SUNVESTA, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017
3.
GOING CONCERN
The Company is currently working on building a hotel in the Papagayo Gulf Tourism Project area of
Guanacaste,
Costa
Rica.
The
project
is
expected
to
open
in
the
fourth
quarter
of
2018.
Until
the
completion of the project, the following expenditures are estimated to be incurred:
a.
Gross project cost
$
242,000,000
b. Less: Proceeds from sale of villas
(25,000,000)
c.
Net project cost
217,000,000
d. Overhead expenses
20,000,000
e.
Total, excluding other potential projects
$
237,000,000
Seventy
percent
of
the
net
project
cost
is
intended
to
be
financed
through
the
issuance
of
secured
bonds,
for
which
negotiations
have
been
initiated.
The
remaining
thirty
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 Mr. Hans Rigendinger, shareholder, Company Director and
Chief Executive Officer, Dr. Max R
ӧ
ssler, controlling shareholder of Aires International
Investment,
Inc. and 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 financing is secured for the entire project that they will act as guarantors to creditors
to the extent of the project’s ongoing capital requirements.
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.
The Guaranty Agreement
requires that
within 30 days of
receiving a demand notice, requested funds
are
made
available
by the
guarantors to
the
Company.
Based
on this
guaranty,
management
believes
that
available
funds
are
sufficient
to
finance
cash
flows
for
the
twelve
months
subsequent
to
March
31, 2017 and the filing date, though future anticipated cash outflows for investing activities continue
to depend on the availability of financing.
4.
CASH AND CASH EQUIVALENTS
Cash
and
cash
equivalents
are
available
to
the
Company
without
any
restriction
or
limitation
on
withdrawal
and/or
use
of
these
funds.
The
Company’s
cash
equivalents
are
placed
with
financial
institutions that
maintain
high
credit
ratings.
The
carrying amounts
of
these
assets approximate
their
fair value.
Cash and cash
USD
CHF
Other
Total
Total
equivalents
March 31, 2017
December 31, 2016
original currency
16,316
2,535,861
11,599
in $
16,316
2,529,335
11,530
2,557,181
806,440
USD ($) =
US Dollar
EURO =
Euro
CHF
=
Swiss Francs
AUD
=
Australian Dollar
CRC
=
Costa Rican Colón
10
SUNVESTA, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017
5.
RESTRICTED CASH
As of March 31, 2017, the Company has the following restricted cash positions:
Restricted Cash
March 31, 2017
December 31, 2016
$
$
Credit Suisse in favor of BVK pension fund
127,412
125,399
Banco National de Costa Rica in favor of the Costa Rican Tourism Board
933,350
933,350
Banco Lafise in favor Costa Rican Environmental Agency – SETENA
608,302
608,302
Gross
1,669,064
1,667,051
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. Therefore, this restricted
cash position is also classified as long term.
6.
NOTE 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,
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
and
$250,000
as
of
December
31,
2015.
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
and
December
31,
2015,
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
has
been
fully
impaired
as
of
March
31, 2017.
7.
PROPERTY & EQUIPMENT
March 31, 2017
December 31, 2016
Land
$
19,700,000
19,700,000
IT Equipment
224,711
221,060
Other equipment and furniture
223,364
219,734
Leasehold improvements
75,226
74,004
Vehicles
-
74,000
Construction in-process
47,996,808
46,457,172
Gross
68,220,109
66,745,970
Less accumulated depreciation
(494,874)
(529,312)
Net
$
67,725,234
66,216,658
Depreciation expenses for the period ended March 31, 2017 and 2016
10,024
61,771
11
SUNVESTA, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017
7.
PROPERTY & EQUIPMENT – CONTINUED
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
concession
land
amounts
to
$19.7
million
related
to
the
concessions
held
by
SunVesta
Costa Rica SA. $7 million (~84,000 m2) and $12.7 million (~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 initially expired 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 initially expired in November 2036.
