UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

 

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 for the quarterly period ended March 31, 2018.

 

☐ 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 incorporation or organization)	(I.R.S. Employer Identification No.)

 

Seestrasse 97, Oberrieden, Switzerland CH-8942

(Address of principal executive offices) (Zip Code)

 

+ 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 ☒  No ☐

 

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 ☒  No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☐	Smaller reporting company ☒
	Emerging growth company ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided to Section 13(a) of the Exchange Act.

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 Yes ☐  No ☒

 

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 May 10, 2018, was 107,241,603.

 

 

TABLE OF CONTENTS

 

	PAGE
PART I – FINANCIAL INFORMATION	3
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 2018 (unaudited) and December 31, 2017	4
Unaudited Consolidated Statements of Comprehensive Loss for the three months ended March 31, 2018 and March 31, 2017	5
Unaudited Consolidated Statements of Stockholders, Equity for the three months ended March 31, 2018	6
Unaudited Consolidated Statements of Cash Flows for the three months ended March 31, 2018 and March 31, 2017	7
Notes to Unaudited Consolidated Financial Statements	9
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	29
Item 3. Quantitative and Qualitative Disclosures about Market Risk	37
Item 4. Controls and Procedures	37
PART II – OTHER INFORMATION
Item 1. Legal Proceedings	38
Item 1A. Risk Factors	38
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	38
Item 3. Defaults upon Senior Securities	38
Item 4. Mine Safety Disclosures	38
Item 5. Other Information	38
Item 6. Exhibits	38
Signatures	39
Index to Exhibits	40

 

 

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 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.

 

Due to rounding, the sum of individual positions may be higher or lower than 100%.

 

 

SUNVESTA, INC.

CONSOLIDATED BALANCE SHEETS

 

		March 31, 2018				December 31, 2017
		(unaudited)				(audited)
Assets
Current assets
Cash and cash equivalents			4,356,184				4,058,982
Other assets			861,872				772,182
Total current assets		$	5,218,056				4,831,164
Non-current assets
Property and equipment - net			79,126,023				76,423,695
Deposits related to construction work			664,391				851,665
Restricted cash			1,673,013				1,669,917
Total non-current assets		$	81,463,426				78,945,277
Total assets		$	86,681,482				83,776,440
Liabilities and stockholders' deficit
Current liabilities
Accounts payable			1,388,449				1,796,917
Accrued expenses			3,946,921				3,083,131
Other liabilities			47,522				28,720
Convertible CHF-Bonds			11,382,794				11,032,145
Liability related to conversion feature			629,373				922,087
Provisions for liquidated damages			5,120,000				5,120,000
Total current liabilities		$	22,515,058				21,983,000
Non-current liabilities
CHF-Bonds			40,070,402				31,853,298
Notes payable to related parties not subordinated			16,879,878				20,490,817
Notes payable to related parties subordinated			82,628,834				79,339,011
Pension liabilities			215,036				210,031
Total non-current liabilities		$	139,794,150				131,893,157
Total liabilities		$	162,309,208				153,876,156
Stockholders' deficit
Preferred stock,  $0.01 par value; 50,000,000 shares authorized, no shares issued and outstanding			—				—
Common stock, $0.01 par value; 200,000,000 shares authorized; 104,741,603 shares issued and outstanding			1,047,416				1,047,416
Additional paid-in capital			23,407,880				23,404,808
Accumulated other comprehensive income/(loss)			(3,178,287	)			(769,600	)
Accumulated deficit			(96,904,734	)			(93,782,340	)
Total stockholders' deficit		$	(75,627,726	)			(70,099,716	)
Total liabilities and stockholders' deficit		$	86,681,482				83,776,440

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

 

SUNVESTA, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

 

		Three months ended
		March 31, 2018				March 31, 2017
		(Unaudited)				(Unaudited)
Revenues
Revenues, net			—				—
Cost of revenues			—				—
Gross profit		$	—				—
Operating expenses
General and administrative expenses			(953,502	)			(1,375,970	)
Impairment expenses			—				(280,242	)
Total operating expenses		$	(953,502	)			(1,656,212	)
Income/(loss) from operations		$	(953,502	)			(1,656,212	)
Other income/(expenses)
Interest income			18,310				17,170
Interest expense			(1,853,770	)			(791,303	)
Change in Fair Value of Conversion Feature			316,366				662,601
Exchange differences			(968,684	)			(584,554	)
Other income/(expenses)			268,646				(5,754	)
Total other expenses		$	(2,219,133	)			(701,840	)
Loss before income taxes			(3,172,635	)			(2,358,053	)
Income Taxes			—				—
Net income/(loss)		$	(3,172,635	)			(2,358,053	)
Comprehensive income/(loss)
Foreign currency translation			(2,408,688	)			(1,280,496	)
Actuarial gains/(losses)			—				—
Comprehensive income/(loss)		$	(5,581,323	)			(3,638,549	)
Earnings/(loss) per common share
Basic and diluted		$	(0.03	)			(0.02	)
Weighted average common shares
Basic and diluted			107,241,603				108,234,104

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

 

SUNVESTA, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

 

		Common Stock				Additional Paid-in Capital				Accumulated Other Comprehensive Loss				Accumulated deficit				Total Stockholders’ Deficit
January 1, 2018		$	1,047,416			$	23,404,808			$	(769,600	)		$	(93,782,340	)		$	(70,099,716	)
Translation adjustments			—				—				(2,408,688	)			50,241				(2,358,447	)
Net loss			—				—				—				(3,172,635	)			(3,172,635	)
Actuarial gains/(losses)			—				—				—				—				—
Stock based compensation expense			—				3,072				—				—				3,072
March 31, 2018		$	1,047,416			$	23,407,880			$	(3,178,287	)		$	(96,904,734	)		$	(75,627,727	)

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

 

SUNVESTA, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

		January 1 to March 31, 2018				January 1 to March 31, 2017 (restated)
		(Unaudited)				(Unaudited)
Cash flows from operating activities
Net loss		$	(3,172,635	)			(2,358,052	)
Adjustments to reconcile net loss to net cash
Depreciation and amortization			52				10,024
Impairment expenses			—				269,695
Amortization of debt issuance costs, commissions and discounts			205,286				374,094
Accrued interest on debt			1,807,298				987,398
Extinguishment of debt			—				—
Unrealized exchange differences			971,190				604,839
Stock compensation expense			3,072				271,030
Capitalised interest on construction in process			(910,908	)			(934,955	)
Other income related to conversion feature			(316,366	)			(702,758	)
Cash flow impact of increase / decrease in:
Other assets			(73,614	)			(170,509	)
Accounts payable			(444,625	)			(1,262,470	)
Accrued expenses			807,401				(399,695	)
Other liabilities			18,214				1,529
Net cash used in operating activities		$	(1,105,636	)			(3,309,830	)
Cash flow from investing activities
Payments to acquire property, plant and equipment			(1,604,184	)			(628,668	)
Proceeds from sale of property, plant and equipment			—				32,260
Net cash used in investing activities		$	(1,604,184	)			(596,408	)
Cash flows from financing activities
Proceeds from notes payable related parties			2,923,745				7,027,584
Proceeds from bond issuance, net of commissions and debt issuance costs			(1,055	)			908,705
Repayment of bonds			—				(2,305,714	)
Proceeds from note payable and other debt			—				525,055
Repayments of note payable and other debt			—				(500,000	)
Net cash provided by financing activities		$	2,922,691				5,655,631
Effect of exchange rate changes			87,427				3,360
Net increase / - decrase in cash			300,298				1,752,753
Cash and cash equivalents incl. restricted cash, beginning of period			5,728,898				2,473,492
Cash and cash equivalents incl. restricted cash, end of period		$	6,029,197				4,226,245
Additional information			January 1 to March 31, 2018				January 1 to March 31,  2017
Increase of CHF Bond III by debiting loan due to Global Care AG (non-cash)			7,381,864				—
Interest paid			—				—

 

The accompanying notes are an integral part of these unaudited consolidated financial statements

 

 

SUNVESTA, INC

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2018 

1. Corporate Information

 

On August 27, 2007, SunVesta Inc. (“Company”) acquired SunVesta Holding AG (“SunVesta AG”). SunVesta AG has three wholly-owned subsidiaries: SunVesta Projects and Management AG, a Swiss company; SunVesta Costa Rica SA, a Costa Rican company and SunVesta Holding España SL, a Spanish company.

