marketing
-
-
-
-
(480,872)
Impairment on property and equipment
-
-
-
-
(1,311,000)
Release of accrual for penalty to Mélia
Hotels & Resorts
-
-
1,000,000
-
1,000,000
Total operating expenses
(1,194,746)
(1,483,795)
(1,499,703)
(2,455,423)
(24,500,832)
Loss from operations
$ (1,194,746)
(1,483,795)
(1,499,703)
(2,455,423)
(24,500,832)
Other income / - expenses
Loss on disposals of assets
$
-
-
-
-
(3,258)
Loss on sale of investments
-
-
-
-
(1,137,158)
Loss on extinguishment of debt
-
-
-
-
(1,806,758)
Interest income
6,562
4,030
6,736
7,089
174,703
Interest expense
(609,356)
(349,758)
(1,036,012)
(630,753)
(3,510,995)
Amortization of debt issuance costs and
commissions
(50,990)
(140,747)
(133,805)
(140,035)
(938,043)
Exchange differences
(231,931)
37,615
(88,059)
167,887
287,998
Change in fair value of conversion feature
36,307
-
(13,874)
-
(13,874)
Other income / - expenses
(14,149)
(441)
(41,181)
13,612
(4,082)
Total other income / - expenses
$
(863,557)
(449,302)
(1,306,195)
(582,200)
(6,951,467)
Loss before income taxes
$ (2,058,303)
(1,933,097)
(2,805,898)
(3,037,622)
(31,452,299)
Income Taxes
-
(140,136)
-
(140,136)
(140,136)
Net loss
$ (2,058,303)
(2,073,233)
(2,805,898)
(3,177,758)
(31,592,435)
Comprehensive loss
Foreign currency translation
(100,118)
1,218,211
1,181,288
415,436
99,880
Comprehensive loss
$ (2,158,421)
(855,022)
(1,624,610)
(2,762,322)
(31,492,555)
Loss per common share
Basic and diluted
$
(0.03)
(0.04)
(0.04)
(0.06)
Weighted average common shares
Basic and diluted
75,541,600
54,092,186
73,396,661
54,092,186
* Cumulative amounts: January 1, 2005 (date of inception) to June 30, 2013
The accompanying notes are an integral part of these consolidated financial statements.
5
SUNVESTA, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
January 1, 2005 (Date of Inception) to June 30, 2013
Common
Additional Paid
Accumulated Other
Prior Earnings
Deficit Accumulated
Treasury Stock
Total
Stock
in Capital
Comprehensive
During Development
Stockholders’
Income (Loss)
Stage
Equity (Deficit)
January 1, 2005
$
210,000 $
281,521 $
128 $
1,602 $
- $
-
$
493,251
Net loss
-
-
-
-
(807,118)
-
(807,118)
Translation adjustments
-
-
23,149
-
-
-
23,149
December 31, 2005
210,000
281,521
23,277
1,602
(807,118)
-
(290,718)
Net loss
-
-
-
-
(3,575,713)
-
(3,575,713)
Translation adjustments
-
-
(163,151)
-
-
-
(163,151)
December 31, 2006
210,000
281,521
(139,874)
1,602
(4,382,831)
-
(4,029,582)
Net loss
-
-
-
-
(2,912,578)
-
(2,912,578)
Translation adjustments
-
-
35,580
-
-
-
35,580
Acquisition of OpenLimit, Inc.
14,000
(63,080)
-
-
-
-
(49,080)
Issuance of stock for debt
64,312
10,742,025
-
-
-
-
10,806,337
December 31, 2007
288,312
10,960,466
(104,294)
1,602
(7,295,409)
-
3,850,677
Net loss
-
-
-
-
(1,188,377)
-
(1,188,377
Translation adjustments
-
-
(367,601)
-
-
-
(367,601)
Issuance of stock for compensation
417
61,852
-
-
-
-
62,269
Issuance of stock for debt
18,182
2,709,091
-
-
-
-
2,727,273
December 31, 2008
306,911
13,731,409
(471,895)
1,602
(8,483,786)
-
5,084,241
Net loss
-
-
-
-
(2,471,845)
-
(2,471,845)
Translation adjustments
-
-
401,460
-
-
-
401,460
Issuance of stock for compensation
600
44,400
-
-
-
-
45,000
Issuance of stock for cash
10,000
290,000
-
-
-
-
300,000
Issuance of stock for debt
77,259
3,785,668
-
-
-
-
3,862,927
Purchase of treasury stock
-
-
-
-
-
(12,200)
(12,200)
December 31, 2009
394,770
17,851,477
(70,435))
1,602
(10,955,631)
(12,200)
7,209,583
Net loss
-
-
-
-
(1,173,292)
-
(1,173,292)
Translation adjustments
-
-
10,983
-
-
-
10,983
Issuance of stock for debt
146,152
876,914
-
-
-
-
1,023,066
Purchase of treasury stock
-
-
-
-
-
(11,555)
(11,555)
December 31, 2010
540,922
18,728,391
(59,452)
1,602
(12,128,923)
(23,755)
7,058,785
Net loss
-
-
-
-
(10,382,930)
-
(10,382,930)
Translation adjustments
-
-
21,575
-
-
-
21,575
December 31, 2011
540,922
18,728,391
(37,877)
1,602
(22,511,853)
(23,755)
(3,302,570)
Net loss
-
-
-
-
(6,274,684)
-
(6,274,684)
Translation adjustments
-
-
(1,064,531)
-
-
-
(1,064,531)
Issuance of stock for debt
-
717,976
-
-
-
-
717,976
December 31, 2012
540,922
19,466,367
(1,102,408)
1,602
(28,786,537)
(23,755)
(9,923,809)
Net loss
-
-
-
-
(2,805,898)
-
(2,805,898)
Translation adjustments
-
-
1,181,288
-
-
-
1,181,288
Issuance of stock for compensation
35,000
425,000
-
-
-
-
460,000
Issuance of stock for debt
179,494
538,483
-
-
-
-
717,977
June 30, 2013
$
755,416 $
20,409,850 $
78,880 $
1,602 $
(31,592,435) $
(23,755)
$
(10,370,443)
The accompanying notes are an integral part of these consolidated financial statements.
6
SUNVESTA, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
January 1 to
January 1 to
Cumulative
June 30, 2013
June 30, 2012
Amounts*
(Unaudited &
(Unaudited)
restated)
(Unaudited)
Cash flows from operating activities
Net loss
$
(2,805,899)
(3,177,758)
(31,592,436)
Adjustments to reconcile net loss to net cash
Depreciation and amortization
20,158
22,443
340,243
Other income / expenses
-
(60,701)
(60,700)
Release of accrual for penalty to Mélia Hotels & Resorts
(1,000,000)
-
(1,000,000)
Impairment of properties and equipment
-
-
1,311,000
Amortization of debt issuance cost and commissions
133,805
140,035
945,741
Stock compensation expense
460,000
-
1,285,245
Unrealized exchange differences
88,059
(167,887)
(287,998)
Loss on securities acquired as deposit on stock
-
-
1,008,324
Loss on disposal of assets
-
-
3,258
Loss on extinguishment of debt
-
-
1,806,758
Change in fair value of conversion feature
13,874
-
13,874
Increase in pension fund commitments
(2,958)
9,331
71,117
Increase / decrease in:
Other current assets
(5,063)
(29,679)
(54,940)
Accounts payable
1,330,903
64,972
2,693,822
Accrued expenses
(387,064)
946,012
3,744,580
Net cash used in operating activities
(2,154,185)
(2,253,232)
(19,772,112)
Cash flows from investing activities
Proceeds from securities available-for-sale
-
-
1,740,381
Short term investments
-
75,000
-
Other receivables from related parties
(618,658)
(1,593,773)
(2,790,992)
Purchase of property and equipment
(2,838,969)
(2,067,945)
(20,606,777)
Deposits related to construction
(507,000)
-
(507,000)
Down payments for property and equipment
(2,800,045)
(3,969,955)
(12,870,188)
Other non-current assets
-
-
(241,500)
Restricted cash
(1,421,827)
-
(1,421,827)
Net cash used in investing activities
(8,186,499)
(7,556,673)
(36,697,903)
Cash flows from financing activities
Net proceeds from deposit on stock
-
-
3,664,417
Proceeds from stock issuance
-
-
300,000
Proceeds from notes payable related parties
12,470,718
6,981,853
39,690,439
Repayment of notes payable related parties
-
-
(778,243)
Advances from third parties
-
-
700,000
Note payable
-
-
(714,819)
Proceeds from bond issuance, net of commissions
953,277
3,286,050
22,376,078
Repayments of bonds
(2,701,497)
-
(4,176,320)
Payment for debt issuance costs
(445,630)
(801,671)
(3,713,241)
Purchase of treasury stock
-
-
(23,755)
Net cash provided by financing activities
10,276,868
9,466,232
57,324,556
Effect of exchange rate changes
4,222
56,036
(654,170)
Net increase / - decrease in cash
(59,594)
(287,637)
200,371
Cash, beginning of period
260,520
505,500
555
Cash, end of period
$
200,926
217,863
200,926
Additional Information
- Interest paid
-
84,000
- Interest taxes paid
-
-
- Conversion of note payable to Mr. Rigendinger to stockholders' equity (non-cash)
717,977
-
- Purchase of property and equipment through a note payable (non-cash)
2,000,000
-
- Reclassification of down payment for property and equipment to property and equipment
10,200,000
-
- Capitalized interest and debt issuance costs for construction (non-cash)
824,000
421,000
- Reclassification loan from Dr. M. Roessler to AIRES loan
1,740,796
-
* Cumulative amounts: January 1, 2005 (date of inception) to June 30, 2013
The accompanying notes are an integral part of these consolidated financial statements.