On
July 14,
2015
the
Consejo
del
Polo
de
DesarrolloTuristico
Papagayo
at
ICT
(Council
of
Papagayo
Tourism
Development
Project),
unanimously
has
approved
the
extension
of
both
concessions until 2052.
The construction in
process
through
December
31, 2015
and
March
31,
2017,
is
represented
primarily by architectural work related to the hotel and apartments as well as construction work.
Deposit related to construction work
During
the
quarter
ended
March
31,
2017,
the
Company
made
deposits
with
several
contractors
for
earth
moving
groundwork.
These
deposits
will
be
offset
against
invoices
as
such
groundwork
is
completed.
As
of
March
31,
2017
and
December
31,
2016,
the
Company
has
deposits
of
$214,545
and $190,549 respectively, which have not yet been set off.
12
SUNVESTA, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017
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 March 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.
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:
13
SUNVESTA, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017
8.
FAIR VALUE MEASUREMENT – CONTINUED
—
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
rates
of 7.25% for
CHF
bonds,
which
represents
the
current
market
rate
based
on
the
creditworthiness
of
the
Company.
Hence,
the
carrying values approximate fair value.
—
Notes
payable
to
related
parties
–
Aires
(non-current)
–
The
fair
values
of
the
notes
payable
to
Aires
International
Investments
Inc.
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.
14
SUNVESTA, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017
8.
FAIR VALUE MEASUREMENT – CONTINUED
The fair value of our financial instruments is presented in the table below:
March 31, 2017
December 31, 2016
Carrying
Fair Value $
Carrying
Fair Value $
Fair
Ref-
Amount $
Amount $
Value
erence
Levels
Cash and cash equivalents
2,557,181
2,557,181
806,440
806,440
1
Note 4
Restricted cash
1,669,064
1,669,064
1,667,052
1,667,052
1
Note 5
Receivables from related parties –
other (current)
65,483
65,483
49,292
49,292
3
Note 10
Accounts Payable
1,979,141
1,979,141
3,311,512
3,311,512
1
-
Bank liabilities
-
-
-
-
1
Note 11
Note payable
1,521,648
1,521,648
1,500,000
1,500,000
1
Note 18
Notes payable to related parties –
other (current)
7,338,257
7,338,257
307,089
307,089
3
Note 10
Notes receivable
-
-
280,242
280,242
3
Note 6
EUR-bonds
-
-
484,463
484,463
3
Note 12
Convertible CHF-bonds
37,295,876
37,295,876
38,095,533
38,095,533
3
Note 12
CHF-bonds
17,556,862
17,556,862
16,384,893
16,384,893
Note 12
Notes payable to related parties –
Aires (non-current)
53,205,093
53,205,093
51,473,793
51,473,793
3
Note 10
Liability related to conversion feature
5,336,233
5,336,233
5,936,378
5,936,378
3
Note 12
The
Company's
financial
liabilities
measured
at fair
value
on
a
recurring
basis
consisted
of
the
liability related to conversion feature as of the following date:
Balance at December 31, 2016
5,936,378
Additions / (Decrease)
(40,158)
Change in Fair Value of Conversion Feature
(662,601)
FX Revaluation
102,613
Balance at March 31, 2017
5,336,233
Total income (+) or expense (-) related to the conversion feature in the three months up to March 31,
2017,
amounts
to
$600,145.
The
Company
used
a
Black-Scholes
model
to
value
the
liability
related
to
conversion
feature
as
of
March
31,
2017
and
December
31,
2016.
Increase
of
the
conversion
feature due to increase of bond volume are accounted for within interest expense.
The assumptions as of March 31, 2017 are as follows:
Stock Price: CHF 5.08
Annualized Risk Free Rate: 0.001%
Exercise Price: CHF 8
Annualized Volatility:
80%
Time to Maturity: 1.5 years
The assumptions as of December 31, 2016 are as follows:
Stock Price: CHF 5.08
Annualized Risk Free Rate: : 0.001%
Exercise Price: CHF 8
Annualized Volatility:
80%
Time to Maturity: 1.75 years
15
SUNVESTA, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017
9.