 

The Company is focused on the development of a holiday resort in Costa Rica. Planning for this project has been fully completed, all but one of the required consents have been granted, and excavation work is near completion. The Company is in the process of securing financing for the project and has not realized revenue to date. Since the financing of the project is not complete, the Company’s activities are subject to significant risks and uncertainties.

 

These consolidated financial statements are prepared in US Dollars on the basis of generally accepted accounting principles in the United States of America (“US GAAP”).

 

2. Significant Accounting Policies

 

New accounting standards – not adopted

 

In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update 2016-02, Leases (Topic 842). The standard requires the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition. The standard requires lessors to classify leases as either sales-type, finance or operating. A sales-type lease occurs if the lessor transfers all of the risks and rewards, as well as control of the underlying asset, to the lessee. If risks and rewards are conveyed without the transfer of control, the lease is treated as a financing lease. If the lessor does not convey risks and rewards or control, an operating lease results. The standard will become effective for the Company beginning January 1, 2019. The Company is currently assessing the impact adoption of this standard will have on its consolidated results of operations, financial condition, cash flows, and financial statement disclosures.

 

In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Updates ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, requiring certain changes to the recognition and measurement as well as disclosure of incurred and expected credit losses. The standard will become effective for the Company beginning January 1, 2020. The Company is currently assessing the impact adoption of this standard will have on its consolidated results of operations, financial condition, cash flows, and financial statement disclosures.

 

 

SUNVESTA, INC

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2018

 

2. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

 

New accounting standards – not adopted

 

In July 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Updates ASU 2017-11, requiring certain changes to the presentation and disclosures of changes to liability or equity classification of financial instruments. The amendments are effective for public business entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. The Company is currently assessing the impact adoption of this standard will have on its consolidated results of operations, financial condition, cash flows, and financial statement disclosures.

 

New accounting standard updates - adopted

 

In August 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Updates ASU 2016-15, requiring that cash payments for debt prepayment or other debt extinguishment costs, including third-party costs, premiums paid, and other fees paid to lenders that are directly related to the debt prepayment or extinguishment, be classified as financing activities in the statement of cash flows. The amendments are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company considers that ASU 2017-07 has had no material impact on the financial statements.

 

In November 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Updates ASU 2016-18, requiring that restricted cash and restricted cash equivalents be included with cash and cash equivalents when reconciling the beginning-of-period and end-of- period total cash amounts shown on the statement of cash flows. Consequently, transfers between cash and restricted cash is not presented as a separate line item in the operating, investing or financing sections of the cash flow statement. The amendments were effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company considers that ASU 2016-18 has had only a limited impact on the presentation of the statement of cash flows.

 

In March 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Updates ASU 2017-07, requiring certain changes to the presentation of the expenses related to postretirement benefits accounted for under Topic 715. The amendments are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company considers that ASU 2017-07 has had no material impact on the financial statements.

 

In May 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Updates ASU 2017-09, requiring certain changes to the presentation and disclosures of changes to share-based payment awards under Topic 718. The amendments are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company considers that ASU 2017-09 has had no material impact on the financial statements.

 

 

SUNVESTA, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2018

 

3. GOING CONCERN

 

The Company is in the process of developing a hotel project in the Papagayo Gulf Tourism Project area of Guanacaste, Costa Rica. The project is expected to open mid-2020. Until the completion of the project, the following expenditures are estimated to be incurred:

 

a.	Gross project cost		$	240,000,000
b.	Less: Proceeds from sale of villas			(25,000,000	)
c.	Net project cost			215,000,000
d.	Overhead expenses			20,000,000
e.	Total, excluding other potential projects		$	235,000,000

 

Sixty to seventy percent of the net project cost is intended to be financed through the issuance of secured debt facilities, for which negotiations are in progress. The remaining thirty to forty percent of the net project cost, as well as non-recuperated overhead expenses are intended to be financed by the main shareholders or lenders of the project, i.e Hans Rigendinger, shareholder, Company Director and Chief Executive Officer, and Dr. Max Rӧssler, controlling shareholder of Aires International Investment Inc. and Global Care AG, as well as a Company Director.

 

On July 16, 2012, certain principal shareholders of the Company or principal lenders to the project entered into a Guaranty Agreement in favor of the Company. The purpose of the guaranty is to ensure that until such time as financing is secured for the entire project that each will act as guarantors to creditors of SunVesta Holding AG.

 

The Guaranty Agreement requires that within 30 days of receiving a demand notice, requested funds are made available by the guarantors to the Company. Based on this guaranty, management believes that available funds are sufficient to finance cash flows for the twelve months subsequent to March 31, 2018, and the filing date, though future anticipated cash outflows for investing activities are dependent on the availability of financing.

 

On September 22, 2015, the signatories to the guaranty formally agreed to maintain the guaranty, as necessary, until December 31, 2018.

 

On October 28, 2016, Hans Rigendinger and Dr. Max Rössler formally agreed to maintain the guaranty, as necessary, until completion of the construction of Paradisus Papagayo Bay Resort & Luxury Villas, after which date the guaranty will expire.

 

 

SUNVESTA, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2018

 

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 placed with financial institutions that maintain high credit ratings. The carrying amounts of these assets approximate their fair value.

 

Cash and cash equivalents		USD				CHF				Other				Total				Total
														March 31, 2018				December 31, 2017
original currency			1,341				4,138,792				12,742
in $			1,341				4,341,406				13,437				4,356,184				4,058,982

 

USD ($) = US Dollar

CHF = Swiss Francs

  

5. RESTRICTED CASH

 

As of March 31, 2018, the Company has the following restricted cash positions:

 

		March 31, 2018				December 31, 2017
		$				$
Credit Suisse in favor of BVK pension fund			133,910				130,814
Banco Lafise in favor of the Costa Rican Tourism Board			933,350				933,350
Banco Lafise in favor Costa Rican Environmental Agency – SETANA			605,753				605,753
Gross			1,673,013				1,669,917

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.

 

The restricted cash position in favor of BVK pension fund is a rental deposit related to a long term lease contract for office space (the contract ends as of December 31, 2018, but will most likely be prolonged). Due to this fact this restricted cash position is classified as long term.

 

 

SUNVESTA, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2018

 

6. PROPERTY & EQUIPMENT

 

		March 31, 2018				December 31, 2017
Concession Land		$	19,700,000				19,700,000
IT Equipment			236,320				230,820
Other equipment and furniture			236,303				230,836
Leasehold improvements			79,112				77,271
Construction in-process			59,425,113				56,722,733
Gross			79,676,848				76,961,659
Less accumulated depreciation			(550,825	)			(537,965	)
Net		$	79,126,022				76,423,694
Depreciation expenses for the period ended March 31, 2018 and December 2017			53				39,562

Property and equipment is comprised primarily of land in Costa Rica and capitalized project costs incurred as of period end in connection with the Papagayo Gulf Tourism project. The land amounts to $19.7 million comprised of $7 million related to the concession formerly held by Rich Land (~84,000 m2) and $12.7 million formerly held by AdR (~120,000 m2).

 

The $7 million concession is a right to use the property for a specific period of time of initially 20 years from the date of grant, which thereafter can 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 was initially set to expire in June 2022.

 

The $12.7 million concession is also a right to use the property for a specific period of time of initially 30 years from the date of grant, which thereafter can 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 was initially set to expire in November 2036.

 

On July 14, 2015, the Consejo del Polo de DesarrolloTuristico Papagayo at ICT (Council of Papagayo Tourism Development Project), unanimously approved the extension of both concessions until 2052.

 

The construction in process through March 31, 2018 and December 31, 2017, is represented primarily by architectural work related to the Papagayo Gulf Tourism project as well as excavation and infrastructure work.

 

Deposit related to construction work

 

The Company placed deposits with contractors for excavation and infrastructure work to be offset against invoices as work is completed. As of March 31, 2018 and December 31, 2017, the Company has deposits of $664,391 and $851,665 respectively, which have not yet been set off.

 

 

SUNVESTA, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2018

 

7. FAIR VALUE MEASUREMENT

 

The guidance on fair value measurements defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. This guidance also specifies a fair value hierarchy based upon the observability of inputs used in valuation techniques. Observable inputs (highest level) reflect market data obtained from independent sources, while unobservable inputs (lowest level) reflect internally developed market assumptions. In accordance with this guidance, fair value measurements are classified under the following hierarchy:

 

Level 1 Quoted prices for identical instruments in active markets.

Level 2 Quoted process for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which significant inputs or significant value drivers are observable in active markets.

Level 3 Model derived valuations in which one or more significant inputs or significant value-drivers are unobservable.

