(Mark One)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended December 31, 2017 .

 

☐   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)

 

Registrant’s telephone number, including area code: +41 43 388 40 60

 

Securities registered under Section 12(b) of the Act: None.

 

Securities registered under Section 12(g) of the Act: common stock (title of class), $0.01 par value.

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes ☐  No ☒

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes☐  No ☒

 

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” and “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 us the extended transition period for complying with any new or revised financial accounting standards provided pursuant 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 Act).

Yes ☐  No ☒

 

The aggregate market value of the registrant’s common stock, $0.01 par value (the only class of voting stock), held by non-affiliates 26,892.297 shares was approximately $537,846 based on the average closing bid and ask prices ($0.02) for the common stock on March 29, 2018.

 

At March 29, 2018, the number of shares outstanding of the registrant’s common stock, $0.01 par value (the only class of voting stock), was 107,641,603.

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  TABLE OF CONTENTS

PART I
Item 1. Business 3
Item 1A. Risk Factors 11
Item 1B. Unresolved Staff Comments 11
Item 2. Properties 11
Item 3. Legal Proceedings 12
Item 4. Mine Safety Disclosures 12
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities 13
Item 6. Selected Financial Data 14
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations  15
Item 7A. Quantitative and Qualitative Disclosures about Market Risk 20
Item 8. Financial Statements and Supplementary Data 20
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure  21
Item 9A. Controls and Procedures 21
Item 9B. Other Information 23
PART III
Item 10. Directors, Executive Officers, and Corporate Governance 24
Item 11. Executive Compensation 27
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters  30
Item 13. Certain Relationships and Related Transactions, and Director Independence 30
Item 14. Principal Accountant Fees and Services 31
PART IV
Item 15. Exhibits, Financial Statement Schedules 32
Item 16. Form 10-K Summary 32
Signatures  33

 

  2  

 

 

PART I

 

ITEM 1. BUSINESS

 

As used herein the terms “Company,” “we,” “our,” and “us” refer to SunVesta, Inc., its predecessors, and its subsidiaries, unless context indicates otherwise.

 

Corporate History

 

The Company was incorporated in the State of Florida on September 12, 1989 and acquired SunVesta Holding AG (“SunVesta AG”) as a wholly-owned subsidiary on August 24, 2007. SunVesta AG was incorporated in Switzerland on December 18, 2001, and is domiciled in the Canton of Zurich, Switzerland. SunVesta AG operates through two wholly owned subsidiaries SunVesta España Holding SL (Spain) which wholly owns SunVesta Costa Rica SA (Costa Rica) the result of the May 2016 merger of three Costa Rican companies ( SunVesta Costa Rica Limitada, Rich Land Investments Limitada and Altos del Risco SA) into Altos del Risco SA, renamed SunVesta Costa Rica SA, and SunVesta Projects & Management AG .

 

The Company’s principal place of business is located at Seestrasse 97, Oberrieden, Switzerland CH-8942 and its telephone number is + 41 43 388 40 60.

 

The Company’s registered agent is Hubco Registered Agents Services, Inc., located at 155 Office Plaza Drive, first Floor, Tallahassee, Florida, 32301. Hubco’s telephone number is (800) 443-8177.

 

SunVesta

 

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 permitting for the project is in place, 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
Nine restaurants and eleven bars and lounges
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

 

  3  

 

 

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 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.

 

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.

 

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The Paradisus Papagayo Bay Resort & Luxury Villa’s 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.

     

Management

 

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

 

We have entered into a resort management agreement with Melía Hotels International (“Melía”). “Paradisus” is Meliá’s five-star all-inclusive luxury hotel brand that is well recognized in the hospitality industry around the world. Melía was founded in 1956 in Palma de Mallorca, Spain and is today one of the world’s largest resort hotel chains, as well as Spain’s leading hotel chain for business or leisure. Melía offers more than 300 hotels in 26 countries over four continents under its Gran Sol Melía, Sol Melía, ME by Sol Melía, Innside by Sol Melía, Tryp, Sol Melía, Sol Melía Vacation Club, and Paradisus brands. The Paradisus brand presently represents all-inclusive luxury resorts with hotels in the region from Mexico to the Dominican Republic.

 

Since the completion date for the Paradisus Papagayo Bay Resort & Luxury Villas project has been delayed until at least mid-2020, the completion date provided in the amended management agreement with Melía cannot be met. We are currently in negotiations with Melía to either amend the agreement to extend the completion date, or seek another suitable management company for the project. Our existing agreement with Melía stipulates the following major 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 not have agreed to an extension to such date, after September 15, 2018, the Company will be required to pay Melía a daily amount of $2,000 as liquidated damages.
c. Should the completion not occur by November 15, 2018, and should Melía not agree to a time extension, the Company will be obligated to pay Meliá $5,000,000 as liquidated damages.

 

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

 

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Additional Concessions

 

On April 24, 2013, the Company entered into new agreements for the purchase of two additional concession properties located in Polo Papagayo, Guanacaste for a total of $17,500,000. The terms of the agreements included amounts payable to the seller and a third party against a refundable deposit of $1,369,816 minus a non-refundable amount of $300,000 and a liqudated damages penalty of 5% in the event the purchase did not close. The Company failed to perform according to the terms of the purchase agreements and the transaction was terminated by the third party and thereafter by the Company. All expenses related to the agreements with the seller and the third party seller, were impaired as of December 31, 2016, and subsequent to the dismissal of legal proceeding fully written-off as of December 31, 2017.

 

Finance

 

The anticipated completion of the Paradisus Papagayo Bay Resort & Luxury Villas mid-2020 will require a net investment of approximately $215 million (excluding non-recuperated overhead expenses), of which approximately $60 million (excluding capitalized interest) has been expended as of December 31, 2017. 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 December 31, 2017, denominated in either EUR (€) or Swiss Francs (CHF).

 

EUR (€) Bonds

 

The Company initiated an unsecured EUR bond offering on December 2, 2013, of up to €15,000,000 in units of €10,000 that bear interest at 7.25% per annum payable each December 2 over a three-year term that matured on December 2, 2016. As of December 31, 2016, the outstanding amount was $31,541. This bond was fully repaid in 2017.

 

The Company initiated a parallel offering of unsecured EUR bonds on December 2, 2013, of up to €15,000,000 in units of €10,000 that bear interest at 7.25% per annum payable each December 2 over a three-year term that matured on December 2, 2016. As of December 31, 2016, the outstanding amount was $511,805. This bond was fully repaid in 2017.

 

Swiss Francs (CHF) Convertible Bonds

 

Convertible Bond I

 

The Company initiated a new 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. As of December 31, 2017, and December 31, 2016, respectively, $2,325,707 and $3,648,383 was outstanding.

 

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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. As of December 31, 2017, and December 31, 2016, respectively, $9,012,791 and $36,770,369 was outstanding.

 

Swiss Francs (CHF) Bonds

 

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 December 31, 2017, and December 31, 2016, respectively, $3,744,697 and $15,601,389 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 December 31, 2017, and December 31, 2016, respectively, $1,046,471 and $961,595 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 December 31, 2017, the outstanding amount was $28,468,904 of which amount $25,638,012 was transferred from Convertible CHF Bond II, $251,599 from Convertible CHF Bond I and $528,550 from other existing debt in 2017.

 

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 $57,613,418 from Aires as of December 31, 2017 (including accrued interest of $12,942,729).

 

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.

 

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Loan from Global Care AG

 

As of December 31, 2017, the loan due to Global Care AG (an entity controlled by Dr. Max Rössler, a director of the Company and related party) amounts to $42,216,409 at 7.25%, of which amount $1,564,444 was converted from convertible bonds and $15,375,505 from straight bonds to the loan. Further, $21,725,592 of the total amount of $42,216,409 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.

 

Timeline

 

Our expected timeline for developing the Paradisus Papagayo Bay Resort & Luxury Villas has been extended due to delays associated with administrative hurdles and securing the necessary financing for the development as follows:

 

commence onsite vertical construction as soon as financing is secured
complete construction mid-2020
handover to hotel management mid-2020

Competition  

Three key factors have been taken into consideration when defining our hotel competitors in relation to the Paradisus Papagayo Bay Resort & Luxury Villas:

 

the proximity of competitors to our location in Guanacaste Province, Costa Rica
the consumption habits of prospective clientele
the ability to compete based on product similarity in relation to service standards, facilities, the availability of equipment and the number or variety of services offered.

 

Based on our criteria we have determined that our prospective competitors are those characterized as five- star holiday resorts in geographic proximity to our planned location.

 

Luxury Hotel Resorts

 

We distinguish between primary and secondary competitors.

 

Primary competition in Guanacaste Province is comprised of the following properties:

 

Four Seasons Peninsula Papagayo
JW Marriot Guanacaste
Hilton Papagayo Costa Rica
Westin Golf Resort & Spa Playa Conchal
Andaz Peninsula Papagayo Resort
Dreams Las Mareas Costa Rica

 

The closest direct and most prominent competition for our Guanacaste property will be the Four Seasons Hotel.

 

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All of our primary competitive establishments have common characteristics with a standard vacation resort format with much more equipment and many more facilities to offer than hotels based in a city such as:

 

several modules/ lodging buildings around central services
ample water areas with outdoor swimming pools, areas for hammocks and sun bathing
children and entertainment activity areas
restaurant pool areas with bars and service throughout the day
large lounges for breakfast, lunch and dinner services
alternative gastronomic or theme restaurants
sports areas (basketball court, tennis courts, golf course, soccer field)
Fitness Center, Wellness Center and Spa Areas

 

Our competitors are managed by leading international chains or experienced domestic companies. Despite what might be construed as obvious obstacles to entry, including robust competition within the hospitality industry in Guanacaste Province, we believe that the Paradisus Papagayo Bay Resort & Luxury Villas will be successful based principally on the following factors:

 

the beach front location of the development
environmental integrity in project development and operation
the reputation of the Paradisus brand in the region and internationally

 

Furthermore, we believe that we have certain distinctive competitive advantages over all or many of our competitors including:

 

location in one of the most appealing areas worldwide
outstanding product with unique features
superior project development and management agreements that maximize resources and broaden market penetration

 

We believe that all of the factors detailed above, in combination with the dedication of our personnel and partners, will enable the Paradisus Papagayo Bay Resort & Luxury Villas to successfully compete with its local competition.