7
SUNVESTA, INC.
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2013
1.
CORPORATE INFORMATION AND BASIS OF PREPARATION
On August 27, 2007, SunVesta Inc. (SunVesta) acquired SunVesta Holding AG (SunVesta AG)
(collectively the Company). SunVesta AG has as of today five wholly-owned subsidiaries:
SunVesta Projects and Management AG, a Swiss company; Rich Land Investments Limitada, a
Costa Rican company (Rich Land); SunVesta Costa Rica Limitada, a Costa Rican company,
Altos del Risco SA, a costa Rican Company (AdR) and Profunda Capital Partners LLC, a US
company. Profunda Capital Partners LLC has been incorporated within the actual quarter.
In January 2005 (date of inception of development stage), the Company changed its business
focus to the development of holiday resorts and investments in the hospitality and related
industry. The Company has not materialized any revenues yet and is therefore a “development
stage company”.
These consolidated financial statements are prepared in US Dollars (US $) on the basis of
generally accepted accounting principles in the United States of America (US GAAP).
The accompanying unaudited interim consolidated financial statements have been prepared by
management in accordance with the instructions in Form 10-Q and, therefore, do not include all
information and footnotes required by generally accepted accounting principles and should,
therefore, be read in conjunction with the Company’s Form 10-K, for the year ended December
31, 2012, filed with the Securities and Exchange Commission. These statements do include all
normal recurring adjustments which the Company believes necessary for a fair presentation of the
statements. The interim results of operations are not necessarily indicative of the results to be
expected for the full year ended December 31, 2013.
Except as indicated in the notes below, there have been no other material changes in the
information disclosed in the notes to the financial statements included in the Company’s Form
10-K for the year ended December 31, 2012, filed with the Securities and Exchange Commission.
8
SUNVESTA, INC.
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2013
2.
SIGNIFICANT ACCOUNTING POLICIES
New accounting standards – adopted
In February 2013, the FASB released ASU 2013-02 — Accounting Standards Update 2013-02,
Comprehensive Income (Topic 220): Reporting of Amounts Reclassified out of Accumulated
Other Comprehensive Income. This Update was issued to end the deferral of new presentation
requirements for reclassifications out of accumulated other comprehensive income (required by
ASU 2011-05 and subsequently deferred by ASU 2011-12) and to resolve certain cost/benefit
concerns related to reporting reclassification adjustments. This Update provides entities with two
basic options for reporting the effect of significant reclassifications — either 1) on the face of the
statement where net income is resented or 2) as a separate footnote disclosure. Public entities will
report reclassifications in both annual and interim periods, while private entities are only required
to report them in annual financial statements. Under option 1, the effect of significant
reclassifications is presented parenthetically by component of OCI on the respective line items of
net income. Examples of OCI components include cash flow hedges, unrealized gains and losses
on certain marketable securities, pension adjustments and foreign currency translation
adjustments. Entities must also parenthetically report the aggregate tax effect of reclassifications
in the income tax expense (benefit) line item. Under option 2, the significant amounts of each
component of OCI must be presented in a single footnote. Pre- and net of- tax presentations are
both acceptable. For reclassifications that are recorded entirely in net income (e.g., the gain on s
ale of an available for sale security), the income statement line item affected by the
reclassification must be identified. For any reclassification that is not recorded entirely in net
income (e.g., pens ion cost capitalized in inventory), a cross -reference must be provided to the
footnote where additional information can be found (e.g., a cross -reference to the pens ion
footnote). The adoption did not materially impact the Company’s consolidated financial
statements.
9
SUNVESTA, INC.
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2013
3.
GOING CONCERN
The Company is currently working on building a hotel in the Papagayo Gulf Tourism Project area
of Guanacaste, Costa Rica.
The project is expected to open in the third quarter of 2015 (see also Note 18). Until the
completion of the project, the following expenditures are estimated to be incurred:
Expenditures
USD
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
21,000,000
e. Less: Recuperated in gross project cost
(12,000,000)
f
Total, excluding other potential projects
180,000,000
Sixty percent (60%) of the “Net project cost” is going 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 going to be financed by the
main shareholders or lenders of the project, i.e. Zypam Ltd., shareholder, Mr. Hans Rigendinger,
shareholder, director and chief operating officer, Mr Max Roessler, majority shareholder of Aires
International Investment, Inc. and director, Mr Josef Mettler, shareholder, director, chief
executive officer, chief financial officer and principal accounting officer.
On July 16, 2012, certain principal shareholders of the Company or principal lenders to the
project entered into a guaranty agreement in favor 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. The guaranty may not be terminated until such time as
SunVesta AG has secured financing for the completion of the project.
Based on this guaranty agreement, management believes that available funds are sufficient to
finance cash flows for the twelve months subsequent to June 30, 2013 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.
10
SUNVESTA, INC.
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2013
4.
CASH AND CASH EQUIVALENTS
Cash and Cash equivalents are available to the Company without any restriction or limitation on
withdrawal and/or use of these funds. The Company’s cash equivalents are places with high
credit rated financial institutions. The carrying amounts of these assets approximate their fair
value.
Cash and cash
USD
EURO
CHF
Total
Total
equivalents
June 30, 2013 December 31, 2012
origin currency
70,693
8,496
113,654
-
-
in USD
70,693
11,019
119,214
200,926
260,520
5.
RESTRICTED CASH
As per June 30, 2013 the company has the following restricted cash positions:
Restricted Cash
June 30, 2013
December 31, 2012
$
$
Credit Suisse in favor of
BVK Personalvorsorge des Cantons Zurich
133,997
-
HSBC in favor of
Costa Rican Tourism Board
243,000
241,500
Banco Nacional de Costa Rica in favor of
Costa Rican Environmental Agency – SETENA
604,000
-
Banco Nacioanl de Costa Rica in favor of
Costa Rican Tourism Board
682,500
Gross
1,663,497
241,500
Restricted cash positions in favor of Costa Rican Tourism Board and Costa Rican Environmental
Agency – SETANA are related to the hotel project in Costa Rica and therefore their release is not
expected before finalization of the corresponding project. Due to this fact these restricted cash
positions have been classified as long term.
The restricted cash position in favor of BVK Personalvorsorge des Cantons Zurich is a rental
deposit related to a long term lease contract for office space. Due to this fact this restricted cash
position is also classified as long term.
The balances as of December 31, 2012 were reclassified to conform to the current presentation.
11
SUNVESTA, INC.
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2013
6.
PROPERTY & EQUIPMENT
Property & equipment
June 30, 2013
December 31, 2012
$
$
Land
19,700,000
7,000,000
IT Equipment
185,846
185,846
Other equipment and furniture
285,901
284,901
Leasehold improvements
66,617
66,617
Construction in-process
14,078,804
9,591,958
Gross
34,317,168
17,129,322
Less accumulated depreciation
(349,940)
(329,782)
Net
33,967,228
16,799,540
Depreciation expenses for the period ended
June 30, 2013
20,158
31,350
Property & equipment is comprised primarily of land held in Costa Rica that is currently being
developed for hotels and capitalized project costs in connection with the Papagayo Gulf Tourism
project. The land amounts to $19.7 million whereas $7 million relates to the concession held by
Richland (~84,000 m2) and $12.7 million held by Altos del Risco (~120,000 m2). The latter was
acquired through the acquisition of the shares of Altos del Risco SA whose only asset is the
concession, which does not qualify as a business. Control over Altos del Risco SA was obtained
on March 8, 2013. The previous down payments were reclassified to property and equipment.
The Richland concession is a right to use the property for a specific period of time of 20 years,
which thereafter will be renewed at no further cost, if the landholder is up to date with its
obligations and if there is no significant change in government policies. The current concession
expires in June 2022.
The Altos del Risco concession is also a right to use the property for a specific period of time of
30 years, which thereafter will be renewed at no further cost, if the landholder is up to date with
its obligations and if there is no significant change in government policies. The current
concession, which was issued in 2006, expires in November 2036.
For both properties concession extension requests have been filed during third quarter 2013.
These extensions request have not been answered as of date of this report.
The construction in process amount that was spent up to June 30, 2013 is represented primarily
by architectural work related to the hotel and apartments but also to some construction work.
Deposit related to construction work
During second quarter 2013 main earthmoving groundwork has started. Due to this the Company
paid several deposits to contractors. These deposits will be offset against invoices, which the
Company will receive for construction work. As per June 30, 2013 the Company has paid
deposits of $507,000.
12
SUNVESTA, INC.
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2013
6.
PROPERTY & EQUIPMENT - CONTINUED
Guaranty Retention
During second quarter 2013 main earthmoving groundwork has started. Due to this the Company
received several invoices from contractors. The Company retained some amounts related to
construction work. As soon as the corresponding work is officially accepted by the Company the
guaranty retention will be paid. As per June 30, 2013 the Company had guaranty retention in the
amount of $70,000, which is stated in accrued expenses.
7.
PLEDGES
June 30, 2013
December 31, 2012
Pledge of shares of Rich Land Investments Ltda.
0%
10%
in favor of Zypam Ltd. for Zypam Ltd's liabilities
(0 shares)
(1 share)
Pledge of shares of Rich Land Investments Ltda.