When available, the Company uses quoted market prices to determine fair value, and classifies such measurements within Level 1. In some cases, where market prices are not available, the Company makes 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 the Company) 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), the Company’s fair value calculations have been adjusted accordingly.

 

As of March 31, 2018 and December 31, 2017, respectively, there are no financial assets or liabilities measured on a recurring basis at fair value with the exception of the liability related to the conversion feature.

 

 

SUNVESTA, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2018

 

7. FAIR VALUE MEASUREMENT – CONTINUED

 

In addition to the methods and assumptions to record the fair value of financial instruments as discussed above, the Company 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.
—	Accounts payable – carrying amount approximated fair value.
—	Notes receivable - carrying amount approximated fair value.
—	CHF-bonds – 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 6.5% respectively for CHF bonds, which represented the current market rate based on the creditworthiness of the Company at issuance. Hence, the carrying values approximate fair value.
—	Notes payable to related parties – Aires and Global Care (non-current) – The fair values of the notes payable to Aires International Investments Inc. and Global Care AG are classified as Level 3. 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.
—	Convertible CHF-bonds – The fair values of the convertible bonds payable are classified as Level 3 fair values. The fair values of the convertible bonds have been determined by discounting cash flow projections discounted at the respective interest rates of 6.00% for convertible CHF bonds, which represents the current market rate based on the creditworthiness of the Company. Hence, the carrying values approximate fair value.
—	Liability related to conversion feature - The fair value of the liability related to conversion feature is classified as Level 3 in the fair value hierarchy. The fair value of the liability is determined using a Black Scholes model to calculate the option value at each reporting date and multiplied by the number of potentially convertible shares.

 

 

SUNVESTA, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2018

 

7. FAIR VALUE MEASUREMENT – CONTINUED

 

The fair value of our financial instruments is presented in the table below:

 

	March 31, 2018								December 31, 2017
	Carrying Amount $				Fair Value $				Carrying Amount $				Fair Value $				Fair Value Levels				Reference
Cash and cash equivalents		4,356,184				4,356,184				4,058,982				4,058,982				1				Note 4
Restricted cash		1,673,013				1,673,013				1,669,917				1,669,917				1				Note 5
Accounts Payable		1,388,449				1,388,449				1,796,917				1,796,917				1				—
Convertible CHF-bonds		11,382,794				11,382,794				11,032,145				11,032,145				3				Note 9
CHF-bonds		40,070,402				40,070,402				31,853,298				31,853,298				3				Note 9
Notes payable to related parties (non-current)		99,508,712				99,508,712				99,829,827				99,829,827				3				Note 8
Liability related to conversion feature		629,373				629,373				922,087				922,087				3				Note 7

 

The Company’s financial liabilities measured at fair value on a recurring basis consisted of the liability related to conversion feature as of the following date:

 

Balance at December 31, 2017			922,087
Additions/(Decrease)			—
Change in Fair Value of Conversion Feature			(316,366	)
(Gain)/loss on extinguishment of debt (in addition to any recognized gain/loss on extinguishment of the underlying financial instrument)			—
FX Revaluation			23,652
Balance at March 31, 2018			629,373

 

Total income related to the conversion feature in the three months up to March 31, 2018, amounts to $629,373. The Company used a Black-Scholes model to value the liability related to conversion feature as of March 31, 2018, and December 31, 2017. Decrease of the conversion feature due to a decrease of bond volume are accounted for within interest expense.

 

The assumptions as of March 31, 2018 are as follows:

 

Stock Price: CHF 5.08	Annualized Risk Free Rate: 0.001%
Exercise Price: CHF 8	Annualized Volatility: 80%
Time to Maturity: 0.50 years

 

The assumptions as of December 31, 2017 are as follows:

 

Stock Price: CHF 5.08	Annualized Risk Free Rate: 0.001%
Exercise Price: CHF 8	Annualized Volatility: 80%
Time to Maturity: 0.75 years

 

 

SUNVESTA, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2018

 

8. RELATED PARTY TRANSACTIONS

 

The advances from (to) related parties are composed as follows:

 

			Receivables								Payables
			March 31, 2018				December 31, 2017				March 31, 2018				December 31, 2017
1a	Aires International subordinated			—				—				59,982,381				57,613,418
2a	Global Care AG subordinated			—				—				22,646,453				21,725,592
2b	Global Care AG not subordinated			—				—				16,879,878				20,490,817
	Total			—				—				99,508,712				99,829,827
	of which non-current			—				—				99,508,712				99,829,827
	- therof suboridinated											82,628,834				79,339,011
	- therof not suboridinated											16,879,878				20,490,817

 

Additional Details on the Loan due to Aires International Investment Inc.

 

As of March 31, 2018, the Company owed Aires International Inc. the following:

 

Borrower		Debt instrument denominated in CHF		Amount in CHF				Amount in USD				Annual interest rate				Repayment date *
SunVesta Inc.		Promissory note			10,044,371				10,290,860				7.25	%		After Dec 31, 2020
SunVesta Inc.		Promissory note			10,000,000				10,245,400				7.25	%		After Dec 31, 2020
SunVesta Inc.		Promissory note			10,000,000				10,245,400				7.25	%		After Dec 31, 2020
SunVesta Inc.		Loan agreement			13,395,300				14,713,011				7.25	%		After Dec 31, 2020
SunVesta Holding		Loan agreement			13,811,568				14,487,710				7.25	%		After Dec 31, 2020
Total					57,251,239				59,982,381

 

Details on the suborindation clauses: Claims of Aires are subordinated to all other existing and future claims against the Company. In the event of insolvency proceedings and the execution of a composition agreement with an assignment of assets(default), Aires would waive its claims to the extent necessary that the claims of all other creditors, and the costs of the liquidation, debt moratorium or insolvency proceedings, were covered in full by the proceeds of the liquidation of the Company. Further, the claims and interests of Aires are deferred for the duration of the subordination agreement. None of the claims covered by the subordination agreement may be paid, settled by offsetting or replacement/novation, or newly secured, either in full or in part. The subordination agreement can only be terminated under restrictive preconditions.

 

Additional Details on the Loan due to Global Care AG

 

In 2018, Global Care AG, a company owned by Dr. Rӧssler (a director of the Company), provided $2,923,745 in cash. Additionally, the sale price of $7,381,864 for bonds sold to New Berlin Limited (a related party controlled by Dr. Max Rössler, a Director and related party) was debited to the non-subordinated loan due to Global Care AG. After a credit for capitalized interest of 7.25% and the recognition of foreign exchange differences (the loans are denominated in Swiss Francs) the respective period end balances as mentioned above are resulting. The subordination clauses are the same as those detailed above for Aires International Inc.

 

 

SUNVESTA, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2018

 

9. BONDS

 

Description		Convertible CHF Bond I		Convertible CHF Bond II
Issuer:		SunVesta Holding AG		SunVesta Holding AG
Type of securities:		Senior convertible bonds, convertible into shares of the issuer at the discretion of the bondholder, in accordance with Swiss law		Senior convertible bonds, convertible into shares of the issuer at the discretion of the bondholder, in accordance with Swiss law
Approval by SunVesta AG BOD:		September 30, 2015		September 30, 2015
Volume:		Up to CHF 45,000,000		Up to CHF 15,000,000
Denomination:		CHF 5,000		CHF 5,000
Offering period:		October 01, 2015		October 01, 2015
Maturity date:		September 30, 2018		September 30, 2018
Issue price:		100%		100%
Redemption price:		100%		100%
Issuance date:		October 01, 2015		October 01, 2015
Coupon:		6.00 % p.a.		6.00 % p.a.
Interest due dates:		September 30 of each year, the first time September 30, 2016		September 30 of each year, the first time September 30, 2016
Reference price:		CHF 6.50		CHF 6.50
Initial conversion price:		CHF 8.00		CHF 8.00
Applicable law:		Swiss		Swiss

 

Convertible CHF BOND I		2018				2017
		$				$
Balances January 1			2,325,707				3,648,383
Cash inflows			—				—
Cash outflows			—				—
Foreign currency adjustments			55,419				145,296
Reclassification from/to bond (net)			—				(1,467,971	)
Sub-total			2,381,126				2,325,707
Discounts (commissions paid to bondholders) and debt issuance costs			(240,760				(240,760	)
Accumulated amortization of discounts and debt issuance costs, including expenses for extinguishment of debt			203,160				185,671
Reclassification from/to bond (net)			—				—
Total accumulated unamortized discounts and debt issuance costs			(37,600				(55,089	)
Balances March 31 and December 31 (Carrying value)			2,343,525				2,270,618

 

As per date of this report, the Company has realized a cumulative amount of $2.4 million (CHF 2.3 million) related to the Convertible Bond I.