 

Marketability  

Costa Rican Tourism

 

Costa Rica has a long track record of political stability along with a well-established outward-looking growth model. The government has adopted a proactive policy of fostering higher-end beach resort tourism, mainly through fiscal incentives for investors. As such, Costa Rica benefits from a burgeoning hotel development pipeline and is emerging as a regional hotel investment hot-spot that includes luxury hotels. This environment provides fertile ground for real estate investors and developers. Investment in tourism is projected to continue this upward trend over the next several years as demand outpaces the supply of existing lodging and tourism services.

 

The 2017 Travel and Tourism Competitiveness Index (“TTCI”), indicates that Costa Rica is ranked 38th place in the world (up 9 places since 2013), and is classified as one of the most competitive countries in Latin American. According to the TTCI report Costa Rica ranks 3rd in the world for natural resources and is also notable for other advantages, such as its prioritization of travel & tourism ranking 24th and its tourism services infrastructure ranking 30 th .

 

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Costa Rica stands as the most visited nation in the Central American region. The Costa Rican Tourism Institute (“ICT”) is responsible for collecting information on the number and economic impact of tourists that visit Costa Rica. ICT also collects information related to hotel rooms and the country of origin for tourists arriving in Costa Rica. Records produced by ICT detail that the number of tourists visiting Costa Rica reached 2.93 million in 2016, representing an increase of 10 % over 2015.

 

ICT has determined that the most relevant origin markets in terms of demand are the United States, Canada and Mexico which generated approximately 52% of all tourists in 2016 followed by Central American countries including Guatemala, El Salvador, Panama and Nicaragua, which generated approximately 25% of the tourists arriving in Costa Rica. According to official data, the United States remains the largest source of tourists to Costa Rica with a total of 1,233,277 in 2016, representing 42.1% of all visitors. Tourists visiting Costa Rica from European countries represented approximately 15% of all tourists in 2016 led by the United Kingdom, Germany, Spain, France and Italy.

 

Geography

 

Costa Rica’s Guanacaste Province is bound in the east by a group of vegetated volcanoes and the west by beaches on the Pacific Ocean. The province contains heavily forested areas and seven national parks, and includes the Area de Conservación Guanacaste World Heritage Site. Guanacaste is the northern-most province of Costa Rica, with the Papagayo Bay a 40-minute flight from San Jose and a half hour car transfer to the beach. Tourism has emerged as the most lucrative revenue source in the province. Tourists to the Guanacaste Province of Costa Rica are most often motivated by a desire for favorable weather and beach conditions. Active tourism – those activities including canopying, trekking, visiting volcanoes and flora or fauna watching – are secondary considerations.

 

We believe that our development is well located for a hospitality property.

 

Patents, Trademarks, Licenses, Franchises, Concessions, Royalty Agreements and Labor Contracts

 

The Company holds no patents, trademarks, licenses, franchises, or concessions other than having registered its “SunVesta” trademark in various countries.

 

The Company is not subject to any labor contracts.

 

Governmental and Environmental Regulation

Our operations are subject to a variety of national, federal, provincial and local laws, rules and regulations relating to, among other things, worker safety and the use, storage, discharge and disposal of environmentally sensitive materials. We believe that we are in compliance in all material respects with all laws, rules, regulations and requirements that affect our business. Further, we believe that compliance with such laws, rules, regulations and requirements do not impose a material impediment on our ability to conduct business.

 

Costa Rican National Environmental Office

 

The Costa Rican National Environmental Office (“SETENA”) created by the Organic Environmental Law is tasked with administering the process of reviewing and evaluating environmental impact considerations. Local municipal governments often require a ruling from SETENA before issuing building permits. Any large project in Costa Rica must apply for an Environmental Impact Statement from SETENA before development is permitted. Delays associated with this process have had a negative impact on the Company’s project in Guanacaste Province.

 

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The Company is not aware of any existing environmental impact issues that could have a material effect on the development of the Paradisus Papagayo Bay Resort & Luxury Villas.

 

Costa Rican Sustainable Development

 

Costa Rica is considered as being in the forefront of implementing environmental policies. The country’s national strategies for sustainable development are a broad matrix of policies requiring eco-friendly practices, such as Agenda 21. The Agenda 21 process as developed by the 1992 and 2002 Earth Summits is defined as a participative planning tool in which sectors in the government and civil society concertedly determine the course to be taken by their communities, regions, or countries in pursuit of sustainable development. This process and other Costa Rican sustainable development policies have delayed or increased our cost for the development of the property.

 

The Company is not aware of any existing environmental impact issues that could have a material effect on the development of the Paradisus Papagayo Bay Resort & Luxury Villas.

 

Climate Change Legislation and Greenhouse Gas Regulation

 

Many studies over the past couple decades have indicated that emissions of certain gases contribute to warming of the Earth’s atmosphere. In response to these studies, many nations agreed to limit emissions of “greenhouse gases” or “GHGs” pursuant to the United Nations Framework Convention on Climate Change, and the “Paris Agreement” to which Costa Rica is a signatory. Greenhouse gas legislation in Costa Rica could have a material adverse effect on our business, financial condition, and results of operations. The Company is not aware of any existing environmental impact issues that could have a material effect on our development.

 

Employees

The Company is a development stage company and currently has five employees at December 31, 2017. Our management uses consultants, attorneys, and accountants to assist in the conduct of our business.

 

ITEM 1A. RISK FACTORS

 

Not required of smaller reporting companies.

 

ITEM 1B. UNRESOLVED STAFF COMMENTS

 

Not applicable.

 

ITEM 2. PROPERTIES

 

Costa Rican Properties

 

The Company owns the concession rights for approximately 20 hectares of undeveloped prime land in Guanacaste Province, Costa Rica. The original concession of approximately 8 hectares was purchased in 2007 for $7,000,000. The purchase of an additional 12 hectares was based on an agreement dated March 22, 2010, with Blue Dot SA (formerly “DIA SA”). The total purchase price for the concession was $12,700,000 of which $10,700,000 was paid as of December 31, 2014. The remaining $2,000,000 of the purchase price was converted into an interest free loan. On September 21, 2016, the Company reached an agreement with Blue Dot SA to pay the remaining $2,000,000 due in four quarterly installments of $500,000 each, starting on November 21, 2016. The final installment was paid in 2017.

 

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Executive Offices

 

We maintain our offices at Seestrasse 97, Oberrieden Switzerland CH-8942 on a leasehold basis with an annual rental expense of $130,000 per annum through December 31, 2018.

 

The Company recognized lease expenses of $130,000 and $130,000 for the years ended December 31, 2017 and 2016, respectively, for the use of these executive offices. We believe that we have sufficient office space for the foreseeable future.

 

ITEM 3. LEGAL PROCEEDINGS

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

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PART II

ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES

 

The Company’s common stock is quoted on the OTCQB, a service maintained by OTC Link under the symbol “SVSA.” Trading in the common stock over-the-counter market has been limited and sporadic and the quotations set forth below are not necessarily indicative of actual market conditions. These prices reflect inter-dealer prices without retail mark-up, mark-down, or commission, and may not necessarily reflect actual transactions. The high and low bid prices for the common stock for each quarter of the years ended December 31, 2017 and 2016 are as follows:

 

Year   Quarter Ended   High   Low
2017     December 31     $ 0.07     $ 0.02  
      September 30     $ 0.07     $ 0.07  
      June 30     $ 0.18     $ 0.10  
      March 31     $ 0.14     $ 0.10  
2016     December 31     $ 0.14     $ 0.14  
      September 30     $ 0.15     $ 0.15  
      June 30     $ 0.32     $ 0.32  
      March 31     $ 0.35     $ 0.35  

 

Capital Stock

The following is a summary of the material terms of the Company’s capital stock. This summary is subject to and qualified by our articles of incorporation and bylaws.

 

Common Stock

 

As of December 31, 2017, there were 91 shareholders of record holding 104,741,603 shares of fully paid and non-assessable common stock of the 200,000,000 shares of common stock, par value $0.01, authorized. The Board of Directors believes that the number of beneficial owners is greater than the number of record holders because a portion of our outstanding common stock is held in broker “street names” for the benefit of individual investors. The holders of the common stock are entitled to one vote for each share held of record on all matters submitted to a vote of stockholders. Holders of the common stock have no preemptive rights and no right to convert their common stock into any other securities.

There are no redemption or sinking fund provisions applicable to the common stock.

 

Preferred Stock

 

As of December 31, 2017, there were no shares issued and outstanding of the 50,000,000 shares of preferred stock authorized. The par value of the preferred stock is $0.01 per share. Our preferred stock may have such rights, preferences and designations and may be issued in such series as determined by the Board of Directors.

 

Stock Options

 

As of December 31, 2017, there were 20,000,000 stock options granted of the 50,000,000 stock options authorized pursuant to the 2013 SunVesta Stock Option Plan. The 20,000,000 options granted entitle the holder to purchase shares of the Company’s common stock at an exercise price of $0.05 per share. No stock options have vested and no stock options had expired in the current period as of year-end.

 

  13  

 

 

Warrants

 

As of December 31, 2017, there were no outstanding warrants to purchase shares of our common stock.