RELATED PARTY TRANSACTIONS
The advances from (to) related parties are composed as follows:
Receiva
bles
P
a
yab
les
March 31,
December 31,
March 31,
December 31,
2017
2016
2017
2016
1
Aires International
-
-
53,205,093
51,473,793
2
Akyinyi Interior and Exterior
Decoration
-
-
290,000
290,000
3
Global Care AG
-
-
7,048,257
-
4
Late Josef Mettler
-
-
-
17,088
5
Turan Tokay
65,483
49,292
-
-
Total excluding interest
65,483
49,292
60,543,350
51,780,881
Accrued interest
-
-
-
-
Total
65,483
49,292
60,543,350
51,780,881
of which non-current
-
-
53,205,093
51,473,793
Related party
Capacity
Interest Repayment
Rate
Terms
Security
1
Aires International
Company owned by Dr. Rössler, a board member
7.25%
See below
none
2
Akyinyi Interior and
Company owned by the widow of the late Josef
Exterior Decoration Mettler
none
none
none
3
Global Care AG
Company owned by Dr. Rössler, a board member
7.25%
none
none
4
Late Josef Mettler
Former shareholder, CEO, CFO and Company
board member
3%
none
none
5
Turan Tokay
Board Member
3%
none
none
Loan agreement Aires International Investment Inc.
As of March 31, 2017, the Company owes Aires International Inc. the following:
Borrower
Debt instrument Amount in CHF
Amount in USD
Annual
Repayment date *
denominated in
interest
CHF
rate
SunVesta Inc.
Promissory note
10,044,371
10,018,523 CHF 7.25 %
After Dec 31, 2020
SunVesta Inc.
Promissory note
10,000,000
9,974,266 USD
7.25 %
After Dec 31, 2020
SunVesta Inc.
Promissory note
10,000,000
9,974,266 USD
7.25 %
After Dec 31, 2020
SunVesta Inc.
Loan agreement
10,378,152
10,417,107 USD
7.25 %
After Dec 31, 2020
SunVesta Holding
Loan agreement
12,854,008
7.25 %
After Dec 31, 2020
12,820,930 USD
Total
53,205,093 USD
*
The notes may be repaid in whole or in part.
Loan due to Global Care AG
During the first quarter of 2017, Global Care AG, a company owned by Dr. R
ӧ
ssler (a director of the
Company),
provided
$7,048,257
to
the
Company
at
7.25%
interest,
repayable
not
before
December
31, 2020.
16
SUNVESTA, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017
10.
BONDS
Description
EUR (
€
) bond new I
EUR (
€
) bond new II (parallel)
(repaid)
(repaid)
Issuer:
SunVesta Holding AG
SunVesta Holding AG
Type of securities:
Bond in accordance with Swiss law
Bond in accordance with Swiss law
Approval by SunVesta AG BOD:
October 31, 2013
May 19, 2014
Volume:
Up to EUR15,000,000
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 02, 2016
Issuance price:
100%
100 %
Issuance day:
December 2, 2013
December 02, 2013 (retroactive)
Interest rate:
7.25% p.a.
7.25 % p.a.
Interest due dates:
December 2, 2013
December 02
Applicable law:
Swiss
Swiss
EURO (
€
) Bond new
I
EURO Bond
EURO Bond
(New) 2017
(New) 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 March 31 and December 31 (Carrying value)
-
6,564
17
SUNVESTA, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017
10. BONDS – CONTINUED
EURO (
€
) Bond new
II
EUR Bond
EUR Bond
new
II
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 March 31 and December 31 (Carrying value)
-
477,899
On September 30, 2015, the Company approved the issuance of two new 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,
Senior convertible bonds,
convertible into shares of the issuer,
convertible into shares of the issuer,
in accordance with Swiss law
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
September 30 of each year, the
first time September 30, 2016
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
18
SUNVESTA, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017
10.