0%
20%
in favor of Meliá Hotels International for bonds
(0 shares)
(2 shares)
of EUR 2 million
The Company pledged the above shares as part of the bond agreement with Meliá and
corresponding contracts in Zypam Ltd. During the six months ended June 30, 2013 the share
pledges were released back to the Company due to the repayment of the bond due to Meliá and an
amendment of the corresponding contracts with Zypam Ltd.
13
SUNVESTA, INC.
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2013
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 prices 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
all 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 nonperformance risk. Nonperformance 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 nonperformance 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 June 30, 2013 and December 31, 2012, respectively, there are no financial assets or
liabilities measured on a recurring basis at fair value with the exception of “fair value of
conversion option”.
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.
14
SUNVESTA, INC.
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2013
8.
FAIR VALUE MEASUREMENT - CONTINUED
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.
—
Cash and cash equivalents – carrying amount approximated fair value.
—
Restricted cash – carrying amount approximated fair value.
—
Receivables from related parties (current) - carrying amount approximated fair value due to
the short term nature of the receivables.
—
Accounts Payable – carrying amount approximated fair value.
—
Note payable - carrying amount approximated fair value due to the short nature of the note
payable.
—
EUR-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 8.25% 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 (current) – Rigendinger – carrying amount approximated fair
value due to the short term nature of the note payable.
— Notes payable to related parties (current) – other – carrying amount approximated fair value
due to the short term nature of the note payable.
— Notes payable to related parties – Dr. M. Roessler (current) - carrying amount approximated
fair value due to the short term nature of the notes payable and the fair value of the
underlying publicly trades shares
— Notes payable to related parties – Aires – 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.
— Fair value of conversion feature – The fair value of the conversion option is classified as
level 3 fair value. The fair value of the option was determined by using Black-Scholes with
the following input data:
- Stock price $0.07
- Exercise price: $1.01
- Expected term in years: 2.25 years
- Volatility 80%
- Annual Rate of quarterly dividends: 0%
- Discount Rate: 0.459%
15
SUNVESTA, INC.
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2013
8.
FAIR VALUE MEASUREMENT - CONTINUED
The fair value of our financial instruments is presented in the table below:
June 30, 2013
December 31, 2012
Carrying
Fair Value
Carrying
Fair Value
Fair
Value
Amount
Reference
$
$
Amount
$
$
Levels
Cash and cash
equivalents
200,926
200,926
260,520
260,520
1
Note 4
Restricted cash
1,663,497
1,663,497
241,500
241,500
1
Note 5
Receivable from
related parties
656,057
656,057
-
-
1
Note 9
Accounts Payable
2,158,005
2,158,005
827,102
827,102
1
None
Notes payable
2,010,196
2,010,196
-
-
1
None
Notes payable to
related parties – other
(current)
36,153
36,153
149,328
149,328
3
Note 9
Notes payable to
related parties – Dr.
M. Roessler (current)
883,385
800,155
2,682,736
2,594,284
1
Note 9, 18
Notes payable to
related parties –
Rigendinger (current)
600,000
600,000
600,000
600,000
3
Note 9, 18
EUR-bond
12,296,830
12,296,830
14,216,707
14,216,707
3
Note 10
CHF-bond
5,626,997
5,626,997
5,689,364
5,689,364
3
Note 10
Notes payable to
related parties – Aires
(non-current)
24,919,934
24,919,934
10,407,764
10,407,764
3
Note 9, 18
Notes payable to
related parties –
Rigendinger Aires
(non-current)
-
-
717,977
717,977
3
Note 9
Fair value of
conversion option
13,874
13,874
-
-
3
Note 9, 18
16
SUNVESTA, INC.
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2013
9.
RECEIVABLES FROM AND NOTES TO RELATED PARTIES
Advances from (to) related parties are composed as follows:
Receivables
Payables
Receivables from and notes
June 30,
December 31,
June 30,
December 31,
to related parties
2013
2012
2013
2012
$
$
$
$
01
Hans Rigendinger
-
-
600,000
600,000
02
Josef Mettler
383,642
-
-
-
03
Adrian Oehler
-
-
36,153
37,380
04
Sportiva
79,565
-
-
31,948
05
Aires International
-
-
24,919,934
10,407,764
06
Dr. Max Roessler
-
-
883,385
2,682,736
07
Hans Rigendinger
-
-
-
717,977
08
Akyinyi Interiors
-
-
-
80,000
09
4f capital ag
192,850
-
Total excluding
interest
656,057
-
26,439,472
14,577,805
Accrued interest
-
-
663,518
566,093
Total
656,057
-
27,102,990
15,123,898
of which non-current
-
-
24,919,934
11,125,741
No
Related party
Capacity
Interest
Repayment
Rate
Terms
Security
01
Hans Rigendinger
Shareholder, director, chief operating
officer (COO)
0.00%
none
none
Shareholder, chairman of the board of
02
Josef Mettler
directors, chief executive officer
(CEO), chief financial officer (CFO)
3.00%
none
none
and principal accounting officer (PAO)
03
Adrian Oehler
Shareholder and SunVesta AG board
member
0.00%
none
none
04
Sportiva
Entity owned by the Company’s
director, CEO, CFO and PAO
3.00%
none
none
05
Aires International
*** see hereinafter***
06
Dr. Max Roessler
Shareholder and director
*** see hereinafter ***
07
Hans Rigendinger
Shareholder, director and COO
*** see hereinafter ***
08
Akyinyi Interiors
Entity owned by a director’s wife
0.00%
01/31/13
none
09
4f Capital Ag
Entity owned by the Company’s
director, CEO, CFO and PAO
0.00%
none
none
17
SUNVESTA, INC.
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2013
9.
RECEIVABLES FROM AND NOTES TO RELATED PARTIES - CONTINUED
Loan agreement Aires International Investment Inc.
On July 27, 2011, SunVesta signed a loan agreement with Aires International Investments Inc.
(“Aires”), a company owned by a board member of the Company, which has been amended and
superseded by an amendment on May 11, 2012 respectively June 21, 2012 and which includes the
following major conditions:
—
The lender grants the Company a terminable, interest bearing and non-secured loan in the
maximum amount of CHF 10,000,000.
—
The conversion right granted in the original contract to convert the balance of the line of
credit into a 10% ownership interest in Rich Land was cancelled.
—
Once the entire amount of CHF 10,000,000 has been drawn down, Aires now has the right to
convert its entire loan of CHF 10,000,000 into 20% shares of SunVesta Inc. (instead of
Richland) whereas 20% shares reflect the number of shares at the time when the entire
amount of CHF 10,000,000 has been drawn down.
—
In principle, the loan will become due in September 30, 2015, being the latest date on which
Aires can exercise its conversion option
—
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.
The conditions of the above mentioned conversion option was met during 2012. The Company
has analyzed the accounting treatment of this financial instrument. Based on this analysis the
Company concluded that the conversion option needs to be bifurcated and is to be accounted for
as a derivative under ASC 815. Main factors for this accounting treatment are: the debt is
denominated in CHF while the shares are convertible into shares of the Company, whose
functional currency is USD and whose shares are traded in USD. Based on that, the Company
determined that the conversion feature is not indexed to the Company’s shares and it should be
bifurcated and accounted for as a derivative. As of November 13, 2012 (the date when the loan
became convertible) and December 31, 2012 the fair value of the conversion feature was
immaterial. As of June 30, 2013 the fair value of the conversion feature was $13,874 which is
recorded in fair value of conversion option.
The fair value of the call option value has been calculated by using Black-Scholes with the
following assumptions:
§ Stock price $0.07
§ Exercise price $1.01
§ Expected term in years 2.25
§ Volatility of 80%
§ Annual Rate of quarterly Dividends 0%
§ Discount Rate 0.459%
Based on this calculation one call option has a fair value of $0.001 as per June 30, 2013.
Multiplied with number of option granted of 10,818,437 this result in fair value of the conversion
feature of $13,874.
18
SUNVESTA, INC.
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2013
9.
RECEIVABLES FROM AND NOTES TO RELATED PARTIES - CONTINUED
Loans Dr. Max Roessler
On June 7, 2012, Dr. Max Roessler (board member of SunVesta AG) 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. On this short term loan 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. Max Roessler and Aires International Investments Inc.
(“Aires”) an act of transfer. Based on this act of transfer the loan has been transferred to Aires
International Investments Inc. (“Aires”) and the balance has added to the existing loan agreement
with Aires International Investments Inc. (“Aires”) (refer to previous paragraph).
On July 24, 2012, Dr. Max Roessler gave an additional short term loan of $0.47 million that is
repayable on May 30, 2013, or on demand within five working days. On this short term loan 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 June 30, 2013, 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. Max Roessler gave a further short term loan of $0.4 million that is
repayable also on May 30, 2013, or on demand within five working days. On this short term loan
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 June 30, 2013 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. Max Roessler gave a further short term loan of $0.05 million that is
repayable on July 31, 2013, or on demand within five working days. On this short term loan 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 June 30, 2013, the
Company would not have recognized a gain. Therefore the fair value of the loan approximates the
carrying value of the loan.
19
SUNVESTA, INC.
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2013
9.
RECEIVABLES FROM AND NOTES TO RELATED PARTIES - CONTINUED
Debt Settlement Agreements
On December 31, 2012 the Company concluded a debt settlement agreement with Hans
Rigendinger. This debt settlement agreement, settled the outstanding balance of $717,977 as of
December 31, 2012 as described hereinafter:
—
The Company issued 17,949,417 shares of its common stock ($0.01 par value) at a
conversion price of $0.04 to Hans Rigendinger for the purposes of this debt settlement.