 

Dividends

 

We have not declared any cash dividends since inception and do not anticipate paying any dividends in the future. The payment of dividends on our common stock is within the discretion of the Board of Directors subject to earnings, capital requirements, financial condition, and other relevant factors including those contractual restrictions related to certain debt obligations and those limitations generally imposed by applicable state law.

 

Transfer Agent and Registrar

Our transfer agent and registrar is Standard Register & Company, Inc., located at 440 East 400 South, Suite 200, Salt Lake City, Utah 84111 and their phone number is (801) 571-8844.

 

Purchases of Equity Securities made by the Issuer and Affiliated Purchasers  

None.

Recent Sales of Unregistered Securities

On December 27, 2017, the Company authorized the issuance of 2,900,000 shares of restricted common stock to certain individuals, earned in connection with either employment agreements or 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) as follows:

 

Name   Shares   Consideration   Value 1)   Exemption
Hans Rigendinger     2,500,000       Services     $ 0.02     Section 4 (2)/Reg S
José Maria Figueres     200,000       Services     $ 0.02     Section 4 (2)/Reg S
Howard Glicken     200,000       Services     $ 0.02     Section 4 (2)/Reg S

 

1) Market value per share on the issuance date

 

The Company complied with the exemption requirements of Section 4(2) of the Securities Act based on the following factors: (1) the issuances were isolated private transactions based on service agreements which did not involve a public offering; (2) the offerees had access to the kind of information which registration would disclose; (3) the offerees was financially sophisticated; and (4) all of the offerees serve the Company as either officers or directors or both.

 

The Company complied with the exemption requirements of Regulation S by having directed no offering efforts in the United States, by offering securities only to offerees who were outside the United States at the time of the offering, and ensuring that the offerees to whom the securities were offered and authorized were non-U.S. offerees with addresses in a foreign country.

 

ITEM 6. SELECTED FINANCIAL DATA

 

Not required.

 

  14  

 

 

ITEM 7. 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 current report contain forward-looking statements that involve risks and uncertainties. Forward-looking statements can also 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 thereto included in this current report. Our fiscal year end is December 31.

 

Discussion and Analysis  

Our plan of operation through mid-2020 is to complete the Paradisus Papagayo Bay Resort & Luxury Villas project, the completion of which will require a total net investment of approximately $215 million (excluding non-recuperated overhead expenses and the anticipated $25 million in net proceeds for the sale of private villas). We aim to secure a minimum of $150 million in new funding over the next twelve months, though our actual financing requirements may be adjusted to suit that amount realized.

 

New funding over the next twelve months is expected to be raised from debt financing through bonds, shareholder loans and the guaranty agreement if necessary.

 

Results of Operations

During the year ended December 31, 2017, 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.

 

  15  

 

 

Comprehensive Losses

 

The variance in losses over the comparative annual period is reconciled below:

 

     
Twelve months January 1 to December 31, 2016   (9,742,739 )  
Variances:        
Increase in general and administrative expenses   (5,321,645 ) Provision for liquidated damages of $5,120,000 recognized in 2017
Decrease in foreign exchange result   (4,164,009 ) Currency fluctuations
Decrease in foreign exchange translation result (OCI)   (4,950,951 ) Currency fluctuations
Decrease in losses on extinguishment   3,304,126   In 2016, significant losses on extinguishment of debt was recognized
Decrease in impairment expenses   2,362,314   In 2016, "La Punta" was impaired
Change in fair values of conversion features   (868,778 ) Less gain due to lower volume on conversion feature in 2017
Decrease in interest expenses   164,124   Due to decrease in the amortization of debt issuance cost (less unamortized debt issuance cost).
Decrease in other income/(expenses)   66,054   Not material
Increase in actuarial gains / losses   (34,812 ) Changes to actuarial assumptions
Increase in interest income   4,958   Not material
Total variances   (9,438,620 )  
Twelve months January 1 to December 31, 2017   (19,181,359 )  

 

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 December 31, 2017 and expects to incur future cash outflows on capital expenditures as discussed in the "Liquidity and Capital Resources" and the "Going Concern" paragraphs below.

 

Liquidity and Capital Resources

 

The Company has been in the development stage since inception and has experienced significant changes in liquidity, capital resources, and stockholders’ equity.

 

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.

 

  16  

 

 

As of December 31, 2017 and 2016, the following were the working capital items:

 

    December 31, 2017   December 31, 2016
Current assets        
Cash and cash equivalents     4,058,982       806,440  
Receivable from related parties     —         49,292  
Other assets     772,182       456,099  
Total current assets     4,831,164       1,311,830  
Current liabilities                
Accounts payable     1,796,917       3,311,512  
Accrued expenses     3,083,131       3,160,723  
Notes payable     —         1,500,000  
Notes payable to related parties     —         307,088  
Bonds     11,032,145       6,687,384  
Liability related to conversion feature     922,087       —    
Provisions for liquidated damages     5,120,000       —    
Other liabilities     28,720       120  
Total current liabilities     21,982,999       14,966,826  
Net working capital     (17,151,836 )     (13,654,996 )

 

As of December 31, 2017, and 2016 the following were the items making up the total stockholders’ deficit as well as the surplus/deficit between the stockholders’ deficit and the subordinated debt:

 

    December 31, 2017   December 31, 2016
Assets        
Current assets     4,831,164       1,311,830  
Non-current assets     78,945,277       68,354,502  
Total assets     83,776,440       69,666,332  
Liabilities                
Current liabilities     21,982,999       14,966,825  
Non-current liabilities     131,893,157       105,872,146  
Total liabilities     153,876,156       120,838,971  
Total stockholders’ deficit     (70,099,716 )     (51,172,639 )
Subordinated debt     79,339,011       —    
Surplus/Deficit     9,239,295       (51,172,639 )

 

The Company’s negative working capital of $17,151,936 is an immediate concern going forward. However, based on the guaranty signed by certain principals, the Company believes that it can address liquidity problems on an ongoing basis.

 

Net cash flow used in operating activities for the twelve months ended December 31, 2017, was $11,841,557 as compared to $11,478,901 for the twelve-month period ended December 31, 2016.

 

We expect to continue to use net cash flow in operating activities until such time as the Company realizes revenue to meet operating costs on completion of the Paradisus Papagayo Bay Resort & Luxury Villas project and handover to a professional management company.

 

  17  

 

 

Net cash used in investing activities for the twelve months ended December 31, 2017, was $6,586,589 as compared $1,737,927 for the twelve-month period ended December 31, 2016. Net cash used in investing activities in the current twelve-month period is mainly comprised of the purchase of property, plant and equipment as well as deposits related to construction work. Net cash used in investing activities in the prior comparable twelve-month period was similarly comprised of the purchase of property, plant and equipment as well as deposits related to construction work offset by proceeds from the sale of property, plant and equipment and down payments on property and equipment.

 

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

 

Net cash provided by financing activities for the twelve-month period ended December 31, 2017, was $21,680,171 as compared to $13,994,449 for the twelve-month period ended December 31, 2016. Net cash provided by financing activities in the current twelve-month period is comprised of proceeds from notes payable to related parties, proceeds from bond issuances net of commissions and proceeds from a note payable and other debt, offset by the repayment of outstanding bonds, and the repayment of notes payable and other debt. Net cash provided by financing activities in the prior comparable twelve-month period was comprised of proceeds from notes payable to related parties and proceeds from bond issuances net of commissions, offset by the repayment of bonds, the repayment of bank liabilities, the repayment of notes payable to related parties and the repayment of a note payable and other debt.

 

We expect to continue to use net cash flow provided by financing activities as the financing necessary to complete the Paradisus Papagayo Bay Resort & Luxury Villas is not in place.

 

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

 

We had no formal lines of credit or other bank financing arrangements as of December 31, 2017.

 

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 December 31, 2017, 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 maintain a defined benefit plan that covers all of our Swiss employees as of December 31, 2017.

 

We have no current plans for significant purchases or sales of plant or equipment as of December 31, 2017, except in connection with the construction of the Paradisus Papagayo Bay Resort & Luxury Villas.

 

We have no current plans to make any changes in the number of our employees as of December 31, 2017.

 

Future Financings

 

We expect to realize a minimum of $150 million in new funding over the next twelve months in order to construct the Paradisus Papagayo Bay Resort & Luxury Villas.

 

The Company will continue to rely on the terms of the Guaranty Agreement as necessary to meet shortfalls in development financing.

 

  18  

 

 

Off-Balance Sheet Arrangements

 

As of December 31, 2017, 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 December 31, 2017 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.

 

  19  

 

 

Forward-Looking Statements and Factors That May Affect Future Results and Financial Condition

 

The statements contained in the section titled Management’s Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this current report, with the exception of historical facts, are forward-looking statements. We are ineligible to rely on the safe-harbor provision of the Private Litigation Reform Act of 1995 for forward looking statements made in this current report. Forward-looking statements reflect our current expectations and beliefs regarding our future results of operations, performance, and achievements. These statements are subject to risks and uncertainties and are based upon assumptions and beliefs that may or may not materialize. These statements include, but are not limited to, statements concerning:

 

our ability to secure sufficient capital resources to complete the project
the sufficiency of existing capital resources to finance ongoing operations
uncertainties related to our future business prospects
our ability to generate revenues from 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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not required.

 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

Our audited financial statements for the years ended December 31, 2017 and 2016 are attached hereto as F- 1 through F-48.

 

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

 

  20  

 

SUNVESTA, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017 and 2016

  Page
Report of Independent Registered Public Accounting Firm  F-2
Consolidated Balance Sheets   F-3
Consolidated Statements of Comprehensive Loss   F-4
Consolidated Statements of Stockholders’ Deficit   F-5
Consolidated Statements of Cash Flows   F-6
Notes to Consolidated Financial Statements   F-8

  F- 1  

 

Tel.