 

 

SUNVESTA, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2018

 

9. BONDS – CONTINUED

 

Convertible CHF BOND II		2018				2017
		$				$
Balances January 1			9,012,791				36,770,369
Cash inflows			—				20,079
Cash outflows			—				(1,795,594	)
Foreign currency adjustments			214,879				1,213,824
Reclassification from/to bond (net)			(21,091	)			(27,195,887	)
Sub-total			9,206,579				9,012,791
Discounts (commissions paid to bondholders) and debt issuance costs			(4,895,604	)			(4,895,604	)
Accumulated amortization of discounts and debt issuance costs			4,728,293				4,644,340
Total Accumulated Unamortized discounts and debt issuance costs			(167,311	)			(251,264	)
Balances March 31 and December 31 (Carrying value)			9,039,267				8,761,527

 

As per date of this report the Company has realized a cumulative amount of $9.2 million (CHF 8.8 million) related to the Convertible Bond II.

 

The Company initiated another offering of senior unsecured CHF bonds on September 21, 2016, of up to CHF 20,000,000 in units of CHF 5,000 that bear interest at 6.50% per annum payable each August 15, over a four-year term that matures on August 15, 2020, with the following conditions:

 

Description		CHF Bond III
Issuer:		SunVesta Holding AG
Type of securities:		Senior bonds
Approval by SunVesta AG BOD:		July 7, 2016
Volume:		Up to CHF 20,000,000
Denomination:		CHF 5,000
Offering period:		November 30, 2016
Maturity date:		August 15, 2020
Issue price:		100%
Redemption price:		100%
Issuance date:		September 21, 2016
Coupon:		6.50 % p.a.
Interest due dates:		August 15 of each year, the first time August 15, 2017
Applicable law:		Swiss

 

SUNVESTA, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2018

 

9. BONDS – CONTINUED

 

CHF BOND III original		2018				2017
		$				$
Balances January 1			3,744,697				15,601,389
Cash inflows			—				1,374,842
Cash outflows			—				—
Foreign currency adjustments			50,052				927,598
Reclassification from/to bond (net)			7,381,864				(14,159,133	)
Sub-total			11,176,613				3,744,697
Discounts (commissions paid to bondholders) and debt issuance costs			(248,819	)			(248,819	)
Accumulated amortization of discounts and debt issuance costs, including expenses for extinguishment of debt			173,785				167,335
Total accumulated unamortized discounts and debt issuance costs			(75,034	)			(81,484	)
Balances March 31 and December 31 (Carrying value)			11,101,579				3,663,213

 

In the first quarter of 2018, $7,381,864 in bonds were sold to New Berlin Limited (a related party controlled by Dr. Max Rössler, a Director and related party). The respective amount was debited to the non-subordinated loan due to Global Care AG (a related party controlled by Dr. Max Rössler). As it was a non-cash transaction, the amount is included in the line-item ‘Reclassification from/to bonds (net)’ in the table above.

 

As per date of this report, the Company has realized a cumulative amount of $11.2 million (CHF 10.7 million) related to the CHF Bond III original.

 

Within the abovementioned facility, the Company initiated a new parallel offering of senior unsecured CHF bonds on September 21, 2016. An amount of $979,510 of which was reclassified from EUR Bond II in 2016.

 

CHF BOND III parallel		2018				2017
		$				$
Balances January 1			1,046,471				961,595
Cash inflows			—				—
Cash outflows			—				—
Foreign currency adjustments			24,936				41,861
Reclassification from/to bond (net)			—				43,015
Sub-total			1,071,408				1,046,471
Discounts (commissions paid to bondholders) and debt issuance costs			(84,021	)			(84,021	)
Accumulated amortization of discounts and debt issuance costs			31,252				26,743
Reclassification from/to bond (net)			—				—
Total accumulated unamortized discounts and debt issuance costs			(52,769	)			(57,278	)
Balances March 31 and December 31 (Carrying value)			1,018,639				989,193

 

As per date of this report, the Company has realized a cumulative amount of $1.1 million (CHF 1.0 million) related to the CHF Bond III parallel.

 

 

 

SUNVESTA, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2018

 

9. BONDS – CONTINUED

 

On March 6, 2017, the Company has approved issuance of a new bond with the following conditions.

 

Description		CHF Bond IV
Issuer:		SunVesta Holding AG
Type of securities:		Senior bonds
Approval by SunVesta AG BOD:		March 6, 2017
Volume:		Up to CHF 50,000,000
Denomination:		CHF 1,000
Offering period:		May 1st – November 1st, 2017
Maturity date:		May 1, 2022
Issue price:		100%
Redemption price:		100%
Issuance date:		May 1, 2017
Coupon:		6.50 % p.a.
Interest due dates:		May 1st  of each year, the first time May 1st, 2018
Applicable law:		Swiss

 

CHF BOND IV		2018				2017
		$				$
Balances January 1			28,468,904				—
Cash inflows			—				1,678,336
Foreign currency adjustments			678,277				372,407
Reclassification from/to bond (net)			21,091				26,418,161
Sub-total			29,168,271				28,468,904
Discounts (commissions paid to bondholders) and debt issuance costs			(1,454,894	)			(1,453,839	)
Accumulated Amortization of discounts and debt issuance costs			236,807				185,828
Total accumulated unamortized discounts and debt issuance costs			(1,218,087	)			(1,268,011	)
Balances March 31 and December 31 (Carrying value)			27,950,185				27,200,893

 

As per date of this report, the Company has realized a cumulative amount of $29.2 million (CHF 27.8 million) related to the CHF Bond IV.

 

 

SUNVESTA, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2018

 

10. PENSION PLAN

 

The Company maintains a pension plan covering all employees in Switzerland. The plan is considered a defined benefit plan and accounted for 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 recorded in the net loss. 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 comprehensive loss. The liabilities and annual income or expense of the pension plan is determined using methodologies that involve several actuarial assumptions, the most significant of which are the discount rate and the long-term rate of asset return (based on the market-related value of assets). The fair values of plan assets are determined based on prevailing market prices.

 

Actuarial valuation

 

Net periodic pension cost has been included in the Company’s results as follows:

 

		Three months ended March 31, 2018				Three months ended March 31, 2017
Pension expense			$				$
Current service cost			14,685				14,055
Net actuarial (gain) loss recognized			—				—
Interest cost			524				577
Expected return on assets			(1,573	)			(1,431	)
Employee contributions			(5,245	)			(5,020	)
Net periodic pension cost			8,392				8,182

 

During the three month, periods ended March 31, 2018 and March 31, 2017, the Company made cash contributions of $5,245 and $27,494, respectively, to its defined benefit pension plan.

 

All of the assets are held under a collective contract by the plan’s re-insurance company and are invested in a mix of Swiss and international fixed-income and equity securities within the limits set out by the Swiss pension law.

 

The remaining expected future cash flows to be paid by the Company in respect to employer contributions to the pension plan for the year ended December 31, 2018, are $15,735.

 

 

SUNVESTA, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2018

 

11. STOCK COMPENSATION

 

The Company has included share based compensation under the SunVesta Inc. Stock Option Plan 2013 (“Plan”) as part of the total remuneration in certain employment and Board of Director’s contracts. The Company is authorized to grant up to 50,000,000 stock options under the Plan to acquire shares of its common stock.

 

The purpose of the Plan is to advance the interests of the Company by encouraging its employees to remain associated with the Company and to assist it in building value. Such share based remuneration includes either shares or options to acquire shares of the Company’s common stock. For all employees, fair value is estimated at the grant date. Compensation costs for unvested shares are expensed over the requisite service period on a straight-line basis.

 

Share Grants – Mr. Hans Rigendinger

 

On January 1, 2013, the Company granted 3,500,000 common shares to Hans Rigendinger, valued at $0.08 an amount equal to the share price and fair value of the shares on the grant date in connection with his employment agreement with the Company. His employment agreement obligates the Company to issue 2,500,000 common shares as a retention award on each anniversary of the employment agreement. The employment agreement had an initial term of three years with the option to extend for an additional two years. Mr Rigendinger’s employment agreement was renewed for additional two years on January 1, 2016. Therefore, the Company may issue up to 16,000,000 common shares, of which all have been earned as of December 31, 2017. As of the date of this report, an extension of Mr. Rigendinger’s agreement is being negotiated. The specific terms have not yet been agreed upon.