—
The difference between the carrying value of this debt and the fair value of the common
stock issued amounted to $717,976. The difference has been recorded as stock compensation
expense in general and administrative expenses in the year ended December 31, 2012.
—
To determine the fair value of the common stock issued the quoted market price as of
December 31, 2012 was used.
—
The shares were not formally issued as of December 31, 2012, and therefore, the note
payable was not eliminated as of December 31, 2012. The satisfaction of the note payable
was recorded on the issuance of the shares as of January 8, 2013.
Commissions paid to related parties
During the three month periods ended June 30, 2013 and June 30, 2012 the Company paid
commissions to 4f capital ag in the amount of approximately $68,000 and $0, respectively related
to financing of the Company. During the six month periods ended June 30, 2013 and June 30,
2012 the Company paid commissions to 4f capital ag in the amount of approximately $176,000
and $0 respectively.
Service fees paid to Akyinyi Interiors
During the three month periods ended June 30, 2013 and June 30, 2012 the Company paid fees to
Akyinyi Interiors related to interior design of the Papagayo Gulf Tourism project in the amount of
approximately $40,000 and $0 respectively. During the six month periods ended June 30, 2013
and June 30, 2012 the Company paid to Akyinyi Interiors $60,000 and $0 respectively.
Until end of January 2015 the Company is committed to pay $10,000 monthly based on the
contract with Akyinyi Interiors.
20
SUNVESTA, INC.
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2013
10.
BONDS
SunVesta AG has two bonds outstanding with the following major conditions.
Description
EUR (€) bond
CHF bond
![[sunvesta10q2013lasttry004.gif]](sunvesta10q2013lasttry004.gif)
![[sunvesta10q2013lasttry006.gif]](sunvesta10q2013lasttry006.gif)
Issuer:
SunVesta Holding AG
SunVesta Holding AG
![[sunvesta10q2013lasttry002.gif]](sunvesta10q2013lasttry002.gif)
Type of securities:
Bond in accordance with Swiss law
Bond in accordance with Swiss law
![[sunvesta10q2013lasttry008.gif]](sunvesta10q2013lasttry008.gif)
![[sunvesta10q2013lasttry010.gif]](sunvesta10q2013lasttry010.gif)
![[sunvesta10q2013lasttry012.gif]](sunvesta10q2013lasttry012.gif)
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 30 November 2011
the first time August 31, 2012
Applicable law:
Swiss
Swiss
![[sunvesta10q2013lasttry014.gif]](sunvesta10q2013lasttry014.gif)
![[sunvesta10q2013lasttry016.gif]](sunvesta10q2013lasttry016.gif)
![[sunvesta10q2013lasttry018.gif]](sunvesta10q2013lasttry018.gif)
The nominal amounts have changed as follows:
EUR-Bond
CHF Bond
EUR-Bond
CHF Bond
2013
2013
2012
2012
$
$
$
$
Balances January 1
14,216,707
5,689,364
9,598,537
3,818,898
Cash inflows
792,740
160,537
4,015,549
3,191,888
Cash outflows
(2,649,073)
(52,424)
-
(1,474,823)
Foreign currency adjustments
(23,367)
88,128
692,295
463,849
Sub-total (Fair value)
12,337,007
5,885,605
14,306,380
5,999,813
Commissions paid to bondholders
(248,195)
(417,709)
(248,195)
(417,709)
Amortization of such commissions
208,018
159,101
158,522
107,260
Balance June 30, 2013
December 31, 2012 (Carrying value)
12,296,830
5,626,997
14,216,707
5,689,364
Should the refinancing of the EUR bonds not be completed by November 30, 2013, certain
principal shareholders of the Company or principal lenders to the project would provide bridge
financing according to the guaranty agreement (see Note 3).
21
SUNVESTA, INC.
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2013
10.
BONDS - CONTINUED
In addition, the Company has started on November 6, 2013 an open offering period based on a
new private placement memorandum as of even date for a new EUR-Bond with the following
main terms:
—
Issuance of maximal EUR 15,000,000
—
Duration December 2, 2013 to December 2, 2016
—
Yearly interest of 7.25%
—
1,500 units with a par value of EUR 10,000
22
SUNVESTA, INC.
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2013
11.
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 ratably 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
Six months
Three months
Six months
Pension expense
ended
ended
ended
ended
June 30, 2013
June 30, 2013
June 30, 2012
June 30, 2012
$
$
$
$
Current service cost
27,265
13,632
25,384
50,766
Net actuarial (gain) loss
recognized
(537)
(268)
-
-
Interest cost
2,362
1,181
772
1,543
Expected return on assets
(2,415)
(1,208)
(692)
(1,384)
Employee contributions
(10,895)
(5,448)
(10,164)
(20,328)
Net periodic pension cost
15,780
7,890
15,299
30,597
During the three month periods ended June 30, 2013 and June 30, 2012 the Company made cash
contributions of $11,000 and $20,000, 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, 2013 are $11,000.
23
SUNVESTA, INC.
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2013
12.
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 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
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 so-called 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.
Based on this contract the Company has included the following stock-based compensation in the
Company’s results:
Stock-based compensation
Three months Three months
Six months
Six months
(shares)
ended
ended
ended
ended
June 30, 2013 June 30, 2012
June 30, 2013
June 30, 2012
Shares granted
16,000,000
---
16,000,000
---
Fair Value respectively market
price on grant date
$ 0.08
---
$ 0.08
---
Total maximal expenses (2013-
2017)
$ 1,280,000
---
$ 1,280,000
---
Shares vested (signing bonus)
3,500,000
---
3,500,000
---
Unvested shares (retention
award)
12,500,000
---
12,500,000
---
Expenses recorded under general
& administrative expenses
$ 50,000
---
$ 380,000
---
Unrecorded costs related to
unvested share grants (retention
bonus)
$ 900,000
---
$ 900,000
---
Tax benefit associated with
compensation expense
$ 0
---
$ 0
---
24
SUNVESTA, INC.
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2013
12.
STOCK COMPENSATION - CONTINUED
As of June 30, 2013 the Company expects to record compensation expense in the future as
follows:
Stock-based
Through December
Year ending December 31,
compensation (shares)
31, 2013
2014
2015
2016
2017
USD
USD
USD
USD
USD
Unrecognized
100,000
200,000
200,000
200,000
200,000
compensation expense
Stock options
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 it is required to complete a financing arrangement with a specific counterparty.
As of grant date the fair value was $300,000. As of June 30, 2013, the Company assessed that this
financing arrangement with the specific counterparty will not be completed. Therefore, the
Company assesses the probability of completion to be zero and therefore no expense has been
recognized for the stock options with installment A as per June 30, 2013.
For installment B it is required that the Company completes the Paradisus Papagayo Bay Resort
& Luxury Villas (see note 14 and 18) by the thereinafter mentioned date of November 1, 2014.
As of date of June 30, 2013, the Company assessed the probability that this performance
condition will be met at 100%.
A summary of stock options outstanding as per June 30, 2013, is as follows (during six-month
period ended June 30, 2012, no options were granted):
Options outstanding
Number of Options
Weighted average
Weighted average
exercise price
remaining
contractual life
Outstanding January 1, 2013
None
None
Granted
10,000,000
$ 0.05
9.50 years
Exercised
0
0
Forfeited or expired
0
0
Outstanding June 30, 2013
10,000,000
$ 0.05
9.50 years
Exercisable June 30, 2013
0
0
25
SUNVESTA, INC.
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2013
12.
STOCK COMPENSATION - CONTINUED
The following table depicts the Company’s non-vested options as of June 30, 2013 and changes
during the period:
Non-vested options
Shares under Options
Weighted average grant
date fair value
Non-vested at December 31, 2012
0
$ 0.00
Non-vested-granted
10,000,000
$ 0.06
Vested
0
$ 0.00
Non-vested, forfeited or canceled
0
$ 0.00
Non-vested at June 30, 2013
10,000,000
$ 0.06
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
June 30, 2013
June 30, 2012
Dividend yield
None
---
Risk-free interest rate
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.
The Company recorded the following amounts related to the expense of the fair values of options
during the periods ended June 30, 2013:
Three months
Three months
Six months
Six months
Stock based compensation
ended
ended
ended
ended
(options)
June 30, 2013
June 30, 2012
June 30, 2013
June 30, 2012
$
$
$
$
Expenses recorded under general
& administrative expenses
40,000
---
80,000
---
Benefit for income taxes
0
---
0
---
Effect on net loss
40,000
---
80,000
---
26
SUNVESTA, INC.
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2013
12.
STOCK COMPENSATION - CONTINUED
As of June 30, 2013 the Company had unrecognized compensation expenses related to stock
options currently outstanding, to be recognized in future quarters respectively years as follows:
Stock-based
Through December 31, 2013 Year ending December 31, 2014
compensation (options)
$
$
Unrecognized
compensation expense
80,000
140,000
13.