Fax

+41 44 444 35 55

+41 44 444 35 35

BDO AG

Schiffbaustrasse 2

8031 Zurich

Switzerland

 

 

Report of Independent Registered Public Accounting Firm


Shareholders and Board of Directors

of SunVesta Inc.

Oberrieden, Switzerland

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of SunVesta Inc. (the “Company”) and subsidiaries as of December 31, 2017 and 2016, the related consolidated statements of comprehensive loss, stockholders’ deficit, and cash flows for each of the two years in the period ended December 31, 2017, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company and subsidiaries at December 31, 2017 and 2016, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2017 , in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

We have served as the Company's auditor since 2011.

Zurich, March 29, 2018

BDO AG

//Andreas Wyss //Philipp Kegele
Andreas Wyss Philipp Kegele

  F- 2  

 

 

 

SUNVESTA, INC.
CONSOLIDATED BALANCE SHEETS
 
         
   

December 31, 2017

  December 31, 2016
Assets        
Current assets        
Cash and cash equivalents     4,058,982       806,440  
Receivable from related parties     —         49,292  
Other assets     772,182       456,099  
Total current assets   $ 4,831,164       1,311,830  
Non-current assets                
Property and equipment - net     76,423,695       66,216,658  
Deposits related to construction work     851,665       190,549  
Notes receivable     —         280,242  
Restricted cash     1,669,917       1,667,052  
Total non-current assets   $ 78,945,277       68,354,502  
Total assets   $ 83,776,440       69,666,332  
                 
Liabilities and stockholders' deficit                
Current liabilities                
Accounts payable     1,796,917       3,311,512  
Accrued expenses     3,083,131       3,160,723  
Note payable     —         1,500,000  
Notes payable to related parties     —         307,088  
Other liabilities     28,720       120  
Convertible CHF-Bonds     11,032,145       6,202,921  
Liability related to conversion feature     922,087       —    
EUR-Bond     —         484,463  
Provisions for liquidated damages     5,120,000       —    
Total current liabilities   $ 21,983,000       14,966,826  
Non-current liabilities                
Convertible CHF-Bonds     —         31,892,613  
CHF-Bonds     31,853,298       16,384,893  
Liability related to conversion feature     —         5,936,378  
Notes payable to related parties not subordinated     20,490,817       51,473,793  
Notes payable to related parties subordinated     79,339,011       —    
Pension liabilities     210,031       184,469  
Total non-current liabilities   $ 131,893,157       105,872,146  
Total liabilities   $ 153,876,156       120,838,972  
                 
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       959,416  
Additional paid-in capital     23,404,808       23,238,526  
Accumulated other comprehensive income/(loss)     (769,600 )     2,997,562  
Accumulated deficit     (93,782,340 )     (78,368,143 )
Total stockholders' deficit   $ (70,099,716 )     (51,172,639 )
Total liabilities and stockholders' deficit   $ 83,776,441       69,666,332  

 

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

 

  F- 3  

 

  

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
Years Ended December 31, 2017 and 2016
         
         
    2017   2016
Revenues                
Revenues, net     —         —    
Cost of revenues     —         —    
Gross profit   $ —       $ —    
                 
Operating expenses                
General and administrative expenses     (10,400,844 )     (5,079,198 )
Impairment expenses     (280,242 )     (2,642,556 )
Total operating expenses   $ (10,681,086 )   $ (7,721,754 )
Income/(loss) from operations   $ (10,681,086 )   $ (7,721,754 )
                 
Other income/(expenses)                
Interest income     72,766       67,808  
Interest expense     (6,719,208 )     (6,883,332 )
Change in Fair Value of Conversion Feature     1,631,708       2,500,486  
Gain/(Loss) on extinguishment of debt     2,138,858       (1,165,268 )
Exchange differences     (1,661,821 )     2,502,188  
Other income/(expenses)     (195,414 )     (261,468 )
Total other expenses   $ (4,733,112 )   $ (3,239,586 )
                 
Loss before income taxes     (15,414,197 )     (10,961,340 )
Income Taxes     —         —    
Net income/(loss)   $ (15,414,197 )   $ (10,961,340 )
                 
Comprehensive income/(loss)                
Foreign currency translation     (3,772,230 )     1,178,721  
Actuarial gains/(losses)     5,068       39,880  
Comprehensive income/(loss)   $ (19,181,359 )   $ (9,742,739 )
                 
Earnings/(loss) per common share                
Basic and diluted   $ (0.15 )   $ (0.11 )
                 
Weighted average common shares                
Basic and diluted     105,614,728       100,245,439  

 

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

 

  F- 4  

 

 

SUNVESTA, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
Years Ended December 31, 2017 and 2016
 
                     
    Common Stock   Additional Paid-in Capital   Accumulated Other Comprehensive Loss   Accumulated deficit   Total Stockholders’ Deficit
January 1, 2016   $ 959,416     $ 23,403,438     $ 1,778,961     $ (67,406,803 )   $ (41,264,988 )
Translation adjustments     —         —         1,178,721       —         1,178,721  
Net loss     —         —         —         (10,961,340 )     (10,961,340 )
Actuarial gains/(losses)     —         —         39,880       —         39,880  
Stock based compensation expense     —         (164,912 )     —         —         (164,912 )
                                         
December 31, 2016   $ 959,416     $ 23,238,526     $ 2,997,562     $ (78,368,143 )   $ (51,172,639 )
Translation adjustments     —         —         (3,772,230 )     —         (3,772,230 )
Net loss     —         —         —         (15,414,197 )     (15,414,197 )
Actuarial gains/(losses)     —         —         5,068       —         5,068  
Stock based compensation expense     88,000       166,282       —         —         254,283  
December 31, 2017   $ 1,047,416     $ 23,404,808     $ (769,600 )   $ (93,782,340 )   $ (70,099,716 )

 

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

 

  F- 5  

 

 

 

SUNVESTA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2017 and 2016
         
         
    January 1 to December 31, 2017   January 1 to December 31, 2016
Cash flows from operating activities        
Net loss   $ (15,414,197 )     (10,961,340 )
Adjustments to reconcile net loss to net cash                
Depreciation and amortization     39,563       61,771  
Impairment expenses     269,695       2,642,555  
Provision for liquidated damages     5,120,000       —    
Amortization of debt issuance costs, commissions and discounts     1,248,067       2,588,290  
Accrued interest on debt     4,733,015       3,713,440  
Extinguishment of debt     (2,138,858 )     1,165,268  
Unrealized exchange differences     1,636,023       (3,004,224 )
Stock compensation expense     254,283       (164,912 )
Increase in pension fund commitments     22,300       18,791  
Capitalized interest on construction in process     (3,164,472 )     (3,694,061 )
Other income related to conversion feature     (1,742,821 )     (2,051,203 )
- Cash flow impact of increase / decrease in:                
Other assets     (790,885 )     707,726  
Accounts payable     (1,776,987 )     (4,196,398 )
Accrued expenses     (164,562 )     1,695,393  
Other liabilities     28,177       (0 )
Net cash used in operating activities   $ (11,841,657 )     (11,478,901 )
Cash flow from investing activities                
Payments to acquire property, plant and equipment     (5,742,515 )     (1,455,760 )
Proceeds from sale of property, plant and equipment     32,260       36,578  
Deposits related to construction work     (878,903 )     (641,818 )
Down payments for property and equipment     —         309,023  
Restricted cash     2,569       14,050  
Net cash used in investing activities   $ (6,586,589 )     (1,737,927 )
Cash flows from financing activities                
Repayments of bank liabilities     —         (178,053 )
Proceeds from notes payable related parties     23,543,234       18,456,316  
Repayment of notes payable related parties     —         (3,286,465 )
Proceeds from bond issuance, net of commissions and debt issuance costs     1,417,595       7,433,328  
Repayment of bonds     (2,305,714 )     (7,786,584 )
Proceeds from note payable and other debt     525,055       (23,090 )
Repayments of note payable and other debt     (1,500,000 )     (621,001 )
Net cash provided by financing activities   $ 21,680,171       13,994,449  
Effect of exchange rate changes     517       (83,011 )
Net increase / - decrease in cash     3,252,442       694,610  
Cash and cash equivalents, beginning of period     806,440       111,830  
Cash and cash equivalents, end of period   $ 4,058,882       806,440  

 

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

 

  F- 6  

 

 

 

SUNVESTA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2017 and 2016
         
         
Additional information   January 1 to December 31, 2017   January 1 to December 31, 2016
Transfer of Convertible CHF-Bond II to CHF-Bond IV (non-cash)     25,638,012       —    
Transfer of CHF Bond III original to notes payable to
Global Care AG (non-cash)
    15,375,505       —    
Transfer of Convertible CHF-Bond II to notes payable to
Global Care AG (non-cash)
    1,564,444       —    
Transfer of Convertible CHF-Bond I to CHF-Bond III (non-cash)     1,216,372       —    
Increase of notes payable to Global Care AG by increase
of other assets (non-cash)
    988,304       —    
Transfer of Convertible CHF-Bond I to CHF-Bond IV (non-cash)     251,599       —    
Capitalized interest and debt issuance costs for construction (non-cash)     —         3,694,061  
Reversal of capitalized payment obligation for construction (non-cash)     —         451,816  
Assumption of payables due from AIRES by Global Care AG (non-cash)     —         7,621,345  
Conversion of Loans payable to Global Care AG to CHF convertible bonds     —         4,635,352  
Assumption of payables due from Global Care AG by Sportiva (non-cash)     —         1,533,150  
Conversion of Loan from third party to CHF-Convertible Bond     —         599,700  
Assumption of loan due from Global Care AG by Dr. Max Rössler     —         1,442,253  
Conversion of Loan from Dr. Max Rössler to CHF-Bond     —         15,406,139  
Transfer from EUR-Bond to CHF-Bond     —         953,683  
Interest paid     2,017,566       —    

 

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

 

  F- 7  

 

SUNVESTA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017 and 2016

 

1. CORPORATE INFORMATION

 

On August 27, 2007, SunVesta Inc. (“Company”) acquired SunVesta Holding AG (“SunVesta AG”). Until May 20, 2016, SunVesta AG held five wholly-owned subsidiaries: SunVesta Projects and Management AG, a Swiss company; Rich Land Investments Limitada, a Costa Rican company (“Rich Land”); SunVesta Costa Rica Limitada, a Costa Rican company (“SVCR”), Altos del Risco SA, a Costa Rican company (“AdR”) and SunVesta Holding España SL (“España”), a Spanish company. Effective May 21, 2016 the three Costa Rican companies were merged, whereby Altos del Risco SA absorbed its two affiliated companies and subsequently changed its name to SunVesta Costa Rica SA.