BONDS – CONTINUED
Convertible CHF BOND I
Convertible CHF
Convertible CHF
Bond I 2017
Bond I 2016
$
$
Balances January 1
3,648,383
2,250,048
Cash inflows
-
1,640,887
Cash outflows
-
(103,008)
Foreign currency adjustments
60,262
(105,058)
Reclassification from / to Bond (net)
-
(34,486)
Sub-total
3,708,645
3,648,383
Discounts (commissions paid to bondholders) and debt
issuance costs
(240,760)
(136,722)
Accumulated Amortization of discounts and debt issuance
costs
133,496
117,652
Reclassification from / to Bond (net)
-
(104,038)
Total Accumulated Unamortized discounts and debt issuance
costs
(107,264)
(123,108)
Balances March 31 and December 31 (Carrying value)
3,601,381
3,525,275
In the first quarter of 2016, the Company reclassified $634,186 from Convertible CHF Bond I.
As
per
date
of
this
report,
the
Company
has
realized
a
cumulative
amount
of
CHF
3.6
million
($3.6
million) related to the CHF Convertible Bond I.
Convertible CHF BOND II
Convertible CHF
Convertible CHF
Bond II 2017
Bond II 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
618,871
(1,187,441)
Reclassification from / to Bond (net)
-
5,131,937
Sub-total
35,613,725
36,770,369
Discounts (commissions paid to bondholders) and debt
issuance costs
(4,788,078)
(4,890,690)
Accumulated Amortization of discounts and debt issuance
costs
2,868,848
2,586,541
Reclassification from / to Bond (net)
-
104,038
Total Accumulated Unamortized discounts and debt issuance
costs
(1,919,230)
(2,200,111)
Balances March 31 and December 31 (Carrying value)
33,694,495
34,570,258
In
April
2016, Global
Care AG (a related party controlled by Dr. Rössler, a Company board member)
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
inclues
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.
19
SUNVESTA, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017
10.
BONDS – CONTINUED
As per
date of this report
the Company has realized a cumulative amount
of
CHF 32.7 million ($32.9
million) related to the Convertible Bond II.
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
CHF BOND III original
CHF Bond III
CHF Bond III
2017
2016
$
$
Balances January 1
15,601,389
-
Cash inflows
943,704
699,650
Cash outflows
-
-
Foreign currency adjustments
251,571
(290,665)
Reclassification from / to Bond (net)
-
15,192,404
Sub-total
16,796,665
15,601,389
Discounts (commissions paid to bondholders) and debt
issuance costs
(160,270)
(56,643)
Accumulated Amortization of discounts and debt issuance
costs
13,835
3,814
Reclassification from / to Bond (net)
-
(49,975)
Total Accumulated Unamortized discounts and debt issuance
costs
(146,435)
(102,804)
Balances March 31 and December 31 (Carrying value)
16,650,230
15,498,586
During
the
year
2016
an
amount
of
$15,192,404
(CHF
15.2
million)
was
subscribed
into
this
CHF
Bond
III
from
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.
As per date of this report the Company has realized a cumulative amount of CHF 16.7 million ($16.8
million) related to the CHF Bond III original. Within the abovementioned facility, the Company
initiated a new parallel offering of senior unsecured CHF bonds on September 21,
2016. An amount of $979,510 of which was reclassified from EUR Bond II.
20
SUNVESTA, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017
10.
BONDS – CONTINUED
Within
the
CHF
Bond
III,
the
Company
initiated
a
new
parallel
offering
of
senior
unsecured
CHF
bonds on September 21, 2016.
CHF BOND III parallel
CHF Bond III
CHF Bond III
2017
2016
$
$
Balances January 1
961,595
-
Cash inflows
-
-
Cash outflows
-
-
Foreign currency adjustments
15,883
(17,915)
Reclassification from / to Bond (net)
-
979,510
Sub-total
977,478
961,595
Discounts (commissions paid to bondholders) and debt
issuance costs
(79,289)
(79,289)
Accumulated Amortization of discounts and debt issuance
costs
8,443
4,001
Reclassification from / to Bond (net)
-
-
Total Accumulated Unamortized discounts and debt issuance
costs
(70,846)
(75,288)
Balances March 31 and December 31 (Carrying value)
906,632
886,307
As
per
date
of
this
report
the
Company
has
realized
a
cumulative
amount
of
CHF
0.9
million
($0.9
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
There were no amounts outstanding as of March 31, 2017.