INTENTION TO PURCHASE TWO ADDITIONAL CONCESSION PROPERTIES AT
POLO PAPAGAYO, GUANACASTE
On April 20, 2012, the Company entered into an agreement to purchase two additional concession
properties located at Polo Papagayo, Guanacaste, with a total surface of approximately 230,000
square meters for a price of $22,895,806, whereof fifty percent is to be paid in cash and the other
fifty percent in ten percent equity of La Punta (the concession properties in Polo Papagayo) and
five percent in equity of Paradisus Papagayo Bay Resort & Luxury Villas (the hotel currently
under construction), both located in Costa Rica. The payment schedule is as follows:
— $0.5 million is required as a cash payment by May 16, 2012
— $5.0 million is required as a cash payment by August 31, 2012
— $5.698 million is required as a cash payment by January 31, 2013
— Equity is required to be transferred upon final payment
If the Company had elected not to proceed with the purchase, the purchaser would have been in
default and would have lost its funds on deposit.
On November 13, 2012 the above agreement was amended to decrease the total purchase price to
$17.2 million with no equity payment. The terms and conditions of the cash payment were still to
be defined. Furthermore, all payments by the Company to date and in the future are refundable.
Subsequent to signing these agreements, the Company paid down-payments on the purchase of
the properties of approximately $1,669,000 up to June 30, 2013, which is included in down
payment for property and equipment.
27
SUNVESTA, INC.
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2013
13.
INTENTION TO PURCHASE TWO ADDITIONAL CONCESSION PROPERTIES AT
POLO PAPAGAYO, GUANACASTE - CONTINUED
During the second quarter of 2013 the Company entered into a new, revised agreement regarding
the purchase of two additional concession properties at Polo Papagayo, Guanacaste. The original
contract as described above has been cancelled and replaced by a new contract which includes the
following clauses:
— The total purchase price is $17,500,000 of which approximately $1,370,000 has been
paid as of date of the new, revised agreement and therefore $16,130,000 is outstanding
as per date of the new, revised agreement.
— Since the original seller of these two additional concession properties at Polo Papagayo,
Guanacaste owes a third party $8,000,000 the Company has pay $8,000,000 of the
purchase price directly to this third party instead of the original seller. The remaining
$8,130,000 will be paid directly to the original seller of the concession properties.
— The payment schedule for these two additional concession properties at Polo Papagayo
Guanacaste is as hereinafter:
Third Party
— $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 and $700,000 of this $1,000,000 was
paid on October 29, 2013. The remaining $300,000 has not been paid as of the date of
this report.
— $1,000,000 on July 31, 2013, which is refundable and has not been paid as of the date of
this report
— $1,000,000 on August 31, 2013 which is refundable and has not been paid as of the date
of this report
— $1,500,000 on September 30, 2013, which is refundable and has not been paid as of the
date of this report
— $1,500,000 on October 31, 2013, which is refundable and has not been paid as of the
date of this report
— $1,700,000 on November 30, 2013, which is refundable
$8,000,000 in total to Third Party
Original Seller
— $1,000,000 on January 31, 2014 and is non-refundable
— $1,000,000 on February 28, 2014 and is non-refundable
— $1,000,000 on March 31, 2014 and is non-refundable
— $1,000,000 on April 30, 2014 and is non-refundable
— $1,000,000 on May 31, 2014 and is non-refundable
— $1,000,000 on June 30, 2014 and is non-refundable
— $1,000,000 on July 31, 2014 and is non-refundable
— $1,130,000 on August 31, 2014 and is non-refundable
$8, 130,000 in total to Original Seller
Should the Company be able to pay the third party and the original seller all amounts - as above
mentioned - earlier than scheduled, the original seller will give a discount on his remaining
portion of the purchase price as following:
— Should the Company complete the remaining balance due to the third party on or before
November 30, 2013, the discount would be $1,750,000
As per date of this report the Company has paid approximately $2,370,000 to the third party and
$15,130,000 is outstanding and payable to the third party and the original seller.
28
SUNVESTA, INC.
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2013
14.
OPENING DATE “Paradisus Papagayo Bay Resort & Luxury Villas”
During the third quarter of 2012, the Company postponed the opening date for Papagayo Gulf
Tourism Project of Costa Rica, which is now scheduled for the winter of 2014. Due to the
postponement an addendum to the original management agreement with Sol Meliá, S.A. was
agreed as follows:
— The construction of the “Paradisus” will be completed by November 1, 2014
— Should the “Paradisus” not be completed by November 1, 2014, (subject to force majeure) and
should an extension date not be agreed, subsequent to November 1, 2014, the Company will be
obligated to pay Sol Meliá, S.A. a daily amount of $2,000 as liquidated damages
— Should the Company be unable to complete the construction of the “Paradisus” by February
28, 2015, Sol Meliá, S.A. can terminate the management agreement obligating the Company to
compensate Sol Meliá, S.A. in the amount of $5,000,000 unless the respective parties agree to
extend such date.
Regarding current situation, subsequent to June 30, 2013, refer to Note 18.
15.
HOTEL PROJECT ATLANTA
On September 19, 2012, the Company entered into a purchase agreement for a hotel and
entertainment complex in Atlanta, Georgia (United States of America). The entire purchase
amount of $26 million for the assets has 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. The Company is in negotiations with various parties to finalize
a financing package for this project. Should the Company conclude the transaction on or before
July 10, 2013 those amounts paid on deposit extension will be credited to the purchase price.
Otherwise, the Company will lose non-refundable deposits of $750,000 of which $750,000 was
paid up to June 30, 2013.
In connection with the Hotel Project in Atlanta, the Company concluded, on June 27, 2013, a
consultancy agreement with Archipel N.V. for the purpose of securing a financing package for
the Hotel Project. Should the services rendered by Archipel N.V. be successful, it will be
remunerated with $1,000,000.
Regarding current situation, subsequent to June 30, 2013 refer to Note 18.
29
SUNVESTA, INC.
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2013
16.
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, basis 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.
Earnings per share
Three-month period ended
Six-month period ended
June 30, 2013
June 30, 2012
Jun 30, 2013
June 30, 2012
Company posted
Net loss
Net loss
Net loss
Net loss
Basic weighted
75,541,600
54,092,186
73,396,661
54,092,186
average shares
outstanding
Dilutive effect of
None
none
none
none
common stock
equivalents
Dilutive weighted
75,541,600
54,092,186
73,396,661
54,092,186
average shares
outstanding
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
Six-month
Six-month
Earnings per share
period ended
period ended
period ended
period ended
June 30, 2013 June 30, 2012 June 30, 2013 June 30, 2012
Conversion feature loan to
10,818,437
---
10,818,437
---
Aires International
Investment Inc.
Shares to Hans Rigendinger
12,500,000
---
12,500,000
---
(retention bonus)
Options
10,000,000
---
10,000,000
---
Total
33,318,437
---
33,318,437
---
30
SUNVESTA, INC.
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2013
17.
RESTATEMENT
During the quarter ended June 30, 2013 the Company determined that the interest capitalized was
understated in the quarter ended June 30, 2012. The Company capitalized interest costs on the
carrying value of the construction in progress during the contraction period based on the
contractual rate. However, interest cost as defined in ASC 835-20 includes stated interest,
imputed interest (ASC 835-30), and interest related to a capital lease in accordance with ASC
840-30, as well as amortization of discount, premium and issue costs on debt.
Management has concluded that the impact of the error is not material to the previously filed
quarterly report for the quarter ended June 30, 2012 and therefore has not filed any amendments
to this quarter. The table below summarizes the impact of the restatement, which has been
reflected in the quarterly report for the period ended June 30, 2013:
Three months ended June 30
2012
2012
as reported
as restated
Property and equipment, net
$13,435,782
$13,793,782
Shareholders' equity (deficit)
$(6,422,892)
$(6,064,894)
Total assets
$25,086,039
$25,444,039
Amortization of debt issuance
$(268,747)
$(140,747)
costs and commissions
Net loss
$(2,201,233)
$(2,073,233)
Basic and diluted loss per share
$(0.04)
$(0.04)
Six months ended June 30
2012
2012
as reported
as restated
Property and equipment, net
$13,435,782
$13,793,782
Shareholders' equity (deficit)
$(6,422,892)
$(6,064,894)
Total assets
$25,086,039
$25,444,039
Amortization of debt issuance
$(498,035)
$(140,035)
costs and commissions
Net loss
$(3,535,758)
$(3,177,758)
Basic and diluted loss per share
$(0.07)
$(0.06)
31
SUNVESTA, INC.
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2013
18.
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:
Hotel Project Atlanta
The Company has not been able to complete a financing package for this project up to July 10,
2013 and has concluded on July 30, 2013 a new agreement. Therefore, the Company was able to
extend the deadline to finalize a financing package up to September 30, 2013. Additionally the
Company bears taxes of the counterparty for the tax year 2013 of approximately $573,932.
Therefore the Company is requested to pay directly to the counterparty on or before August 30,
2013 $573,932.
On September 26, 2013 the Company has been able to conclude a further amendment with the
counterparty. Based on this amendment (so-called fifth-amendment) the deadline to finalize a
financing package has been extended up to October 15, 2013. As on October 15, 2013 the
Company has not been able to conclude an additional amendment nor to finalize a financing
package, the Company will expense $1,573,932 on October 16, 2013.
On October 28, 2013 the Company has been finally able to conclude a further amendment (so-
called sixth-amendment) with the counterparty. This amendment includes the following clauses:
— The Company has to pay $2,500,000 as per November 12, 2013 to the Counterparty as initial
installment as well as to pay the remaining purchase price of $22,500,00 by January 31, 2014.
As of date of this report the Company has not been able to pay $2,500,000 and is therefore in
default.
— Since November 12, 2013 the Company must pay 6% interest on the remaining, outstanding
purchase price, which is also payable on January 31, 2014.