In January 2005, the Company changed its business focus to the development of holiday resorts and investments in the hospitality and related industry. The Company has one major project in Costa Rica. Planning for this project has been fully completed, all consents have been granted, and excavation work is underway. The Company is still in process of securing financing for the project and has not realized revenue to date. Since financing to complete the project has not been secured, 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

 

Principles of Consolidation

The consolidated financial statements include those of the Company and its subsidiaries. One hundred percent of assets and liabilities as well as revenues and expenses of all consolidated companies are included. Receivables, payables, as well as revenues and expenses between consolidated companies are eliminated. Unrealized intercompany profits, which may be included in assets as of the end of the respective periods are also eliminated. Certain previously reported amounts have been reclassified to conform to the current presentation.

Fiscal year 

The fiscal year of the Company and all its subsidiaries correspond with the calendar year.

Use of estimates 

These consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) and require management to make assumptions and estimates, which have an impact on the reported assets and liabilities as well as on the disclosure of contingent assets and liabilities at the balance sheet dates. These considerations also impact reported income statement items. While the effective amounts may vary from the estimates, management is convinced that all relevant information having an impact on the estimates have been taken into consideration and are appropriately disclosed. Management believes that the valuation of property and equipment includes substantial estimates.

  F- 8  

 

SUNVESTA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017 and 2016

 

2. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

 

Cash and cash equivalents 

Cash and cash equivalents include petty cash and bank accounts as well as time deposits with maturities of less than three months. 

Allowance for Doubtful Accounts 

Management makes ongoing estimates relating to the collectability of receivable balances and maintains a reserve for estimated losses resulting from the inability of counterparties to meet their financial obligations to us. As of December 31, 2017, and 2016 the Company does not have any amounts reserved in the consolidated balance sheet or any bad debt expense recorded in the statement of comprehensive loss.

Other assets

Other assets include items, such as value added tax, withholding tax or similar credits with maturities of less than one year. 

Property and equipment

Property and equipment are valued at cost less accumulated depreciation. Repair and maintenance expenses are charged to the income statement when incurred. The cost of fixed assets, including leasehold improvements are capitalized and depreciated over the following useful lives:

Land (concessions) not depreciated
IT equipment 3 years
Other equipment and furniture 5 years
Leasehold improvements 5 years
Vehicles 5 years
Project in process not depreciated until project finished

 

The cost and the related accumulated depreciation are removed from the balance sheet at the time of disposal.

Project in process relates to costs incurred directly related to the planning and construction of the hotel in the Papagayo Gulf Tourism Project of Costa Rica and are reasonably recoverable from future hotel and rental operations or the sale of certain apartments. Once the project in process is finished the Company will reclassify the capitalized costs to corresponding categories and determine the depreciation method and depreciation period.

  F- 9  

 

SUNVESTA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017 and 2016

 

 

2. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

 

Interest capitalization

Interest expense is capitalized on the carrying value of the construction in progress during the construction period, in accordance with ASC 835-20, Capitalization of Interest

With respect to the construction in progress, the Company has capitalized a cumulative amount of $16.2 million and $13.1 million of interest expense and debt issuance costs as of December 31, 2017 and December 31, 2016, respectively to property and equipment. 

Deposits related to construction work

The Company prepays deposits for construction work, which costs are capitalized initially and will be amortized once construction has begun.

Debt issuance cost 

The Company reclassified debt issuance cost to be presented net with the issued debt as per ASU 2015-3. This ASU was applied retrospectively for all periods presented

Down payment for property and equipment 

Down payments for property and equipment are recorded at cost. Once the corresponding property and equipment item has been completely purchased, it will be reclassified to a corresponding subcategory within property and equipment and amortized. The Company assesses regularly if the down payments are recoverable in accordance with ASC 360 Property, Plant, and Equipment. Should any down payments due to specific circumstances not be assessed as recoverable, they will be impaired.

Restricted Cash

Restricted cash includes cash that is not disposable for the Company without third party permission such as rental deposits or deposits related to the project in process. Based on the nature of the Company’s underlying business it will be determined whether a deposit is recorded as a current or non-current asset.

Impairment of Long-Lived Assets

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. The carrying value of a long-lived asset or asset group is considered to be impaired when the undiscounted expected cash flows from the asset or asset group are less than its carrying amount. An impairment loss is recognized to the extent that the carrying value of the asset exceeds its fair value. Fair value is determined based on quoted market prices, where available, or is estimated as the present value of the expected future cash flows from the asset or asset group discounted at a rate commensurate with the risk involved. 

  F- 10  

 

SUNVESTA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017 and 2016

 

2. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

 

Income taxes 

The Company has not incurred material current taxes on income as it has not generated taxable income in any of the jurisdictions in which it operates. 

Deferred taxes are calculated on the temporary differences that arise between the tax base of an asset or liability and its carrying value on the balance sheet of the Company prepared for consolidation purposes, with the exception of temporary differences arising on investments in foreign subsidiaries where the Company has plans to permanently reinvest profits into the foreign subsidiaries. 

Deferred tax assets on tax loss carry-forwards are only recognized to the extent that it is more likely than not, that future profits will be available and the tax loss carry-forward can be utilized.

Changes to tax laws or tax rates enacted at the balance sheet date are taken into account in the determination of the applicable tax rate provided that they are likely to be applicable in the period when the deferred tax assets or tax liabilities are realized.

The Company is subject to income taxes in the United States of America, Switzerland, Spain and Costa Rica. Significant judgment is required in determining income tax provisions and in evaluating tax positions. 

The Company recognizes the benefit of uncertain tax positions in the financial statements when it is more likely than not that the position will be sustained on examination by the tax authorities. The benefit recognized is the largest amount of tax benefit that is greater than 50 percent likely of being realized on settlement with the tax authority, assuming full knowledge of the position and all relevant facts. The Company adjusts its recognition of these uncertain tax benefits in the period in which new information is available impacting either the recognition or measurement of its uncertain tax position. Interest and penalties related to uncertain tax positions are recognized as income tax expense.

Concentration of risks

Financial instruments that potentially subject the Company to concentrations of credit risk are primarily cash and cash equivalents. Cash and cash equivalents are maintained with several financial institutions. Deposits held with banks may exceed the amount of insurance provided on such deposits. Generally, these deposits may be redeemed upon demand. Cash and cash equivalents are subject to currency exchange rate fluctuations. 

  F- 11  

 

SUNVESTA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017 and 2016

 

2. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

Foreign Currency Translation and Transactions

The consolidated financial statements of the Company are presented in US Dollars (“$”) which is also the functional currency of the parent company. The financial position and results of operations of our foreign subsidiaries are determined using the currency of the environment in which an entity primarily generates and expends cash as the functional currency. Assets and liabilities of these subsidiaries are translated at the exchange rate in effect at each year-end. Statement of comprehensive loss accounts are translated at the average rate of exchange prevailing during the year. Translation adjustments arising from the use of differing exchange rates from period to period are included in accumulated other comprehensive income (loss) in

stockholders’ deficit

Gains and losses resulting from foreign currency transactions are included in other income and expenses (exchange differences), except intercompany foreign currency transactions that are of a long-term-investment nature which are included in accumulated other comprehensive income in stockholders’ equity. 

Bonds, net of debt issuance costs 

Bonds comprise of bonds payable in Euros (“EUR”) and Swiss Francs (“CHF”), which bear fixed interest rates. Bonds are carried at notional value. If a bond becomes repayable within the next 12 months from the balance sheet date on, such bond or the corresponding portion of this bond will be categorized as current. Commissions paid to bondholders themselves are reflected as debt discounts and amortized over the term of the bond, based on the “effective interest method”. The amortization expense is reflected in amortization of debt issuance cost.

Bonds are presented net of debt issuance costs that arise as a result of issuing debt, i.e. the EUR bonds, CHF bonds, CHF convertible bonds and the loan with Aires International Investments Inc. These costs are amortized over the life of the debt using the effective interest method. The costs comprise of finder's fees of generally between three and twelve percent of the amount issued and costs incurred in connection with issuing the bonds, such as legal and accounting fees, and stamp duty taxes. The accumulated amortization of debt issuance costs of bonds outstanding was $3,899,033 and $1,242,172 as of December 31, 2017 and December 31, 2016, respectively.

Related parties 

Parties are considered related if one party directly or indirectly controls, is controlled by, or is under common control of the other party, if it has an interest in the other party that gives significant influence, if it has joint control over the party, or if it is an associate or a joint venture. Senior management or close family members are also deemed to be related parties.

  F- 12  

 

SUNVESTA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017 and 2016

 

 

2. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED  

Pension Plan

The Company maintains a pension plan covering all employees in Switzerland; it is considered a defined benefit plan and accounted for in accordance with ASC 715 C ompensation - 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 statement of comprehensive loss 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, by recording a corresponding expense 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.

Earnings per Share

Basic earnings per share are calculated using the Company’s weighted-average outstanding common shares. When the effects are not anti-dilutive, diluted earnings per share is calculated using the weighted-average outstanding common shares and the dilutive effect of warrants and stock options, if any, as determined under the treasury stock method.