21
SUNVESTA, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017
11.
PENSION PLAN
The
Company
maintains
a
pension
plan
covering
all
employees
in
Switzerland.
The
plan
is
considered
a
defined
benefit
plan
and
accounted
for
in
accordance
with
ASC
715
Compensation
-
Retirement
Benefits
.
This
model
allocates
pension
costs
over
the
service
period
of
employees
in
the
plan. The underlying principle is that employees render services ratably over this period, and
therefore, the income statement effects of pensions should follow a similar pattern. ASC 715
requires
recognition
of
the
funded
status,
or
difference
between
the
fair
value
of
plan
assets
and
the
projected
benefit
obligations
of
the
pension
plan
on
the
balance
sheet,
with
a
corresponding
adjustment
recorded
in
the
net
loss.
If
the
projected
benefit
obligation
exceeds
the
fair
value
of
plan
assets, then that difference or unfunded status represents the pension liability.
The Company
records
a net periodic
pension
cost in the
statement of comprehensive loss.
The
liabilities
and
annual
income
or
expense
of
the
pension
plan
is
determined
using
methodologies
that
involve
several
actuarial
assumptions,
the
most
significant
of
which
are
the
discount
rate
and
the
long-term
rate
of
asset
return
(based
on
the
market-related
value
of
assets).
The
fair
values
of
plan
assets are determined based on prevailing market prices.
Actuarial valuation
Net periodic pension cost has been included in the Company’s results as follows:
Three months ended
Three months ended
Pension expense
March 31, 2017
March 31, 2016
$
$
Current service cost
14,055
15,607
Net actuarial (gain) loss recognized
-
649
Interest cost
577
961
Expected return on assets
(1,431)
(1,948)
Employee contributions
(5,020)
(5,973)
Net periodic pension cost
8,182
9,297
During the three-month periods ended March 31, 2017 and March 31, 2016, the Company made cash
contributions of $27,494 and $5,973, respectively, to its defined benefit pension plan.
All
of
the
assets
are
held
under
a
collective
contract
by
the
plan’s
re-insurance
company
and
are
invested
in
a
mix
of
Swiss
and
international
fixed-income
and
equity
securities
within
the
limits
set
out by the Swiss pension law.
The
expected
future
cash
flows
to
be
paid
by
the
Company
in
respect
to
employer
contributions
to
the pension plan for the year ended December 31, 2017 are $20,079.
22
SUNVESTA, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017
12.
STOCK COMPENSATION
The
Company
has
included
share
based
compensation
under
the
SunVesta
Inc.
Stock
Option
Plan
2013 (“Plan”)
as
part of the total remuneration
in
certain
employment and Board of Director’s
contracts.
The
Company
is
authorized
to
grant
up
to
50,000,000
stock
options
under
the
Plan
to
acquire shares of its common stock.
The purpose
of
the
Plan
is to
advance the interests
of
the
Company by encouraging its
employees
to
remain associated with the Company and to assist it in building value.
For
all
employees,
fair
value
is
estimated
at
the
grant
date.
Compensation
costs
for
unvested
shares
are expensed over the requisite service period on a straight-line basis.
Share Grants – Mr. Hans Rigendinger
On January 1, 2013, the Company granted 3,500,000 common shares to Hans Rigendinger, valued at
$0.08
an
amount
equal
to
the
share
price
and
fair
value
of
the
shares
on
the
grant
date in
connection
with
his
employment
agreement
with
the
Company.
His
employment
agreement
obligates the
Company to issue 2,500,000 common shares as a retention award on each anniversary of the
employment agreement. The employment agreement has an initial term of three years with the
option to extend for an additional two years. Mr. Rigendinger’s employment agreement was renewed
on
January
1,
2016.