— If the Company does not close this transaction in accordance with the provisions in this
agreement, the Company will be entitled to a refund of the purchase price installments timely
received by the seller.
— The deposit, the three extension fees and 2013 taxes paid and 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 accounted to the purchase price in the event of a
successful closing.
As of June 30, 2013 the Company has paid $750,000 and as of date of this report $1,573,932 to
the counterparty, which is included in Down payment for property and equipment.
EUR Bond Offering
The Company initiated a EUR bond offering on December 1, 2010 of up to EUR 25,000,000 in
units of EUR 1,000 that bear 8.25 % interest per annum payable each November 30 over the term
of the bonds due November 30, 2013.
A cumulative amount of EUR 9.44 million ($11.75 million) has been realized by the Company
from the initial date up to the date of this filing.
32
SUNVESTA, INC.
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2013
18.
SUBSEQUENT EVENTS – CONTINUED
CHF Bond Offering
The Company initiated a CHF bond offering on September 1, 2011 of up to CHF 15,000,000 in
units of CHF 50,000 that bear 7.25 % interest per annum payable each August 31 over the term of
the bonds due August 31, 2015.
A cumulative amount of CHF 5.90 million ($6.19 million) has been realized by the Company
from the initial date up to the date of this filing.
Loan Aires International Investment Inc.
As described in Note 9, the Company is has been negotiating with Aires International Investment
Inc. regarding rearrangement of the loan. On October 31, 2013 the Company and Aires
International Investment Inc. signed a new loan agreement that include the following main
clauses:
— All existing loan agreements including possible amendments between the Company and Aires
International Investment Inc. will be cancelled and superseded by the new agreement, signed
on October 31, 2013.
— The loan will be repayable in two parts: CHF 10,044,370 ($10,431,597) will be repayable on
December 31, 2015. The remaining loan amount will be repayable earliest on December 31,
2015 or not later than 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. This notice would be only effective for the loan
amount that exceeds CHF 10,044,370 ($10,431,597).
— The complete loan amount including further additions is subordinated.
— Yearly interest on the loan is 7.25% and will be due each year on March 31, June 30,
September 30 and December 31.
As of the date of this report the Company has borrowed CHF 28.32 million (approximately
$29.68 million) from Aires.
Loans Dr. Max Roessler
On September 26, 2013, Dr. Max Roessler agreed with the Company that all overdue loan
amounts due to him (refer to Note 9) will not be repayable before May 30, 2014.
33
SUNVESTA, INC.
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2013
18.
SUBSEQUENT EVENTS – CONTINUED
Issuances of securities
On July 4, 2013, the Company authorized the issuance of 5,000,000 of common shares valued at
Fair Value and granted 12,000,000 options to purchase the Company’s common stock to Josef
Mettler. The stock options may vest in three parts, based on milestones, at an exercise price of
$0.05 as follows:
3,000,000 options
On the date that the Company or one of its subsidiaries completes a
bridge financing prior to completion of the main financing anticipated
for the development of the Paradisus Papagayo Bay.
4,000,000 options
On the date that the Company or one of its subsidiaries completes a
financing for the development of the Paradisus Papagayo Bay.
5,000,000 options
On the date that Paradisus (Sol Meliá S.A.) assumes management
responsibilities for the Paradisus Papagayo Bay.
The securities were issued and granted pursuant to a new employment contract between Josef
Mettler and the Company dated effective July 4, 2013. Mr. Mettler’s employment contract also
includes a retention award of 3,000,000 restricted common shares of the Company earned as of
each annual anniversary of the contract, as well as an annual base salary of $144,000.
On July 3, 2013, the Company authorized the issuance of 3,000,000 shares of restricted common
shares to Dr. Roessler, valued at Fair Value, on his appointment as a member of the Company’s
board of directors.
On July 4, 2013, the Company granted Mr. Roessler the option to purchase 10,000,000 shares of
the Company’s common stock at an exercise price of $0.05. The stock options may vest in two
parts as follows:
5,000,000 options
On the date that the Company or one of its subsidiaries completes a
financing for the development of the Paradisus Papagayo Bay.
5,000,000 options
On the date that Paradisus (Sol Meliá S.A.) assumes management
responsibilities for the Paradisus Papagayo Bay.
Amendment to Stock Compensation (Options)
As described in Note 12, the Company granted 10,000,000 options to Hans Rigendinger in
connection with his employment contract on January 1, 2013. The options are divided into two
instalments of 5,000,000 options. Vesting milestone A required the completion of a financing
arrangement with a specific counterparty. On July 4, 2013, the Company authorized an
amendment to Mr. Rigendinger’s stock option agreement that no longer requires that a financing
arrangement be concluded with a specific counterparty. The amendment permits that that the
requisite financing arrangement be concluded with any counterparty.
Due to this change in contract conditions, the Company will revise the valuation of the options
granted to Mr. Rigendinger related to the vesting of milestone A as of July 4, 2013.
34
SUNVESTA, INC.
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2013
18.
SUBSEQUENT EVENTS – CONTINUED
OPENING DATE “Paradisus Papagayo Bay Resort & Luxury Villas”
The official opening of the “Paradisius Papagayo Bay Resort & Luxury Villas” will be 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 has amended its agreement with Sol Meliá, S.A.
(“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 Sol Meliá, S.A. 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, Sol Meliá, S.A. can terminate the management agreement obligating the Company to
compensate Sol Meliá, S.A. in the amount of $5,000,000 unless the respective parties agree to
extend such date.
Loan contract with QuadEquity Costa Rica Ltd
On September 22, 2013, the Company entered into a loan agreement with QuadEquity Costa Rica
Ltd, a related party, owned by members of the Company’s board of directors, pursuant to which
contract QuadEquity can borrow from the Company up to a maximum of $1,000,000 on a short
term basis between September 22, 2013 and October 31, 2013. The actual loan amount, including
a lump sum payment of $30,000 as interest, is repayable to the Company on October 31, 2013.
As of date of this report the Company had loaned $750,000 pursuant to this contract to
QuadEquity Costa Rica Ltd.
35
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 and six month periods ended June 30, 2013 and June 30, 2012. 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 in emerging tourist destinations.
We are initially concentrating on offering luxury hotel products located in attractive, top-class coastal
vacation destinations in countries such as Costa Rica, Vietnam, and Turkey that are fast emerging as
popular tourist destinations. Country specific conditions are taken into account when properties are
considered for development. General considerations as to where to develop properties include the stability
of local political conditions, geologically useful cultivability, and the types of destinations that attract a
five-star clientele. Each potential investment is first 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 July 2015 subject to requisite financing.
Specifications
Paradisus Papagayo Bay Resort & Luxury Villas’ initial specifications are to be as follows:
— eco-luxury all-inclusive resort
— 381-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
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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.
The Royal Service area will include:
— 112 Junior Suites Grand Deluxe
(53-60* square meters)
— 3 Junior Suites Grand Deluxe for Handicapped Guests
(53* square meters)
— 6 Grand Master Suites
(82* square meters)
— 1 Grand Presidential Suite (4 bedrooms)
(145* square meters)
— 20 one or two bedroom Garden Villas
(91 – 117* 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)
— 34 Suites Premium
(93* square meters)
— 6 Handicapped Junior Suites Deluxe
(47* square meters)
— 1 Presidential Suite
(189* 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
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resort when not occupied by the owners.
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, our chief operating officer
and Ernst Rosenberger, our 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 lead by Concreta Srl.
Resort management is to be provided by Meliá Hotel International, S.A. (“Sol Meliá”). “Paradisus” is Sol
Meliá’s five star all-inclusive luxury hotel brand that is well recognized in the hospitality industry around
the world. Sol Meliá 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 Meliá, Sol
Meliá, ME by Sol Meliá, Innside by Sol Meliá, Tryp, Sol Meliá, Sol Meliá 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.
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).
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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 with a total surface of approximately
230,000 square meters, on terms, for a total of $22,895,806. The agreement with Meridian was amended
on November 13, 2012 to do away with the agreed equity payment, decrease the total purchase price to
$17.2 million and to provide that all payments for the purchase of the property were refundable in the
event SunVesta AG determines not to complete the purchase. SunVesta AG has paid down-payments of
approximately $1,670,000 as of June 30, 2013, and $2,370,000 as per the date of this report
On May 7, 2013, SunVesta AG entered into a new agreement with Meridian that replaced the original
contract, with a new total purchase price of $17,500,000 and a remaining amount due of $16,130,000 as
of this date (as per the date of this report $15,130,000). The new agreement includes a payment plan for
the remainder due divided amongst Meridian and a third party as follows:
Third Party
— $300,000 on May 4, 2013 which was paid on May 7, 2013 and is non-refundable
— $1,000,000 on June 30, 2013, which is refundable and $700,000 of this $1,000,000 was
paid on October 29, 2013. The remaining $300,000 has not been paid as of the date of this
report.