Additionally, the Company's two convertible CHF-Bonds were issued in October 2015. These convertible CHF bonds convert into shares of Sunvesta Holding AG, the Company's wholly owned subsidiary. The resulting common shares assumed to be converted as of the issuance date are included in the denominator for diluted EPS under the if-converted method to the extent that their effect is considered dilutive. 

Fair Value of Financial Instruments 

The Company’s financial instruments consist of cash and cash equivalents, restricted cash, receivables from related parties, bank liabilities, accounts payable to third or related parties, note payables to third or related parties, bonds as well as the conversion feature of the convertible bonds. The fair value of these financial instruments approximate their carrying value due to the short maturities of these instruments, unless otherwise explicitly noted. 

ASC 820 Fair Value Measurements establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

  F- 13  

 

SUNVESTA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017 and 2016

 

 

2. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

Stock-based compensation 

Stock-based compensation costs are recognized in earnings using the fair value based method for all awards granted. Compensation costs for unvested stock options and awards are recognized in earnings over the requisite service period based on the fair value of those options and awards. For employees, fair value is estimated at the grant date and for non-employees’ fair value is re-measured at each reporting date as required by ASC 718 Compensation-Stock Compensation , and ASC 505- 50 Equity-Based Payments to Non-Employees . Fair values of awards granted under the share option plans are estimated using a Black-Scholes option pricing model. The model’s input assumptions are determined based on available internal and external data sources. The risk-free rate used in the model is based on the US treasury rate for the expected contractual term. Expected volatility is based on historical volatilities of a peer group of similar companies in the same industry.

Derivative Financial Instruments

Derivative financial instruments are initially measured at fair value at the contract date and are subsequently measured to fair value at each reporting date. The Company's derivative financial instrument relates to the conversion feature bifurcated from the Company's convertible CHF Bond (Note 10), is accounted for under ASC 815 and recorded as Liability related to conversion feature in the consolidated balance sheets. Changes in the fair value each period (gains or losses) are reflected in the statement of comprehensive loss as Change in Fair Value of Conversion Feature.

New accounting standards – not adopted

In January 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update 2016-01, Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The update requires several changes with respect to recognition and measurement as well as disclosure requirements with respect to financial instruments). The amendments to (ASU) 2016-01 are effective for the annual period ending after December 15, 2017, and for annual periods and interim periods thereafter. Early application is permitted. The Company has concluded that (ASU) 2016-01 will not have an impact on its consolidated results of operations, financial condition, cash flows, and financial statement disclosures.

  F- 14  

 

SUNVESTA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017 and 2016

 

 

2. SIGNIFICANT ACCOUNTING POLICIES – CONTINUED

 

New accounting standards – not adopted - continued

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.

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 will not be presented as a separate line item in the operating, investing or financing sections of the cash flow statement. 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 2016-18 will have 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 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.

  F- 15  

 

SUNVESTA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017 and 2016

 

2. SIGNIFICANT ACCOUNTING POLICIES – CONTINUED

 

New accounting standards – not adopted - continued

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 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 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 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Updates (ASU) 2014-15 requiring an entity’s management to evaluate whether there are conditions or events, considered in aggregate, that raise substantial doubt about entity’s ability to continue as a going concern within one year after the date that the financial statements are issued (or within one year after the date that the financial statements are available to be issued when applicable). The amendments to (ASU) 2014-15 are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. The Company has assessed that ASU 2014-15 has no effect on its financial statements, as a note with respect to the going concern assumption is already presented.

In March 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Updates ASU 2016-9, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, requiring certain changes to recognition and measurement as well as disclosure of Share-Based Payments. The standard will become effective for the Company beginning January 1, 2017. The Company has assessed the impact that adoption of this standard has on its consolidated results of operations, financial condition, cash flows, and financial statement disclosures. ASU 2016-9 is part of the FASB’s simplification initiative and offers certain accounting policy choices and simplifications. Based on the current stock option plans, there is no effect from ASU 2016-9 on the Company’s consolidated results of operations, financial condition, cash flows, and financial statement disclosures.

  F- 16  

 

SUNVESTA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017 and 2016

 

 

3. GOING CONCERN

 

The Company is currently working on building a hotel in the Papagayo Gulf Tourism Project area of Guanacaste, Costa Rica. The project is expected to open 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 December 31, 2017 and the filing date, though future anticipated cash outflows for investing activities continue to depend 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.

  F- 17  

 

SUNVESTA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017 and 2016

 

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.

        Total   Total
Cash and cash equivalents     USD        CHF        Other       

December 31,

2017

     

December 31,

2016

 
original currency     387,440       3,570,430       12,551                  
in $     387,440       3,658,051       13,491       4,058,982       806,440  

 

USD ($) = US Dollar EURO = Euro

CHF = Swiss Francs

5. RESTRICTED CASH

 

As of December 31, 2017, the Company has the following restricted cash positions: 

Restricted Cash        
    December 31, 2017   December 31, 2016
    $   $
Credit Suisse in favor of BVK pension fund     130,814       125,400  
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       608,302  
Gross     1,669,917       1,667,052  

 

Restricted cash positions in favor of Costa Rican Tourism Board and Costa Rican Environmental Agency – SETANA are related to the hotel project in Costa Rica and therefore their release is not expected before finalization of the corresponding project. Due to this fact these restricted cash positions have been classified as long term.

The restricted cash position in favor of BVK pension fund is a rental deposit related to a long term lease contract for office space. Due to this fact this restricted cash position is also classified as long term. 

  F- 18  

 

SUNVESTA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017 and 2016

 

6. NOTES RECEIVABLE

 

On June 15, 2015, the Company loaned REP Caribbean Development Corporation (“REP Caribbean”), a third party, $250,000 secured by a non-related Swiss individual. The loan was due on November 30, 2015, in addition to a fixed interest payment of $5,000. On September 15, 2015, the Company entered into an agreement with REP Caribbean and 4f Capital, formerly a related party, netting receivables due to the respective parties that resulted in the satisfaction of the full loan amount due from REP Caribbean to the Company and a receivable against 4f Capital in the amount of approximately $250,000 as of December 31, 2016. On December 10, 2015, the Company loaned an additional unsecured amount of $25,000 to REP Caribbean. The Company erroneously reported as of December 31, 2016, that the amount due from REP Caribbean was approximately $280,000. Since 4f Capital is in liquidation, and the likelihood that REP Caribbean will repay the unsecured $25,000 due is in doubt, the receivable erroneously reported as approximately $280,000, was fully impaired as of in 2017.

7. PROPERTY & EQUIPMENT

 

    December 31, 2017   December 31, 2016
Concession Land   $ 19,700,000       19,700,000  
IT Equipment     230,820       221,060  
Other equipment and furniture     230,836       219,734  
Leasehold improvements     77,271       74,004  
Vehicles     —         74,000  
Construction in-process     56,722,733       46,457,172  
Gross     76,961,659       66,745,970  
Less accumulated depreciation     (537,965 )     (529,312 )
Net   $ 76,423,695       66,216,658  
Depreciation expenses for the period ended December 31, 2017 and December 2016     39,563       61,771  

 

Property and equipment is comprised primarily of land held in Costa Rica that is currently being developed for hotels and capitalized project costs in connection with the Papagayo Gulf Tourism project. The land amounts to $19.7 million 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.

  F- 19  

 

SUNVESTA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017 and 2016

 

 

7. PROPERTY & EQUIPMENT– CONTINUED

 

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

The construction in process through December 31, 2017 and December 31, 2016, is represented primarily by architectural work related to the hotel and apartments as well as earth work. 

Additional Properties  

On April 24, 2013, the Company entered into a new agreement to purchase two additional concession properties located in Polo Papagayo, Guanacaste for a total of $17,500,000 payable to the seller and a third party against a refundable deposit of $1,369,816 payable over terms minus a non-refundable deposit of $300,000 paid to a third party and liquidated damages of 5% in the event the purchase did not close. The Company failed to perform according to the terms of the purchase agreement and the transaction was terminated by the third party and thereafter by the Company.

The Company initiated legal proceedings against the seller and separately the third party for the recovery of that portion of the refundable deposits paid to the seller and to the third party. The aggregate amount in dispute was approximately $1.5 million. The legal proceeding against the seller was dismissed on technical grounds and the legal proceeding against the third party was withdrawn by the Company on contractual grounds.

All expenses related to the agreements with the seller and the agreement with the third party seller, were impaired as of December 31, 2016. Based on the results of the legal proceeding mentioned above, the impaired asset was fully written-off as of December 31, 2017. 

Deposit related to construction work

For the year ended December 31, 2017, the Company maintained deposits with several contractors to complete earth moving groundwork. These deposits are offset against invoices for such groundwork as it is completed. As of December 31, 2017 and 2016, the Company had deposits of $851,665 and $190,549 respectively, which have not been set off.

  F- 20  

 

SUNVESTA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017 and 2016

 

 

8. FAIR VALUE MEASUREMENT

 

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

Level 1 Quoted prices for identical instruments in active markets.

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

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

 

When available, 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 December 31, 2017 and December 31, 2016, 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.

  F- 21  

 

SUNVESTA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017 and 2016

 

 

8. 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.
Receivables from related parties (current): Carrying amount approximated fair value due to the short term nature of the receivables.
Accounts payable: Carrying amount approximated fair value.
Note payable: Carrying amount approximated fair value due to the short term nature of the note payable.
Notes receivable: Carrying amount approximated fair value.
Notes payable to related parties (current): Carrying amount approximated fair value due to the short term nature of the notes payable.
EUR-bond (old): Carrying amount approximated fair value due to its short term nature
EUR-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 7.25% for EUR bonds, which represents the current market rate based on the creditworthiness of the Company. Hence, the carrying values approximate fair value.
CHF-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 rate 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.