 

Share Grants – Mr. José María Figueres

 

On March 10, 2014, the Company granted 500,000 common shares to José María Figueres, valued at $0.10, an amount equal to the share price and therefore the fair value on grant date, in connection with his appointment to the Board of Directors. His appointment obligates the Company to issue 200,000 common shares for each fully completed year of service. José Maria Figueres resigned his position on the Company’s Board of Directors on January 10, 2018. Therefore, no more shares will be issued to José María Figueres in 2018.

 

Share Grants –Howard Glicken

 

On March 10, 2014, the Company granted 500,000 common shares to Howard Glicken, valued at $0.10, an amount equal to the share price and therefore the fair value on grant date, in connection with his appointment to the Board of Directors. His appointment obligates the Company to issue 200,000 common shares for each fully completed year of service. Howard Glicken resigned his position on the Company’s Board of Directors on December 22, 2017. Therefore, no more shares will be issued to Howard Glicken in 2018.

 

Share Grants – Third party

 

On November 1, 2016, the Company committed 10,000,000 common shares to a non-related individual, valued at a total of $240,947 (CHF 240,000) the fair value on grant date, in connection with his consulting services for the Company. His appointment obligated the Company to issue 1,666,667 common shares for each fully completed month of service. From November 1, 2016 to April 30, 2017, the individual earned a total of 10,000,000 shares, creating an expense for the Company in the amount of $240,947. In the second quarter of 2017, it was agreed with the third party to replace the shares committed with cash compensation of $240,947 (CHF 240,000).

 

 

SUNVESTA, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2018

 

11. STOCK COMPENSATION – CONTINUED

 

Share Grants – Summary

 

Based on these contracts, the Company has included the following stock-based compensation in the Company’s results:

 

Stock-based compensation (shares)		Balances as of  March 31, 2018				Balances as of December  31, 2017
Shares granted		57,200,000 shares				57,200,000 shares
Fair Value respectively  market price on grant date		$	0.0659			$	0.0659
Total maximal expenses (2013-2020)		$	3,770,947			$	3,770,947
Shares vested			35,200,000 shares				35,200,000 shares
Shares forfeited			22,000,000 shares				22,000,000 shares
Unvested shares			0 shares				0 shares

 

The following table gives an overview on the unrecognized share based compensation expense as per the end of the reporting period.

 

							Year ending December 31,
Stock-based compensation (shares)			Through December 31, 2018 $				2019 $				2020 $				2021 $
Unrecognized compensation expense			None				—				—				—

 

Stock Options – Dr. Hans Rigendinger

 

The Company granted 10,000,000 stock options to Dr. Hans Rigendinger on January 1, 2013, in connection with his employment contract. Each option entitles Dr. Rigendinger to buy one Company share at an exercise price of $0.05. These options vest in two identical installments (Installment A and Installment B) of 5,000,000.

 

Installment A vesting was contingent on realizing a financing arrangement with a specific counterparty. As of the grant date, the fair value was $300,000. As of July 4, 2013, the Company assessed that this financing arrangement with the specific counterparty would not be completed. Therefore, the Company assessed the probability of completion to be zero and recognized no expense. On July 4, 2013, the Company authorized a revised stock option agreement that removed the requirement for financing with a specific counterparty and updated for any counterparty. As of the date of the revised stock option agreement, the fair value was $246,000. Since the modification changed the expectation that the options would ultimately vest and no expense had been recognized for the original award, the fair value of the modified award has been expensed on a straight-line basis over the recalculated expected remaining vesting period.

 

 

SUNVESTA, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2018

 

11. STOCK COMPENSATION – CONTINUED

 

Stock Options – Dr. Hans Rigendinger - continued

 

Installment B vesting is contingent on Meliá Hotels International (“Melía”) assuming management responsibilities for the Paradisus Papagayo Bay Resort & Luxury Villas. As of the grant date, the fair value was $340,000 and the Company estimated that Meliá would assume responsibility as of July 1, 2015. As of the date of this report, the estimated opening date has been postponed to mid-2020, being the required date of the performance condition. The Company has assessed the probability that this performance condition will be met at 100%. Hence, the remaining fair value of the award has been expensed on a straight-line basis over the recalculated expected remaining vesting period. The assumption on the probability to meet the performance condition is currently under review due to the ongoing negotiations with Melía (please refer to Note 14). If the assumption on the probability to meet the performance condition would be lowered, expenses recognized in the past would be reversed which would reduce the net loss.

 

Stock Options – Dr. Max Rӧssler

The Company granted 10,000,000 stock options to Dr. Max Rӧssler on July 3, 2013, in connection with his appointment to the Board of Directors. Each option entitles Dr. Rӧssler to buy one Company share at an exercise price of $0.05. These options vest in two identical installments (Installment A and Installment B) of 5,000,000 options.

 

Installment A vesting is contingent on realizing a financing arrangement to complete the development of the Paradisus Papagayo Bay Resort & Luxury Villas. As of the grant date, the fair value was $249,835. The Company has expensed the total fair value of the award on a straight-line basis over the expected vesting period.

 

Installment B vesting is contingent on Meliá assuming management responsibilities for the Paradisus Papagayo Bay Resort & Luxury Villas. As of the grant date the fair value was $258,210 and the Company estimated that Meliá would assume responsibility as of July 1, 2015. As of the date of this report, the estimated opening date has been postponed to mid-2020, being the required date of the performance condition. The Company has assessed the probability that this performance condition will be met at 100%. Hence, the remaining fair value of the award has been expensed on a straight-line basis over the recalculated expected remaining vesting period. The assumption on the probability to meet the performance condition is currently under review due to the ongoing negotiations with Melía (please refer to Note 14). If the assumption on the probability to meet the performance condition would be lowered, expenses recognized in the past would be reversed which would reduce the net loss.

 

 

SUNVESTA, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2018

 

11. STOCK COMPENSATION – CONTINUED

 

Stock Options – Summary

 

A summary of stock options outstanding as per March 31, 2018 is as follows:

 

Options outstanding		Number of Options				Weighted average exercise price				Weighted average remaining contractual life
Outstanding January 1, 2018			20,000,000			$	0.05				5.38 years
Granted			—
Exercised			—
Forfeited or expired			—
Outstanding March 31, 2018			20,000,000			$	0.05				5.13 years
Exercisable March 31, 2018			—

 

The following table depicts the Company’s non-vested options as of March 31, 2018 and changes during the period:

 

Non-vested options		Shares under Options				Weighted average grant date fair value
Non-vested at January 1, 2018			20,000,000			$	0.075
Non-vested-granted			—				—
Vested			—				—
Non-vested, forfeited or cancelled			—				—
Non-vested at March 31, 2018			20,000,000			$	0.075

 

Under the provisions of ASC 718 Compensation – Stock Compensation, 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 assumptions are based on historical and available market information. No stock options were granted for the periods ended March 31, 2018 and March 31, 2017.

 

Assumption			March 31, 2018				March 31, 2017
Dividend yield			n.a				n.a
Risk-free interest rate used (average)			n.a				n.a
Expected market price volatility			n.a				n.a
Average expected life of stock options			n.a				n.a

 

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.

 

As of March 31, 2018, the Company had unrecognized compensation expenses related to stock options currently outstanding, to be recognized in future quarters or years, respectively as follows:

 

Stock-based compensation (options)		As per March 31, 2018 $				As per December 31, 2017 $
Unrecognized compensation expense			27,651				30,723

 

 

SUNVESTA, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2018

 

12. SUMMARY OF SHARE AND OPTION COMPENSATION EXPENSE

 

The Company recorded the following amounts related to stock based compensation expense during the periods ended March 31, 2018 and March 31, 2017, respectively:

 

Summary of share and option based compensation expense		Three months ended March 31, 2018 $				Three months ended March 31, 2017 $
Share grants (see Note 11 for details)			0				260,789
Option grants (see Note 11 for details)			3,072				10,241
Total (recorded under general & administrative expense)			3,072				271,030

 

13. FUTURE LEASE COMMITTMENTS

 

The Company entered into a lease agreement for the premises for its Swiss office with an unrelated entity. The annual rental expense amounts to approximately $130,000 on a fixed term expiring on December 31, 2018.

 

Future lease commitments			March 31, 2018 $				December 31, 2017 $
Payable in 2018			97,500				130,000

 

 

14. OPENING DATE “Paradisus Papagayo Bay Resort & Luxury Villas”

 

Dated April 27, 2016, the Company amended its agreement with Meliá (“Seventh addendum to the management agreement of March 8, 2011”) to postpone the opening date as follows:

 

a.