Therefore,
the
Company
may
issue
up
to
12,500,000
common
shares,
of
which
10,000,000 have been earned, through January 1, 2018.
Share Grants – Dr. Max Rössler
On
July
3,
2013,
the
Company
granted
to
Dr.
Max
Rössler
3,000,000
common
shares,
valued
at
$0.07
an
amount
equal
to
the
share
price
and
fair
value
of
the
shares
on
the
grant
date in
connection
with his appointment to the Board of Directors.
Share Grants – Mr. Josef Mettler
On
July
4,
2013,
the
Company
granted
5,000,000
common
shares
to
Josef
Mettler,
valued
at
$0.07,
an
amount
equal
to
the
share
price
and
fair
value
of
the
shares
on
the
grant
date,
in
connection
with
his
employment
agreement
with
the
Company.
His
employment
agreement
obligated
the
Company
to
issue
3,000,000
common
shares
as
a
retention
award
on
each
anniversary
of
the
employment
agreement.
The
employment
agreement
had
an
initial
term
of
three
years
with
the
option
to
extend
for
two
additional
two-year
periods.
Mr.
Mettler’s
employment
agreement
was
renewed
on
July
4,
2016. Therefore, in total
the Company could have issued up to 21,000,000 common shares, of
which
9,000,000 were earned prior to his death, through December 31, 2020.
Josef
Mettler
died
during
the
third
quarter
of
2016.
Subsequently,
the
necessary
accrual
up
until
his
death was reversed as of September 30, 2016.
Share Grants – Mr. José María Figueres
On
March
10,
2014,
the
Company
granted
500,000
common
shares
to
José
María
Figueres
Share
Grants
–
Mr.
,
valued
at
$0.10,
an
amount
equal
to
the
share
price
and
therefore
the
fair
value
on
grant
date,
in
connection
with
his
appointment
to
the
Board
of
Directors.
His
appointment
obligates
the Company to issue 200,000 common shares for each fully completed year of service.
23
SUNVESTA, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017
12.
STOCK COMPENSATION – CONTINUED
Howard Glicken
On
March
10,
2014,
the
Company
granted
500,000
common
shares
to
Howard
Glicken,
valued
at
$0.10,
an
amount
equal
to
the
share
price
and
therefore
the
fair
value
on
grant
date,
in
connection
with
his
appointment
to
the
Board
of
Directors.
His
appointment
obligates
the
Company
to
issue
200,000 common shares for each fully completed year of service.
Share Grants – Third party
On November 1, 2016, the Company granted 10,000,000 common shares to a non-related individual,
valued
at
a
total
of
$240,947
(CHF
240,000)
the
fair
value
on
grant
date,
in
connection
with
his
consulting
services
for
the
Company.
His
engagement
obligates
the
Company
to
issue
1,666,667
common
shares
for
each
fully
completed
month
of
service.
From
November
1,
2016
to
March
31,
2017,
the
individual
earned
a
total
of
8,333,335
shares,
creating
an
expense
for
the
Company
in
the
amount of $200,789 (CHF 200,000).
Based
on
these
contracts,
the
Company
has
included
the
following
stock-based
compensation
in
the
Company’s results:
Stock-based compensation
Three months
Three months
(shares)
ended March 31, 2017
ended March 31, 2016
Shares granted
57,200,000 shares
46,800,000 shares
Fair Value respectively
market price on grant date
$0.0659
$0.0744
Total maximal expenses
(2013-2020)
$3,770,947
$3,450,000
Shares vested
41,033,335 shares
26,800,000 shares
Shares forfeited
12,000,000 shares
-
shares
Unvested shares
4,166,665 shares
20,000,000 shares
Of
the
granted
shares,
12,000,000
were
forfeited
due
to
the
death
of
Josef
Mettler
during
the
third
quarter 2016.