  F- 22  

 

SUNVESTA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017 and 2016

   

8. FAIR VALUE MEASUREMENT - CONTINUED

 

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

    December 31, 2017   December 31, 2016        
    Carrying Amount $   Fair Value $   Carrying Amount $   Fair Value $   Fair Value Levels   Reference
Cash and cash equivalents     4,058,982       4,058,982       806,440       806,440       1       Note 4  
Restricted cash     1,669,917       1,669,917       1,667,052       1,667,052       1       Note 5  
Receivables from related parties – other (current)     —         —         49,292       49,292       3       Note 9  
Accounts Payable     1,796,917       1,796,917       3,311,512       3,311,512       1       —    
Note payable     —         —         1,500,000       1,500,000       1       Note 16  
Notes payable to related parties – other (current)     —         —         307,088       307,088       3       Note 9  
Notes receivable     —         —         280,242       280,242       3       Note 6  
EUR-bonds     —         —         484,463       484,463       3       Note 10  
Convertible CHF-bonds     11,032,145       11,032,145       38,095,533       38,095,533       3       Note 10  
CHF-bonds     31,853,298       31,853,298       16,384,893       16,384,893       3       Note 10  
Notes payable to related parties (non-current)     99,829,827       99,829,827       51,473,793       51,473,793       3       Note 9  
Liability related to conversion feature     922,087       922,087       5,936,378       5,936,378       3       Note 10  

 

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

Balance at January 1, 2016     6,976,322  
Additions/(Decrease)     449,283  
Change in Fair Value of Conversion Feature     (2,500,486 )
(Gain)/loss on extinguishment of debt (in addition to any recognized gain/loss on extinguishment of the underlying financial instrument)     1,165,268  
FX Revaluation     (154,010 )
Balance at December 31, 2016     5,936,378  
Additions/(Decrease)     (111,113 )
Change in Fair Value of Conversion Feature     (1,631,708 )
(Gain)/loss on extinguishment of debt (in addition to any recognized gain/loss on extinguishment of the underlying financial instrument)     (3,466,897 )
FX Revaluation     195,427  
Balance at December 31, 2017     922,087  

 

  F- 23  

 

SUNVESTA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017 and 2016

 

 

8. FAIR VALUE MEASUREMENT - CONTINUED

 

The Company used a Black-Scholes model to value the liabilities related to conversion features as of December 31, 2017 and December 31, 2016.

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

Stock Price CHF 5.08 Annualized Risk Free Rate: .0001:
Exercise Price: CHF 8 Annualized Volatility: 80%
Time to Maturity: 0.75 years    

The assumptions as of December 31, 2016, were as follows:

Stock Price CHF 5.08 Annualized Risk Free Rate: .0001:
Exercise Price: CHF 8 Annualized Volatility: 80%
Time to Maturity: 1.75 years    

The annualized risk free rate was changed from a US treasury rate to a Swiss treasury rate, as the underlying basis value are shares in a Swiss company denominated in Swiss Francs.

9. RELATED PARTY TRANSACTIONS

 

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

    December 31, 2017   December 31, 2016   December 31, 2017   December 31, 2016
Aires International     —         —         57,613,418       51,473,793  
Global Care AG     —         —         42,216,409       —    
Turan Tokay     —         49,292       —         —    
Total     —         49,292       99,829,827       51,473,793  
of which non-current     —         —         99,829,827       51,473,793  

 

As of December 31, 2016, a payable of $290,000 was presented as a liability to a related party Akyinyi Interior and Exterior Decoration and $17,088 to the late Josef Mettler, each of which were no longer related parties at that time.

The receivable due from Turan Tokay of $49,292 was fully impaired in 2017.

  F- 24  

 

SUNVESTA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017 and 2016

 

 

9. RELATED PARTY TRANSACTIONS - CONTINUED

 

Loan agreement Aires International Investment Inc.

As of December 31, 2017, the Company owes Aires International Inc. (a related party controlled by Dr. Max Rössler, a Director and related party) the following:

Borrower   Debt instrument denominated in CHF   Amount in CHF   Amount in USD   Annual interest rate
SunVesta Inc.   Promissory note     10,044,371       10,290,860       7.25 %
SunVesta Inc.   Promissory note     10,000,000       10,245,400       7.25 %
SunVesta Inc.   Promissory note     10,000,000       10,245,400       7.25 %
SunVesta Inc.   Loan agreement     12,636,126       12,933,155       7.25 %
SunVesta Holding   Loan agreement     13,565,690       13,898,603       7.25 %
Total         56,246,187       57,613,418          

 

As of December 31, 2017, the notes and loans to Aires International, Inc. (“Aires”) are fully subordinated on the terms and conditions of a subordination agreement. 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, 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.

Loan due to Global Care AG  

In April 2016, Global Care AG (“Global Care”) (a related party controlled by Dr. Max Rössler, a Director and related party) assumed a liability of CHF 4.5 million from Aires, (also a related party controlled by Dr. Max Rössler), which amount was subsequently subscribed into bonds of the CHF-Convertible Bond issue. As this conversion includes a significant conversion option, the subscription was treated as an extinguishment of debt and an amount of $1,071,317 has been reclassified in the statement of profit or loss from revaluation of the conversion feature to extinguishment of debt. In June 2016, there were the following changes to the debt structure:

- A liability of CHF 2,656,083 to Dr. Max Rössler was transferred to Global Care
- A liability of CHF 1.5 million to Sportiva was transferred to Global Care
- A liability of CHF 1.4 million to Global Care was transferred to Dr. Max Rössler.

 

In December 2016, Dr. Max Rössler converted a loan in the amount of CHF 15.2 million into bonds of the new CHF-Bond issue 2016-2020. As this conversion did not represent a significant change of the conditions between the old debt and the new debt, the subscription was not treated as an extinguishment of debt.

  F- 25  

 

SUNVESTA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017 and 2016

 

9. RELATED PARTY TRANSACTIONS - CONTINUED

Loan due to Global Care AG - continued

As of December 31, 2017, the loan due to Global Care AG amounts to $42,216,409 at 7.25%. Thereof $1,564,444 was converted from convertible bonds and $15,375,505 from straight bonds to the loan in 2017. $21,725,592 of the total amount of $42,216,409 has the same subordination clauses as the borrowings due from Aires mentioned above. The remaining capital is due not before December 31, 2020, and latest by December 31, 2022.

Receivable from and loans to Josef Mettler

During 2016, the payable to the late Josef Mettler in the amount of $70,135 was repaid and $17,775 was advanced to Josef Mettler for private expenses.

During the third quarter of 2016 Josef Mettler passed away, therefore companies formerly owned by him are no longer related parties to the Company.

Current account Sportiva Participations AG

In 2016, up until the death of Josef Mettler, there were the following changes to the current account of Sportiva Participations AG. Thereafter, Sportiva Participations AG was no longer a related party.

    CHF   USD
Balance January 1, 2016     524,695       528,660  
Cash paid to SunVesta     870,000       875,780  
Cash received from SunVesta     (2,812,911 )     (2,867,777 )
Transfers from/(to) other related parties     1,502,026       1,545,020  
Interest credited to the account     4,801       4,852  
Changes in forreign currency     —         1,976  
Transfer to third party upon death of the late Josef Mettler     (88,611 )     (88,511 )
Balance September 12, 2016     —         —    

 

Commissions paid or payable to related parties

In 2016, the Company paid commissions to 4f Capital AG in the amount of $253,945 (up to the death of the late Josef Mettler) for services related to financing of the Company. These costs were capitalized as debt issuance costs. 4f Capital AG was a company owned and directed by the late Josef Mettler that received a commission of 1.5% on new funds that the Company received based on consulting services rendered by 4f Capital AG. 

  F- 26  

 

SUNVESTA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017 and 2016

 

 

10. BONDS

Description   EUR (€) bond new I   EUR (€) bond new II
Issuer:   SunVesta Holding AG   SunVesta Holding AG
Type of securities:   Bond in accordance with
Swiss Law
  Bond in accordance with
Swiss Law
Approval by SunVesta AG   October 31, 2013   May 19, 2014
Volume:   Up to EUR 15,000,000   Up to EUR 15,000,000
Units:   EUR10,000   EUR 10,000
Offering period:   11/07/2013 – 03/31/2014   05/01/14 – 06/30/14
Due date:   December 2, 2016   December 2, 2016
Issuance price:   100%   100%
Issuance day:   December 2, 2013   December 2, 2013
Interest rate:   7.25% p.a.   7.25 % p.a.
Interest due dates:   December 2, 2013   December 2, 2013
Applicable law:   Swiss   Swiss

 

EURO (€) Bond new I   2017   2016
    $   $
Balances January 1     31,541       6,871,630  
Cash inflows     —         —    
Cash outflows     —         (6,736,255 )
Reclassification from/to Bond (net)     (32,271 )     —    
Foreign currency adjustments     730       (103,834 )
Sub-total     —         31,541  
Discounts (commissions paid to bondholders) and
debt issuance costs
    (588,613 )     (588,613 )
Accumulated amortization of discounts and
debt issuance costs
    588,613       563,636  
Total accumulated unamortized discounts and
debt issuance costs
    —         (24,977 )
Balances December 31 (Carrying value)     —         6,564  

 

  F- 27  

 

SUNVESTA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017 and 2016

 

10. BONDS - CONTINUED

EURO (€) Bond new II   2017   2016
    $   $
Balances January 1     511,805       1,658,300  
Cash inflows     —         —    
Cash outflows     (510,120 )     (159,950 )
Reclassification from/to Bond (net)     (9,761 )     (953,683 )
Foreign currency adjustments     8,075       (32,862 )
Sub-total     —         511,805  
Discounts (commissions paid to bondholders) and
debt issuance costs
    (174,660 )     (174,660 )
Accumulated amortization of discounts and
debt issuance costs
    174,660       140,754  
Reclassification from/to Bond (net)     —         —    
Total accumulated unamortized discounts and
debt issuance costs
    —         (33,906 )
Balances December 31 (Carrying value)     —         477,899  

During the year ended December 31, 2016, an amount of $953,683 was reclassified to the new parallel CHF-Bond III. Since the new debt was not significantly different from the old debt, the exchange was not treated as an extinguishment of debt.