New completion date: September 15, 2018 (subject to force majeure)

b.

Should the completion not occur by September 15, 2018 and should the parties not have agreed in writing an extension to such date, after September 15, 2018, the Company will be obligated to pay Melía a daily amount of $2,000 as liquidated damages.

c.

Should the completion not occur by November 15, 2018, Meliá will be entitled to terminate the agreement and $5,000,000 in liquidated damages unless the parties agree in writing to extend the completion date.

 

Since the Company expects the opening of the Paradisus Papagayo Bay Resort & Luxury Villas by mid-2020, and another addendum has not yet been secured, it has recognized a provision for liquidated damages of $5,120,000 as of December 31, 2017 and March 31, 2018.

 

 

SUNVESTA, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2018

 

15. EARNINGS PER SHARE

 

Basic earnings per share are the result of dividing the Company’s net income (or net loss) by the weighted average number of shares outstanding for the contemplated period. Diluted earnings per share are calculated applying the treasury stock method. When there is a net income dilutive effect, all stock-based compensation awards or participating financial instruments are considered. When the Company posts a loss, basic loss per share equals diluted loss per share. The following table depicts how the denominator for the calculation of basic and diluted earnings per share was determined under the treasury stock method.

 

Earnings per share		Three-month period ended March 31, 2018				Three-month period ended March 31, 2017
Company posted			Net loss				Net loss
Basic weighted average shares outstanding			107,241,603				108,234,104
Dilutive effect of common stock equivalents			None				None
Dilutive weighted average shares outstanding			107,241,603				108,234,104

 

A total of 2,500,000 common shares have vested, that had not been issued, as of the balance sheet date are included in the basic weighted average of shares outstanding.

 

The following table shows the number of stock equivalents of the Company that were excluded from the computation of diluted earnings per share for the respective period because the effect would have been anti-dilutive.

 

Earnings per share		Three-month period ended March 31, 2018				Three-month period ended March 31, 2017
Options to Hans Rigendinger			10,000,000				10,000,000
Options to Dr. M. Rössler			10,000,000				10,000,000
Total Options			20,000,000				20,000,000
Shares to Hans Rigendinger (retention bonus –not vested)			0				2,500,000
Shares to third party			0				1,666,665
Shares to Howard Glicken and José Maria Figueres (retention award)			0				400,000
Total Shares			0				4,566,665
Total Options and Shares			20,000,000				24,566,665

 

Options related to Convertible CHF bonds: Each bond in the principal amount of CHF 5,000 can be converted on any business day during the conversion period into 625 common shares of SunVesta Holding AG at a conversion price equal to CHF 8.

 

A number of 1,380,863 stock equivalents of SunVesta Holding AG associated with the Convertible CHF Bond were excluded from the computation of diluted earnings per share for the three-month period ended March 31, 2018, because the effect would have been anti-dilutive (3,877,625 for the three-month period ended March 31, 2017).

 

 

SUNVESTA, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2018

 

16. GENERAL AND ADMINISTRATIVE EXPENSES

 

General and administrative expenses according to the consolidated statement of comprehensive loss include:

 

		Three-month period ended March 31, 2018				Three-month period ended March 31, 2017
		$				$
Rental & related expenses			33,711				39,119
Audit			59,148				99,610
Consulting			454,102				695,751
Marketing, Investor & public relations			—				10,500
Travel expenses			78,778				133,958
Personnel costs including social security’s costs and share based remuneration			212,803				283,533
Office expenses			4,847				203
Various other operating expenditures			110,113				113,295
Total according statement of comprehensive loss			953,502				1,375,970

 

17. 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 are no events that warrant disclosure or recognition in the financial statements.

 

 

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

This Management’s Discussion and Analysis of Financial Condition and Results of Operations and other parts of this quarterly report contain forward-looking statements that involve risks and uncertainties. Forward-looking statements can be identified by words such as “anticipates,” “expects,” “believes,” “plans,” “predicts,” and similar terms. Forward-looking statements are not guarantees of future performance and our actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such differences include but are not limited to those discussed in the subsection entitled Forward-Looking Statements and Factors That May Affect Future Results and Financial Condition below. The following discussion should be read in conjunction with our financial statements and notes hereto included in this report. All information presented herein is based on our three-month periods ended March 31, 2018 and March 31, 2017. Our fiscal year end is December 31.

Discussion and Analysis

Business Overview

The Company is developing a five star luxury hotel and resort on 20.5 hectares of prime land located in Guanacaste Province, Costa Rica to be known as the Paradisus Papagayo Bay Resort & Luxury Villas. All planning and essentially all permitting for the project is in place. Furthermore, all significant site work is complete. Vertical construction will commence as soon as a financing is in place. The Paradisus Papagayo Bay Resort & Luxury Villas is expected to open by mid-2020. A start to vertical construction and the expected opening date are subject to the Company securing sufficient capital commitments to finish the project.

 

Specifications

 

Paradisus Papagayo Bay Resort & Luxury Villas, initial specifications are to be as follows:

 

—	eco-luxury all-inclusive resort
—	382-keys
—	direct beach access
—	five restaurants and five bars
—	Yhi Spa and Health Club
—	Paradisus, adults-only “Royal Service” level of accommodations
—	Paradisus, “Family Concierge” program
—	19,000 square feet of meeting facilities with the business traveler in mind

 

Vista Mar

 

Family Concierge

 

The Family Concierge will be a family orientated part of the Paradisus Papagayo Bay Resort & Luxury Villas. The accommodations will be designed to satisfy the needs of the modern family.

 

The Family Concierge area will include:

 

—	166 Junior Suites Deluxe	(47* square meters)
—	34 Suites Deluxe	(87* square meters)
—	33 Suites Premium	(93* square meters)
—	6 Handicapped Junior Suites Deluxe	(47* square meters)
—	1 Bridal Suites	(93* square meters)
—	2 Deluxe Suites Presidential	(88* square meters)
—	1 Presidential Suite	(194* square meters)
*	Room size does not include balconies and terraces.

 

All ground floor suites will have direct access to swim-up pools. Each of the suites and villas will have a full view of the sea. Family Concierge guests will furthermore have access to restaurants, bars, and lounges. The planned Onyx Night Club and the Gabi Club will be located near the beach.

 

Vista Bahia

 

Royal Service

 

Our Royal Service will include an extensive range of services such as a butler service, private pools for each Garden Villa and/or a Jacuzzi in every suite. The Royal Service area will include:

 

—	108 Junior Suites Grand Deluxe	(43-60* square meters)
—	2 Junior Suites Grand Deluxe for Handicapped Guests	(53* square meters)
—	6 Grand Master Suites	(87* square meters)
—	2 Deluxe Suites Presidential	(60 square meters)
—	1 Grand Presidential Suite (4 bedrooms)	(145* square meters)
—	20 one or two-bedroom Garden Villas	(91–212* square meters)
—	Room size does not include balconies and terraces.
*	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.

 

The Paradisus Papagayo Bay Resort & Luxury Villas will feature other highlights including:

 

—	more than 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 lease them back to the resort when not occupied by the owners.

 

 

Management

 

Overall project development is led by Hans Rigendinger, our Chairman of the Board and Chief Executive Officer, Charles Fessel, Project Director, Cyrill Escher, Chief Funding Officer and Ernst Rosenberger, the Company’s Corporate Controller. The lead architect is Ossenbach, Pendones & Bonilla, one of Costa Rica’s largest architectural offices with over 45 architects and designers. Civil engineering services are provided by DEHC Engineers and structural engineering services by IEAC. Landscape architects are TPA and interior designers are led by Laboratorio Quattro.

 

Resort management was to be provided by Meliá Hotels International (“Meliá”). “Paradisus” is Meliá’s five-star all-inclusive luxury hotel brand that is well recognized in the hospitality industry around the world. 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. Meliá 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.

 

However, since the completion date for the Paradisus Papagayo Bay Resort & Luxury Villas development has been delayed until the middle of 2020 it is no longer possible for the Company to fufill the performance conditions agreed in its most recent amendment with Meliá dated April 28, 2016. The amendment to the original agreement with Meliá, dated March 8, 2011, stipulates the following conditions:

 

a.

Completion date: September 15, 2018 (subject to force majeure)

b.

Should the completion not occur by September 15, 2018, and if the parties have not have agreed to an extension by such date, the Company will be required to pay Meliá $2,000 a day in liquidated damages.

c.