— $1,000,000 on July 31, 2013, which is refundable and has not been paid as of the date of
this report
— $1,000,000 on August 31, 2013, which is refundable and has not been paid as of the date of
this report
— $1,500,000 on September 30, 2013, which is refundable and has not been paid as of the
date of this report
— $1,500,000 on October 31, 2013, which is refundable and has not been paid as of the date
of this report
— $1,700,000 on November 30, 2013, which is refundable
$8,000,000 in total to Third Party
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Original Seller
— $1,000,000 on January 31, 2014
— $1,000,000 on February 28, 2014
— $1,000,000 on March 31, 2014
— $1,000,000 on April 30, 2014
— $1,000,000 on May 31, 2014
— $1,000,000 on June 30, 2014
— $1,000,000 on July 31, 2014
— $1,130,000 on August 31, 2014
$8,130,000 in total to Original Seller
Should SunVesta AG be able to meet the payments due to the third party in advance of the required
payment dates, the new agreement provides for certain discounts against the amount to be paid to
Meridian based on a sliding scale determined as of the full satisfaction date.
SunVesta AG’s intention is still to conclude the purchase of these two additional concessions despite of
the fact that SunVesta AG is in default. The counterparty has not been insisting so far. However would
SunVesta and / or the counterparty consider canceling the contract SunVesta could lose $300,000 of all
payments done. As SunVesta and / or the counterparty do not intend so far to cancelling the contract
SunVesta has not recorded any allowance on their payments done. SunVesta AG will reassess the
situation on quarterly basis and if necessary record an allowance.
Hotel and Entertainment Complex (Atlanta, Georgia, U.S.A)
On September 19, 2012, SunVesta AG entered into an agreement with Fundus America (Atlanta) Limited
Partnership (“Fundus”) to purchase a hotel and entertainment complex in Atlanta, Georgia, U.S.A. for
$26 million. An additional $18 million for renovations would be required to remediate the hotel and
entertainment complex. The Company entered into a series of negotiations with various parties to finalize
a financing package for this project but was unable to procure such financing. On February 6, 2013
SunVesta paid $250,000 to Fundus.
A second amendment and reinstatement agreement was entered into on March 12, 2013, pursuant to
which SunVesta AG remitted an additional non-refundable closing extension fee to Fundus in the amount
of $250,000 to extend the closing date for the transaction to April 1, 2013.
On May 17, 2013, SunVesta AG entered into a third amendment and reinstatement agreement with
Fundus pursuant to which it remitted an additional non-refundable closing extension fee in the amount of
$250,000 in order to extend the closing date for the transaction to July 10, 2013.
On June 27, 2013, SunVesta AG entered into an agreement with Archipel N.V., business consulting
company for the purpose of securing a financing package to purchase the Atlanta hotel and entertainment
complex. Should the services rendered by Archipel N.V. be successful, it will be remunerated with
$1,000,000.
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Subsequent to period end, on July 30, 2013, a fourth amendment and reinstatement agreement was
entered into with Fundus pursuant to which SunVesta was required to remit another deposit of $250,000
on or before August 16, 2013 and to pay the taxes on the property in the amount of $573,932 by August
30, 2013 in order to extend the closing date to September 30, 2013. SunVesta AG delivered the additional
deposit of $250,000 and has paid the taxes on the property in the amount of $573,932 on October 29,
2013. Therefore as of date of this report the Company has paid in total $1,573,932 related to this project
which has been reflected as down payment for property and equipment in the balance sheet.
In order to extend the closing date another time SunVesta AG entered subsequent to period end, on
September 26, 2013 in a fifth amendment with Fundus. The fifth amendment did not request SunVesta
AG to remit any additional deposit or payments but extended the closing date to October 15, 2013.
Up to October 16, 2013 SunVesta AG has not been able to finalize the financing package and
consequently not been able to meet the deadline according the fifth amendment. Also SunVesta AG has
not been able to conclude a further extension of the closing date before or on October 15, 2013. Therefore
SunVesta AG will expense $1,573,932 on October 16, 2013.
Despite of the fact that SunVesta AG will expense the paid deposits and taxes of $1,573,932 on October
16, 2013, SunVesta has been able to conclude with Fundus a sixth amendment on October 28, 2013. This
agreement extended the deadline up to January 31, 2014 and requested SunVesta to pay a first installment
of the purchase price of $2,500,000 up to November 12, 2013, which has not been remitted as of date of
this report.
Additionally since November 12, 2013 SunVesta is requested to pay 6% annual interest rate on the
remaining outstanding purchase price up to January 31, 2014 (total purchase price of $26,000,000). If
SunVesta would met the new deadline for the closing as of January 31, 2014 Fundus would offset all paid
deposits of $1,000,000 against the total purchase price of $26,000,000.
Finance
The anticipated completion of the Paradisus Papagayo Bay Resort & Luxury Villas in July of 2015 will
require a total investment of approximately $180 million of which approximately $33.9 million has been
expended as of June 30, 2013. We expect to realize a minimum of $80 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 $72 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,
construction financing, or shareholder loans, equity placements and, if deemed necessary, the guaranty
agreement as described herein.
SunVesta AG, our wholly owned subsidiary completed the offering of fixed-income Euro denominated
bonds and continues to offer fixed income CHF denominated bonds up to an aggregate amount of CHF
15,000,000 to fund the initial development of the Paradisus Papagayo Bay Resort & Luxury Villas
project.
The Euro bonds are unsecured, have a three year term, bear interest at 8.25% per annum payable each
November 30 over the term due November 30, 2013. SunVesta AG has raised $15,527,247 in connection
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with the Euro bond offering of which approximately $2,649,073 had been repaid as of June 30, 2013.
Regarding refinancing of the Euro bond SunVesta has started an open offering period, based on a private
placement memorandum on November 6, 2013 for a new Euro Bond up to an aggregate amount of Euro
15,000,000. The new Euro Bonds will bear interest of 7.25% per annum each payable on December 2
over the term (2013- 2016).
The CHF bonds are unsecured, have a three year term, bear interest at 7.25% per annum payable each
August 31 over the term due August 31, 2015. SunVesta AG has raised $7,501,295 of which $1,527,247
had been repaid as of June 30, 2013, in connection with the CHF bond offering.
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 SunVesta AG, which was
subsequently amended on May 11, 2012 and June 21, 2012 to include the following provisions:
— the lender grants the Company a terminable, interest bearing and non-secured loan in the
maximum amount of CHF 10,000,000.
— the conversion right granted in the original contract to convert the balance of the line of
credit into 10% ownership interest in Rich Land was cancelled.
— Once the entire amount of CHF 10,000,000 has been drawn down, Aires now has the right to
convert its entire loan of CHF 10,000,000 into 20% shares of the Company (instead of
Richland) whereas 20% shares reflect the number of shares at the time when the entire
amount of CHF 10,000,000 has been drawn down.
— the repayment of the line of credit is due on September 30, 2015, until such time Aires can
exercise its conversion option.
— 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.
SunVesta AG loaned $14,512,170 against the line of credit for the six month period ended June 30, 2013,
and $10,407,764 as of December 31, 2012, for a total of approximately $24,919,934 as of June 30, 2013.
SunVesta AG had loaned approximately $30,120,000 against the Aires line of credit as of the filing date
of this report.
SunVesta AG and Aires are currently in discussions on a conversion option that would replace the option
vested according to prior agreement. No agreement has yet been reached in respect to this discussion.
During the second half of 2012 up to the current six month period, SunVesta AG entered into a series of
interest free loans with Dr. Max Roessler, a director of the Company and a principal of Aires. The loans
were originally due either on predetermined dates or on demand, in cash or in a fixed number of shares of
certain publically traded entities. Since the predetermined due dates have now passed the loans have been
extended by written agreement on September 26, 2013 up to May 30, 2014, as follows:
Loan Date
Amount
Shares
Public Entity
July 24, 2012
$
446,000
10,000
Schindler Holding AG
August 8, 2012
$
383,000
700
Zug Estates Holding AG
March 1, 2013
$
50,000
52,500
Daetwyler Holding AG
On March 8, 2013, SunVesta AG entered into an interest free loan agreement with DIA S.A. in the
amount of $2,000,000 payable on March 8, 2014. The loan was made payable in connection with the
closing of SunVesta AG’s purchase of land adjacent to the Paradisus Papagayo Bay Resort & Luxury
Villas from Altos held in the name of Altos del Risco S.A.
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Timeline
Our expected timeline for developing the Paradisus Papagayo Bay Resort & Luxury Villas is as follows:
— commence onsite (Altos del Risco property) earthwork in the 2nd quarter of 2013
— complete architectural plans in the 3rd quarter of 2013
— obtain final building permits in the 3rd quarter of 2013
— secure construction loan in the 4th quarter of 2013
— commence onsite vertical construction in the 4th quarter of 2013
— complete construction in the 1st quarter of 2015
— handover to Sol Meliá on July 1st of 2015
Results of Operations
During the three and six month periods ended June 30, 2013, our operations were focused on (i)
completing the purchase of an additional 12 hectares contiguous with our existing property in Guanacaste
Province, Costa Rica in connection with the development of the Paradisus Papagayo Bay Resort &
Luxury Villas;(ii) appointing Mr. Rigendinger to the board of directors and engaging him as chief
operating officer; (iii) obtaining building permits for the development of the Paradisus Papagayo Bay
Resort & Luxury Villas property; (iv) commencing earth work excavations on the Paradisus Papagayo
Bay Resort & Luxury Villas property; (v) discussions with prospective project development partners; (vi)
pursuing additional debt and equity financing arrangements including a bond offering through SunVesta
AG in Europe and loans from related parties; and (vii) repaying a portion of the Euro bonds outstanding.
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 Losses
For the period from the date of inception of development stage on January 1, 2005, until June 30, 2013,
the Company had incurred comprehensive losses of $31,492,555.