On September 30, 2015, the Company approved the issuance of two convertible CHF-bonds. The major terms and conditions are the following: 

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

 

 

  F- 28  

 

SUNVESTA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017 and 2016

 

10. BONDS - CONTINUED

Convertible CHF BOND I   2017   2016
    $   $
Balances January 1     3,648,383       2,250,048  
Cash inflows     —         1,640,887  
Cash outflows     —         (103,008 )
Foreign currency adjustments     145,296       (105,058 )
Reclassification from/to bond (net)     (1,467,971 )     (34,486 )
Sub-total     2,325,707       3,648,383  
Discounts (commissions paid to bondholders) and debt issuance costs     (240,760 )     (136,722 )
Accumulated amortization of discounts and debt issuance costs, including expenses for extinguishment of debt     185,671       117,652  
Reclassification from/to bond (net)     —         (104,038 )
Total accumulated unamortized discounts and debt issuance costs     (55,089 )     (123,108 )
Balances December 31 (Carrying value)     2,270,618       3,525,275  

   

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

In 2017, $1,216,372 was transferred to CHF Bond III original and $251,599 to CHF Bond IV.

Convertible CHF BOND II   2017   2016
    $   $
         
Balances January 1     36,770,369       26,470,395  
Cash inflows     20,079       7,142,850  
Cash outflows     (1,795,594 )     (787,371 )
Foreign currency adjustments     1,213,824       (1,187,441 )
Reclassification from/to bond (net)     (27,195,887 )     5,131,937  
Sub-total     9,012,791       36,770,369  
Discounts (commissions paid to bondholders) and debt issuance costs     (4,895,604 )     (4,890,690 )
Accumulated amortization of discounts and debt issuance costs     4,644,340       2,690,579  
Total Accumulated Unamortized discounts and debt issuance costs     (251,264 )     (2,200,111 )
Balances December 31 (Carrying value)     8,761,527       34,570,259  

 

As per date of this report the Company has realized a cumulative amount of $9.0 million (CHF 8.8 million) related to the Convertible Bond II.

In 2016, the Company reclassified $634,186 (CHF 630,000) from convertible CHF Bond I to convertible CHF Bond II, together with a corresponding amount of $104,038 in capitalized debt issuance costs.

  F- 29  

 

SUNVESTA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017 and 2016

 

10. BONDS - CONTINUED

 

In April 2016, Global Care AG (“Global Care”) (a related party controlled by Dr. Rössler, a Company Director) assumed a liability of CHF 4.5 million due to Aires International Investment Inc., (also a related party controlled by Dr. Rössler). This CHF 4.5 million was subsequently subscribed into bonds of the Convertible Bond II issue. As the conversion includes a significant conversion option, the exchange is treated as an extinguishment of debt and an amount of $1,071,317 has been reclassified in the comprehensive statements of loss from revaluation of conversion feature to extinguishment of debt.

In 2017, $25,638,012 of Convertible CHF Bond II were exchanged for the new CHF-Bond IV and $1,564,444 for a note payable due to Global Care AG. As the terms of the new bond are significantly different to the convertible bond, an unamortized transaction cost of $1,221,277 was recognized as a loss on extinguishment of debt in the statement of comprehensive income. Additionally, $6,569 was reclassified to debt issuance cost.

The Company initiated a new 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

 

  F- 30  

 

SUNVESTA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017 and 2016

 

10. BONDS - CONTINUED

 

CHF BOND III original   2017   2016
    $   $
Balances January 1     15,601,389       —    
Cash inflows     1,374,842       699,650  
Cash outflows     —         —    
Foreign currency adjustments     927,598       (290,665 )
Reclassification from/to bond (net)     (14,159,133 )     15,192,404  
Sub-total     3,744,697       15,601,389  
Discounts (commissions paid to bondholders) and debt issuance costs     (248,819 )     (56,643 )
Accumulated amortization of discounts and debt issuance costs, including expenses for extinguishment of debt     167,335       (46,161 )
Total accumulated unamortized discounts and debt issuance costs     (81,484 )     (102,804 )
Balances December 31 (Carrying value)     3,663,213       15,498,586  

 

As per date of this report, the Company has realized a cumulative amount of $10.9 million (CHF 10.7 million) related to the CHF Bond III original.  

During the year 2016 an amount of $15,192,404 (CHF 15.2 million) was subscribed into this CHF Bond III in satisfaction of loans from related parties. Since the new debt was not significantly different from the old debt and did not include a conversion feature deemed substantive, the exchange was not treated as an extinguishment of debt.

In 2017, $1,216,372 was transferred from Convertible CHF Bond I to CHF Bond III. Additionally, $15,375,505 of CHF Bond III was converted in notes payable to Global Care AG. The exchange was treated as an extinguishment of debt with a corresponding expense of $106,762.  

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.

  F- 31  

 

SUNVESTA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017 and 2016

   

10. BONDS - CONTINUED

CHF BOND III parallel   2017   2016
    $   $
Balances January 1     961,595       —    
Cash inflows     —         —    
Cash outflows     —         —    
Foreign currency adjustments     41,861       (17,915 )
Reclassification from/to bond (net)     43,015       979,510  
Sub-total     1,046,471       961,595  
Discounts (commissions paid to bondholders) and debt issuance costs     (84,021 )     (79,289 )
Accumulated amortization of discounts and debt issuance costs     26,743       4,001  
Reclassification from/to bond (net)     —         —    
Total accumulated unamortized discounts and debt issuance costs     (57,278 )     (75,288 )
Balances December 31 (Carrying value)     989,193       886,307  

 

In 2016, an amount of $979,510 of which was reclassified from EUR Bond II.

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

On March 6, 2017, the Company approved the 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 1 st – November 1 st , 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 1 st   of each year, the first
time May 1 st , 2018
Applicable law:   Swiss

 

  F- 32  

 

SUNVESTA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017 and 2016

 

10. BONDS - CONTINUED

CHF BOND IV   2017   2016
    $   $
Balances January 1     —         —    
Cash inflows     1,678,336       —    
Foreign currency adjustments     372,407       —    
Reclassification from/to bond (net)     26,418,161          
Sub-total     28,468,904       —    
Discounts (commissions paid to bondholders) and debt issuance costs     (1,453,839 )     —    
Accumulated Amortization of discounts and debt issuance costs     185,828       —    
Total accumulated unamortized discounts and debt issuance costs     (1,268,011 )     —    
Balances December 31 (Carrying value)     27,200,893       —    

 

As per date of this report, the Company has realized a cumulative amount of $28.5 million (CHF 27.8 million) related to the CHF Bond IV.

In 2017, $25,638,012 was transferred from Convertible CHF Bond II, $251,599 from Convertible CHF Bond I and $528,550 from other debt to CHF Bond IV.

  F- 33  

 

SUNVESTA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017 and 2016

 

11. INCOME TAXES

The components of loss before income taxes are as follows:

    2017   2016
Domestic     (5,331,597 )     (1,411,971 )
Foreign     (10,082,600 )     (9,549,369 )
Loss before income tax     (10,961,340 )     (10,961,340 )

Income taxes relating to the Company’s operations are as follows:

      2017       2016  
Current income taxes                
US Federal, state and local     —         —    
Foreign     —         —    
Deferred income taxes     —         —    
US Federal, state and local     —         —    
Foreign     —         —    
Income tax expense/recovery     —         —    

 

Income taxes at the United States federal statutory rate compared to the Company’s income tax expenses as reported are as follows: 

    2017   2016
Net loss before income tax     (15,414,197 )     (10,961,340 )
     Statutory rate     35 %     35 %
Expected income tax recovery     (5,394,969 )     (3,836,469 )
Impact on income tax expense/recovery from                
Change in valuation allowance     4,534,893       3,518,283  
Different tax rates in foreign jurisdictions     737,692       921,953  
Expiration of unused tax loss carry forwards     1,148,939       502,483  
Permanent differences     1,214,999       (645,752 )
Difference due to tax review / previous year adjustments     (2,270,718 )     (317,710 )
Others     29,164       (142,789 )
Income tax expense     —         —    

  

  F- 34  

 

SUNVESTA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017 and 2016

 

11. INCOME TAXES - CONTINUED

The Company’s deferred tax assets and liabilities consist of the following: 

    December 31, 2017   December 31, 2016
Deferred tax assets                
Tax loss carry forward     25,935,845       20,370,022  
Valuation allowance     (25,935,845 )     (20,370,022 )
Deferred tax assets/liabilities     —         —    

 

As of December 31, 2017 and 2016, there were no known uncertain tax positions. We have not identified any tax positions for which it is reasonably possible that a significant change will occur during the next 12 months.

Pursuant to ASC 740-10-25-3 Income Taxes , an income tax provision has not been made for U.S. or additional foreign taxes since none of the subsidiaries of the Company are generating income nor are expected to in the foreseeable future. The company expects that future earnings will be reinvested, but could become subject to additional tax if they were remitted as dividends or were loaned to the Company, or if the Company should sell or dispose of its stock in the foreign subsidiaries. It is not practical to determine the deferred tax liability, if any, that might be payable on foreign earnings because if the Company were to repatriate these earnings, the Company believes there would be various methods available to it, each with different U.S. tax consequences.

The Company’s operating loss carry forward of all jurisdictions expire according to the following schedule: 

  Domestic   Foreign
2018   —         8,402,020  
2019   —         4,911,524  
2020   —         2,725,174  
2021   — &n