Should the completion not occur by November 15, 2018, and should Meliá not agree to a time extension, the Company will be obligated to pay Meliá $5,000,000 in liquidated damages.

 

No amendment to the management agreement with Meliá has been reached, nor have we engaged an alternative management company for the project. Based on our current agreement with Meliá, the Company has recognized a provision for liquidated damages in the amount of $5,120,000 as of March 31, 2018 and December 31, 2017.

 

Finance

 

The anticipated completion of the Paradisus Papagayo Bay Resort & Luxury Villas by mid-2020 will require a net investment of approximately $215 million (excluding non-recuperated overhead expenses), of which approximately $62 million (excluding capitalized interest) has been expended as of March 31, 2018. We aim to realize a minimum of $150 million in new funding over the next twelve months. New funding over the next twelve months is expected to be raised from debt financing through bonds, shareholder loans and, if necessary, the guaranty agreement borne by certain principal shareholders and participants in management. Detailed below is a brief description of material debt obligations as of period end.

 

 

Bonds:

 

SunVesta AG, has five bond issues outstanding as of March 31, 2018, all denominated in Swiss Francs (CHF).

 

Convertible Bond I

 

The Company initiated an offering of senior unsecured CHF bonds on October 1, 2015, of up to CHF 45,000,000 in units of CHF 5,000 that bear interest at 6.00% per annum payable each September 30, over a three-year term that mature on September 30, 2018, convertible into shares of SunVesta Holding AG at CHF 8.00 a share at the discretion of the bondholder. As of March 31, 2018, and December 31, 2017, respectively, $2,381,127 and $2,325,707 was outstanding.

 

Convertible Bond II

 

The Company initiated a parallel offering of senior unsecured CHF bonds on October 1, 2015, of up to CHF 15,000,000 in units of CHF 5,000 that bear interest at 6.00% per annum payable each September 30, over a three-year term that matures on September 30, 2018, convertible into shares of SunVesta Holding AG at CHF 8.00 a share at the discretion of the bondholder. As of March 31, 2018, and December 31, 2017, respectively, $9,206,578 and $9,012,791 was outstanding.

 

CHF Bond III original

 

The Company initiated an offering of senior unsecured CHF bonds on September 21, 2016, of up to CHF 20,000,000 in units of CHF 5,000 that bear interest at 6.50% per annum payable each August 15, over a four-year term that matures on August 15, 2020. As of March 31, 2018, and December 31, 2017, respectively, $11,176,613 and $3,744,697 was outstanding.

 

CHF Bond III parallel

 

The Company initiated a parallel offering of senior unsecured CHF bonds on September 21, 2016, of up to CHF 20,000,000 in units of CHF 5,000 that bear interest at 6.50% per annum payable each August 15, over a four year term that matures on August 15, 2020. As of March 31, 2018, and December 31, 2017, respectively, $1,071,408 and $1,046,471 was outstanding.

 

CHF Bond IV

 

The Company initiated a new offering of senior unsecured CHF bonds on March 6, 2017, of up to CHF 50,000,000 in units of CHF 1,000 that bear interest at 6.50% per annum payable each May 1, over a five-year term that matures on August 15, 2022. As of March 31, 2018, and December 31, 2017, respectively, $29,168,271 and $28,468,904 was outstanding.

 

Aires International Investment, Inc.:

 

The Company has entered into a loan agreement with Aires International Investments Inc. (“Aires”), a company owned by Dr. Rӧssler (a director of the Company and related company). The Company had borrowed $59,982,381 from Aires as of March 31, 2018 (including accrued interest of $14,029,380). The loan is dominiated in Swiss Francs.

 

 

The loan agreement includes the following conditions:

 

—

Aires loan amounts outstanding including any additional amounts and additions are subordinated to all other existing and future claims against the Company. In the event of insolvency proceedings and the execution of a composition agreement with an assignment of assets, Aires would waive its claims to the extent necessary that the claims of all other creditors, and the costs of the liquidation, debt moratorium or insolvency proceedings, are covered in full by the proceeds of the liquidation of the Company. Further, the claims and interests of Aires are deferred for the duration of the subordination agreement. None of the claims covered by the subordination agreement may be paid, settled by offsetting or replacement/ novation, or newly secured, either in full or in part. The subordination agreement can only be terminated under restrictive preconditions.

—	Interest on the loan amounts is 7.25% per annum, which charge is accrued.

 

Loan Global Care AG:

 

As of March 31, 2018, the loan due to Global Care AG (an entity controlled by Dr. Max Rössler, a director of the Company and related party) amounts to $39,526,331 at 7.25%. Thereof, $22,646,453 is subordinated to all other existing and future claims against the Company, on the same terms and conditions as those agreed for amounts due to Aires. The remaining amounts are due not before December 31, 2020, and at latest by December 31, 2022. The loan is denominated in Swiss Francs.

 

Results of Operations

During the three-month period ended March 31, 2018, our operations focused on (i) completing and restoring prior earthwork; (ii) pursuing additional debt financing to fund construction of the project; and (iii) furthering discussions with prospective project development partners.

 

The Company has been funded since inception from debt or equity placements and by shareholders or partners in the form of loans. Capital raised to date has been used to develop the Costa Rican property including for the purchase of land concessions, earthwork, and general and administrative costs.

 

Comprehensive Losses

 

The variance in losses over the comparative three- month periods is reconciled:

 

Three months January 1 to March 31, 2017		(3,638,549	)
Variances:
Decrease in general and administrative expenses		422,468		Less consulting, travel and personnel expenses
Decrease in foreign exchange result		(384,130	)	Currency fluctuations
Decrease in foreign exchange translation result (OCI)		(1,128,192	)	Currency fluctuations
Decrease in impairment expenses		280,242		In 2017, the loan due from REP Caribbean was impaired
Change in fair values of conversion features		(346,235	)	Less gain due to lower volume on conversion feature in 2018
Increase in interest expenses		(1,062,467	)	More debt in 2018. Additionally, there was a change in the calculation of the interest accrual in 2017, resulting in lower expenses in 2017.
Decrease in other income/(expenses)		274,400		Gain on settlement of salary accrual
Increase in interest income		1,140		not material
Total variances		(1,942,774	)
Three months January to March 31, 2018		(5,581,323	)

 

 

We did not generate revenue during this period and we expect to continue to incur losses through the year ended December 31, 2018.

 

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 inception to March 31, 2018, in connection with the purchase of land concessions in Costa Rica, as well as the planning and construction of the project 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

 

Since inception the Company has experienced significant changes in liquidity, capital resources, and stockholders, equity.

 

As of March 31, 2018, and December 31, 2017, the following were working capital items:

 

		March 31, 2018				December 31, 2017
Current assets
Cash and cash equivalents			4,356,184				4,058,982
Other assets			861,872				772,182
Total current assets			5,218,056				4,831,164
Current liabilities
Accounts payable			1,388,449				1,796,917
Accrued expenses			3,946,921				3,083,132
Bonds			11,382,794				11,032,145
Liability related to conversion feature			629,373				922,087
Provisions for liquidated damages			5,120,000				5,120,000
Other liabilities			47,522				28,720
Total current liabilities			22,515,058				21,983,000
Net working capital			(17,297,003	)			(17,151,837	)

 

The Company’s negative net working capital of $17.3 million is a significant concern of management going forward. Nevertheless, based on the guaranty signed by certain principals, the Company believes that it can address prospective liquidity problems in future periods.

 

 

As of March 31, 2018 and December 31, 2017, the following line items amount to the total stockholders’ deficit:

 

		March 31, 2018				December 31, 2017
Assets
Current assets			5,218,056				4,831,164
Non-current assets			81,463,426				78,945,277
Total assets			86,681,482				83,776,440
Liabilities
Current liabilities			22,515,058				21,982,999
Non-current liabilities			139,794,150				131,893,157
Total liabilities			162,309,208				153,876,156
Total stockholders’ deficit			(75,627,726	)			(70,099,716	)
Subordinated debt			82,628,834				79,339,011
Surplus			7,001,108				9,239,295

 

Net cash flow used in operating activities for the three-month period ended March 31, 2018, was $1.1 million, as compared to $3.3 million for the three-month period ended March 31, 2017.

 

We expect to continue to use net cash flow in operating activities until we complete the Paradisus Papagayo Bay Resort & Luxury Villas project and realize revenue from the operation of the project. The completion date is projected to be by the middle of 2020.