Comprehensive loss for the three month period ended June 30, 2013, was $2,158,421 as compared to a
comprehensive loss of $855,022 for the three month period ended June 30, 2012. The increase in
comprehensive losses over the comparative three month periods can be primarily attributed to a loss of
$100,118 in the current three month period as compared to a gain of $1,218,211 in the prior three month
period due to foreign currency translation, 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. Other contributing factors to the increase in comprehensive loss over the comparative three
month periods can be attributed to the increase in interest expense from $349,758 to $609,356, due to
interest accruing on bonds and notes, the change to a loss of $231,931 from a gain of $37,615 due to
currency exchange differences, the increase in other expenses from $441 to $14,149 in the current period,
offset by a decrease in general and administrative expenses to $1,194,746 from $1,483,795, which
decrease can be attributed to a decline in finder’s fees and related costs when compared to the prior three
month period. Other contributing factors which offset the increase in comprehensive losses over the
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comparative three month periods included an increase in interest income from $4,030 to $6,562, a
decrease in the amortization of debt issuance costs and commissions from $140,747 to $50,990, the
change in the fair value conversion feature related to the loans from Aires that resulted in a $36,307 gain
as compared to zero, and the zero effect of income taxes as compared to $140,136 in the prior period,
associated with prospective penalties for late tax filings.
Comprehensive loss for the six month period ended June 30, 2013, was $1,624,610 as compared to a
comprehensive loss of $2,762,322 for the six month period ended June 30, 2012. The decrease in
comprehensive losses over the comparative six month periods can be primarily attributed to a gain of
$1,000,000 related to the release of a prior period accrual to satisfy what was to be a penalty payable to
Sol Meliá, S.A. based on the delayed purchase of the Paradisus Papagayo Bay Resort & Luxury Villas
property, the gain on foreign currency translation of $1,181,288 from a gain of $415,436, which is due to
volatility between Swiss Francs and US Dollars, 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 zero effect of income taxes as compared to
$140,136 in the prior six month period associated with prospective penalties for late tax filings, offset by
the increase in interest expense from $630,753 to $1,036,012, due to interest accruing on bonds and notes.
Other contributing factors which offset the decrease in comprehensive losses over the comparative six
month periods included an increase in general and administrative expenses to $2,499,703 from
$2,455,423 in the prior six month period, which increase can be attributed to an increase in personnel
costs when compared to the prior six month period, the decrease in interest income from $7,089 to
$6,736, the change in currency exchange differences from a gain of $167,887 to a loss of $88,059, and the
change in fair value conversion feature related to the loans from Aires that resulted in a $13,874 loss as
compared to zero in the prior six month period.
We did not generate revenue during this period and we expect to continue to incur losses through the year
ended December 31, 2013.
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 June 30, 2013, 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.
As of June 30, 2013, we had a working capital deficit of $19,565,136. We had current assets of $901,283
and total assets of $40,727,898. Our current assets consisted of $200,926 in cash, $44,300 in other assets
and $656,057 in receivables from related parties. Our total assets consisted of property of $33,967,228
(mainly land and capitalized project costs for Paradisus Papagayo Bay Resort & Luxury Villas), deposits
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related to construction work of $507,000, net debt issuance costs of $1,269,049, down payments for
property and equipment of $2,419,841 and restricted cash of $1,663,497. We had current liabilities of
$20,466,419 and total liabilities of $51,098,341. Our current liabilities consisted of $2,158,005 in
accounts payable, $2,481,850 in accrued expenses, $2,010,196 in a note payable, $1,519,538 in notes
payable to related parties and $12,296,830 in Euro bond debt. Our total non-current liabilities consisted of
CHF bond debt of $5,526,997, notes payable to related parties of $24,919,934, fair value conversion
feature of $13,874 and pension liabilities of $71,117. Total stockholders’ deficit in the Company was
$10,370,443 at June 30, 2013.
For the period from January 1, 2005 to June 30, 2013, net cash used in operating activities was
$19,772,112.
Net cash used in operating activities for the six months ended June 30, 2013, was $2,154,185 as compared
to $2,253,232 for the six months ended June 30, 2012, which differences reflect the increase in general
and administrative expenses and changes in working capital. Net cash used in operating activities in the
current six 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 six 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 June 30, 2013, net cash used in investing activities was
$36,697,903.
Net cash used in investing activities for the six months ended June 30, 2013, was $8,186,499 as compared
to $7,566,673 for the six months ended June 30, 2012. Net cash used in investing activities in the current
six month period can be attributed to receivables from related parties, the purchase of property and
equipment, deposits related to construction, down payments for property and restricted cash. Net cash
used in investing activities in the prior six month period ended June 30, 2012 can be attributed to
receivables from related parties, the purchase of property or equipment, and down payments for property,
offset by net cash provided by investing activities that can be attributed to short term investments.
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 June 30, 2013, net cash provided by financing activities was
$57,324,556.
Net cash provided by financing activities for the six months ended June 30, 2013, was $10,276,868 as
compared to $9,466,232 for the six months ended June 30, 2012. Net cash provided by financing
activities in the current six 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. Net cash
provided by financing activities in the prior six 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 payment of debt issuance costs.
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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 in addition to short term related party loans and the guaranty
agreement in place as described in the going concern paragraph below are sufficient for us to conduct
operations over the next twelve months. Current debt financing efforts consist of a CHF bond offering in
progress, and short term related party loans that have permitted us to draw capital as necessary to meet
ongoing operational requirements.
We had no lines of credit or other bank financing arrangements as of June 30, 2013 other than that in
place with Aires. Since SunVesta AG has borrowed approximately $18.3 million in excess of that
anticipated by the Aires line of credit agreement, the Company expects that this debt facility is exhausted.
We have commitments for executed purchase orders and agreements in the amount of approximately $10
million as of June 30, 2013, in connection with the development of the Paradisus Papagayo Bay Resort &
Luxury Villas, which commitments are included in the required financing of $180 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 Sol Meliá 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, Sol Meliá 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 Sol Meliá
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.
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 $41.6 million including
approximately $15.8 million to third parties for the purchase of two additional concession properties in
Polo Papagayo, Guanacaste, Costa Rica and approximately $25.8 million to Fundus for the purchase of a
hotel and entertainment complex in Atlanta, Georgia, U.S.A and the payment of property taxes.
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 financial officer as of June 30, 2013.
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 and discussed
above.
We have no current plans to make any changes in the number of our employees as of June 30, 2013.
Future Financings
We will continue to rely on debt or equity sales of our shares of common stock to fund our business
operations and may rely on a guaranty agreement to bridge traditional financing for the Paradisus
Papagayo Bay Resort & Luxury Villas.
Off-Balance Sheet Arrangements
As of June 30, 2013, 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,
46
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 $180 million.
The project is expected to open in the third 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
21,000,000
e. Less: Recuperated in gross project cost
(12,000,000)
f Total, excluding other potential projects
$
180,000,000
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
Roessler, 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.
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 June 30, 2013 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
47
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.
ITEM 4.
CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
In connection with the preparation of this quarterly 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
oversight, failure to segregate duties, insufficient accounting resources and lack of US GAAP knowledge,
as of the end of the period covered by this report, that the 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.
48
Changes in Internal Control over Financial Reporting
During the period ended June 30, 2013, 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.
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 July 3, 2013, the Company authorized the issuance of 3,000,000 shares of restricted common shares,
valued at $0.05 a share and on July 4, 2013, granted to Max Roessler 10,000,000 stock options from the
SunVesta, Inc. 2013 Stock Option Plan, that vest in two parts on the satisfaction of certain criteria tied to
the development of the Paradisus Papagayo Bay Resort & Luxury Villas, 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 were isolated private transactions 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.
The Company complied 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 July 4, 2013, the Company authorized the issuance of 5,000,000 shares of restricted common shares,
valued at $0.07 a share, and granted 12,000,000 stock options from the SunVesta, Inc. 2013 Stock Option
Plan, that vest in three parts on the satisfaction of certain criteria tied to the development of the Paradisus
Papagayo Bay Resort & Luxury Villas, to Josef Mettler in connection his employment agreement of even
date in reliance upon the exemptions from registration provided by Section 4(2) and Regulation S 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 were isolated private transactions by the Company which
49
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.
The Company complied 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.
ITEM 3.
DEFAULTS ON SENIOR SECURITIES
None.
ITEM 4.
MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5.
OTHER INFORMATION
None.
ITEM 6.
Exhibits required to be attached by Item 601 of Regulation S-K are listed in the Index to Exhibits on page
52 of this Form 10-Q, and are incorporated herein by this reference.
50
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
November 25, 2013
Josef Mettler
Chief Executive Officer, Chief Financial Officer,
Principal Accounting Officer and Director
/s/ Hans Rigendinger
November 25, 2013
Hans Rigendinger
Chief Operating Officer and Director
51
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 September 29, 2008 with Zypam Ltd. (incorporated by
reference from the Form 10-Q filed with the Commission on November 13, 2008).
10.4*
Debt Settlement Agreement dated April 21, 2009 between the Company and Zypam, Ltd.
(incorporated by reference from the Form 8-K filed with the Commission on April 30, 2009).
10.5*
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).
10.6*
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).
10.7*
Guaranty Agreement dated July 16, 2012 between SunVesta AG, Josef Mettler, Hans Rigendinger
and Max Rössler.
52
10.8*
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.
10.9
Employment Agreement dated July 4, 2013 between the Company and Josef Mettler (incorporated
by reference from the 10-Q filed with the Commission on October 10, 2013.
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).
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.
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.
53