As
of
March
31,
2017,
the
Company
expects
to
record
compensation
expense
in
the
future
of
up
to
$220,158 as follows:
Year ending December 31,
Stock-based
Through
compensation
December 31,
(shares)
2017
2018
2019
2020
$
$
$
$
Unrecognized
compensation
220,158
0
0
0
expense
Stock Options – Mr. Hans Rigendinger
The Company granted 10,000,000 stock options to Hans Rigendinger
on January 1, 2013, in
connection with his employment contract. Each option entitles Mr. Rigendinger to buy one Company
share
at
an
exercise
price
of
$0.05.
These
options
vest
in
two
identical
installments
(Installment
A
and Installment B) of 5,000,000.
24
SUNVESTA, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017
12.
STOCK COMPENSATION – CONTINUED
Stock Options – Mr. Hans Rigendinger - Continued
Installment
A
vesting
was
contingent
on
realizing
a
financing
arrangement
with
a
specific
counterparty.
As
of
the
grant
date,
the
fair
value
was
$300,000.
As
of
July
4,
2013,
the
Company
assessed
that
this
financing
arrangement
with
the
specific
counterparty
would
not
be
completed.
Therefore, the Company assessed the probability of completion to be zero and recognized no
expense.
On
July
4,
2013,
the
Company
authorized
a
revised
stock
option
agreement
that
removed
the
requirement
for
financing
with
a
specific
counterparty
and
updated
for
any
counterparty.
As
of
the
date
of
the
revised
stock
option
agreement,
the
fair
value
was
$246,000.
Since
the
modification
changed
the
expectation
that
the
options
would
ultimately
vest
and
no
expense
had
been
recognized
for the original award, the fair value of the modified award has been expensed on a straight line basis
over the recalculated expected remaining vesting period.
Installment
B
vesting
is
contingent
on
Meliá
Hotels
International
(“Melía”)
assuming
management
responsibilities for the Paradisus Papagayo Bay Resort & Luxury Villas. As of the grant date, the fair
value was $340,000 and the Company estimated that Meliá would assume responsibility as of July 1,
2015.
As
of
March
6,
2014,
the
Company
assessed
the
probability
that
this
performance
condition
would
be
met
to
be
100%,
but
the
date
on
which
the
performance
condition
would
have
to
be
achieved was postponed to the fourth quarter
2015, in line with the expected opening date. As of
the
date
of
this
report,
the
estimated
opening
date
has
been
postponed
to
the
fourth
quarter
2018,
being
the
required
date
of
the
performance
condition.
The
Company
still
assesses
the
probability
that
this
performance
condition
will
be
met
at
100%.
Hence,
the
remaining
fair
value
of
the
award
has
been
expensed on a straight-line basis over the recalculated expected remaining vesting period.
Stock Options
–
Dr. Max R
ӧ
ssler
The
Company
granted
10,000,000
stock
options
to
Dr.
Max
R
ӧ
ssler
on
July
3,
2013,
in
connection
with his appointment
to the Board of
Directors. Each option entitles Dr. R
ӧ
ssler
to buy one
Company share at an exercise price of $0.05. These options vest in two identical installments
(Installment A and Installment B) of 5,000,000 options.
Installment A
vesting
is contingent on
realizing
a financing
arrangement to
complete the
development
of
the
Paradisus
Papagayo
Bay
Resort
&
Luxury
Villas.
As
of
the
grant
date,
the
fair
value
was
$249,835.
The
Company
has
expensed
the
total
fair
value
of
the
award
on
a
straight-line
basis over the expected vesting period.
Installment B vesting is contingent on Meliá assuming management responsibilities for the Paradisus
Papagayo
Bay
Resort
&
Luxury
Villas.
As
of
the
grant
date
the
fair
value
was
$258,210
and
the
Company estimated that Meliá would assume responsibility as of July 1, 2015. As of March 6, 2014,
the Company assessed the probability that
this performance condition would be met
to be 100%, but
the date on which the performance condition would have to be achieved was postponed to the fourth
quarter 2015, in line with the expectedopening date.