 

Net cash used in investing activities for the three-month period ended March 31, 2018, was $1.6 million as compared to $0.6 million for the three-month period ended March 31, 2017. Net cash used in investing activities in the current three-month period is mainly comprised of the purchase of property, plant and equipment. Net cash used in investing activities in the prior comparable three-month period was similarly mainly comprised of the purchase of property, plant and equipment offset by proceeds from the sale of property.

 

We expect negative net cash flow in investing activities to continue while in the process of developing the Paradisus Papagayo Bay Resort & Luxury Villas.

 

Net cash provided by financing activities for the three-month period ended March 31, 2018, was $2.9 million as compared to $5.7 million in the three-month period ended March 31, 2017. Net cash provided by financing activities in the current three-month period is mainly comprised of proceeds from notes payable to related parties. Net cash provided by financing activities in the prior comparable three-month period was mainly comprised of proceeds from notes payable to related parties and proceeds from bond issuances net of commissions, offset by the repayment of bonds and other debt.

 

We expect net cash flow provided by financing activities to continue due to the financing necessary to complete the development of the Paradisus Papagayo Bay Resort & Luxury Villas.

 

Management believes that cash on hand, related party loans, current bond offerings and the assurance of the Guaranty Agreement as described in the going concern paragraph below are sufficient for us to conduct operations over the next twelve months.

 

We had no formal lines of credit or other bank financing arrangements as of March 31, 2018.

 

We have commitments that include an award letter issued in favor of certain general contractors together with purchase orders and related agreements for $150 million as of March 31, 2018, in connection with the development of the Paradisus Papagayo Bay Resort & Luxury Villas, which commitments are included in the required estimated net financing of $215 million to complete the project

 

  

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.

 

We maintain a defined benefit plan that covers all of our Swiss employees as of March 31, 2018.

 

We have no current plans to make any changes in the number of our employees as of March 31, 2018.

 

Off-Balance Sheet Arrangements

 

As of March 31, 2018, we had no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that are material to stockholders.

 

Going Concern

 

The Company is currently working on building a hotel in the Papagayo Gulf Tourism Project area of Guanacaste, Costa Rica. The project is expected to open mid-2020. Until the completion of the project, the following expenditures are estimated to be incurred:

 

a.	Gross project cost		$	240,000,000
b.	Less: Proceeds from sale of villas			(25,000,000	)
c.	Net project cost			215,000,000
d.	Overhead expenses			20,000,000
e.	Total, excluding other potential projects		$	235,000,000

 

Sixty to seventy percent of the net project cost is intended to be financed through the issuance of secured debt facilities, for which negotiations are in progress. The remaining thirty to forty percent of the net project cost, as well as non-recuperated overhead expenses are intended to be financed by the main shareholders or lenders of the project, i.e Hans Rigendinger, shareholder, Company Director and Chief Executive Officer, and Dr. Max Rӧssler, controlling shareholder of Aires International Investment Inc. and Global Care AG as well as Company Director

 

On July 16, 2012, certain principal shareholders of the Company or principal lenders to the project entered into a Guaranty Agreement in favor of the Company. The purpose of the guaranty is to ensure that until such time as financing is secured for the entire project that they will act as guarantors to creditors of SunVesta Holding AG.

 

The Guaranty Agreement requires that within 30 days of receiving a demand notice, requested funds are made available by the guarantors to the Company. Based on this guaranty, management believes that available funds are sufficient to finance cash flows for the twelve months subsequent to March 31, 2018, and the filing date, though future anticipated cash outflows for constructing the Paradisus Papagayo Bay Resort & Luxury Villas continue to depend on the availability of third party financing.

 

On October 28, 2016, Hans Rigendinger and Dr. Max Rössler formally agreed to maintain the guaranty, as necessary, until completion of the construction of Paradisus Papagayo Bay Resort & Luxury Villas, after which date the guaranty will expire.

 

 

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. Forward-looking statements reflect our current expectations and beliefs regarding our future results of operations, performance, and achievements. These statements are subject to risks and uncertainties and are based upon assumptions and beliefs that may or may not materialize. These statements include, but are not limited to, statements concerning:

 

—	our anticipated financial performance and business plan
—	the sufficiency of existing capital resources
—	our ability to raise additional capital to complete the Paradisus Papagayo Bay Resort
—	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 elsewhere in this report. 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 required.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

Based on an evaluation under the supervision and with the participation of Company’s management, the Company’s principal executive officer and principal financial officer have concluded that the Company’s disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (“Exchange Act”) were effective as of March 31, 2018, to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the Commission rules and forms and (ii) accumulated and communicated to the Company’s management, including its chief executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

 

During the second quarter ended March 31, 2018, there were no changes in the Company’s internal control over financial reporting identified in connection with management’s evaluation required by paragraph (d) of Rules 13a-15 under the Exchange Act that have materially affected, or are 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. RECENT SALES OF UNREGISTERED SECURITIES

 

None

 

ITEM 3. DEFAULTS ON SENIOR SECURITIES

 

None

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5. OTHER INFORMATION

 

On December 27, 2017, the Company issued 400,000 shares of restricted common stock for certain individuals, earned in connection with service 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 issuances were previously reported on Form 10-K filed with the Commission on March 30, 2018. Subsequent to the issuance, the Company received the resignation of those individuals from the Board of Directors thereby nullifying an annual retention award. On January 1, 2018, the 400,000 shares were cancelled and returned to authorized share capital.

 

ITEM 6. EXHIBITS

 

Exhibits required to be attached by Item 601 of Regulation S-K are listed in the Index to Exhibits on page 40 of this Form 10-Q, and are incorporated herein by this reference.

 

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

SunVesta, Inc.		Date
/s/ Hans Rigendinger		May 10, 2018
Hans Rigendinger
Chief Executive Officer, Chief Financial Officer
Principal Accounting Officer and Director

 

 

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.(incorporated by reference from the Form 8-K filed with the Commission on September 27, 2007).
10.3*	Guaranty Agreement dated July 16, 2012, between SunVesta, Mr. Mettler, Mr. Rigendinger and Dr.Rӧssler (incorporated by reference from the Form 10-K filed with the Commission on February 14, 2013).
10.4*	Employment Agreement dated January 1, 2013 between the Company and Hans Rigendinger (incorporatedb y reference to the Form 8-K filed with the Commission on February 4, 2013).
10.5*	Employment Agreement dated July 4, 2013 between the Company and Josef Mettler (incorporated by reference to the Form 10-Q filed with the Commission on October 10, 2013).
10.6*	Assignment of Debt Agreement dated December 31, 2012, between the Company, SunVesta AG and Aires International Investments, Inc. (incorporated by reference to the Form 10-Q filed with the Commission on December 13, 2013).
10.7*	Loan Agreement dated October 31, 2013, between SunVesta AG and Aires International Investments, Inc. (incorporated by reference to the Form 10-Q filed with the Commission on December 13, 2013).
10.8 *	Assignment of Debt Agreement dated December 31, 2013, between the Company, SunVesta AG and Aires (incorporated by reference to the Form 10-Q filed with the Commission on May 20, 2014).
10.9*	Assignment of Debt Agreement dated December 31, 2014, between the Company, SunVesta AG and Aires International Investments, Inc. (incorporated by reference to the Form 10-Q filed with the Commission on August 19, 2015).
10.10*	Addendum to Employment Agreement dated March 6, 2015, between the Company and Josef Mettler (incorporated by reference to the Form 10-Q filed with the Commission on May 5, 2015).
14*	Code of Business Conduct and Ethics adopted on July 16, 2015 (incorporated by reference to the Form 10-Q filed with the Commission on August 19, 2015).
21*	Subsidiaries of the Company (incorporated by reference to the Form 10-K filed with the Commission on March 30, 2018)
31	Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14 of the Securities and Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32	Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99*	SunVesta, Inc. 2013 Stock Option Plan (incorporated by reference to the Form 10-Q filed with the Commission on October 10, 2013).
101. INS	XBRL Instance Document†
101. PRE	XBRL Taxonomy Extension Presentation Linkbase†
101. LAB	XBRL Taxonomy Extension Label Linkbase†
101. DEF	XBRL Taxonomy Extension Label Linkbase†
101. CAL	XBRL Taxonomy Extension Label Linkbase†
101. SCH	XBRL Taxonomy Extension Schema†

 

* Incorporated by reference to previous filings of the Company.

† Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed “furnished” and not “filed” or part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, or deemed “furnished” and not “filed” for purposes of Section 18 of the Securities and Exchange Act of 1934, and otherwise is not subject to liability under these sections.