As
of
the
date
of
this
report,
the
estimated
opening
date
has
been
postponed
to
the
fourth
quarter
2018,
being
the
required
date
of
the
performance
condition.
The
Company
still
assesses
the
probability
that
this
performance
condition
will
be
met
at
100%.
Hence,
the
remaining
fair
value
of
the award has been expensed on a straight-line basis over the recalculated expected remaining
vesting period.
25
SUNVESTA, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017
12.
STOCK COMPENSATION – CONTINUED
Stock Options – Mr. Josef Mettler
The company granted several installments of stock options in connection with his employment
contract.
Due
to
his
passing
away
during
the
third
quarter
2016,
the
probability
that
any
of
the
corresponding
performance
conditions
will
be
met
is
0%.
Therefore,
all
previously
recognized
expenses
in
the
amount of $561,064 – corresponding to options that had not yet vested – was reversed as of
September 30, 2016.
Stock Options – Summary
A summary of stock options outstanding as per March 31, 2017 is as follows:
Options outstanding
Number of
Weighted average
Weighted average
Options
exercise price
remaining
contractual life
Outstanding January 1, 2017
20,000,000
$ 0.05
7.42 years
Granted
-
Exercised
-
Forfeited or expired
-
Outstanding March 31, 2017
20,000,000
$ 0.05
6.13 years
Exercisable March 31, 2017
-
The
following
table
depicts
the
Company’s
non-vested
options
as
of
March
31,
2017
and
changes
during the period:
Non-vested options
Shares under Options
Weighted average grant date
fair value
Non-vested at January 1, 2017
20,000,000
$ 0.075
Non-vested-granted
-
-
Vested
-
-
Non-vested, forfeited or cancelled
-
-
Non-vested at March 31, 2017
20,000,000
$ 0.075
Under
the provisions
of
ASC
718
Compensation
– Stock Compensation, the
Company is required to
measure
and
recognize
compensation
expense
related to
any outstanding and
unvested
stock options
previously
granted,
and
thereafter
recognize,
in
its
consolidated
financial
statements,
compensation
expense
related
to
any
new
stock
options
granted
after
implementation
using
a
calculated
fair
value
based option-pricing model.
The
Company uses the
Black-Scholes option-pricing model
to calculate
the
fair
value
of
all
of
its
stock
options
and
its
assumptions
are
based
on
historical
and
available
market information. No stock options were granted for the periods ended March 31, 2017 and March
31, 2016.
Assumption
March 31, 2017
March 31, 20176
Dividend yield
Risk-free interest rate used (average)
Expected market price volatility
Average expected life of stock options
n.a
n.a
The computation of the expected volatility assumption used in the Black-Scholes calculation for new
grants
is
based
on
historical
volatilities
of
a
peer
group
of
similar
companies
in
the
same
industry.
The expected life assumptions are based on underlying contracts.
26
SUNVESTA, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017
12.
STOCK COMPENSATION – CONTINUED
As
of
March
31,
2017,
the
Company
had
unrecognized
compensation
expenses
related
to
stock
options currently outstanding, to be recognized in future quarters or years, respectively as follows:
Through to December 31,
Year ending December 31,
Stock-based compensation (options)
2017
2018
$
$
Unrecognized compensation expense
30,723
30,723
13.
SUMMARY OF SHARE AND OPTION COMPENSATION EXPENSE
The
Company
recorded
the
following
amounts
related
to
stock
based
compensation
expense
during
the periods ended March 31, 2017 respectively March 31, 2016:
Summary of share and option based
Three months ended
Three months ended
compensation expense
March 31, 2017
March 31, 2016
$
$
Share grants (see Note 14 for details)
260,789
112,500
Option grants (see Note 14 for details)
10,241
15,335
Total
271,030
127,835
(recorded under general &
administrative expense)
14.
FUTURE LEASE COMMITTMENTS
On
December
1,
2012,
the
Company
entered
into
a
lease
agreement
for
the
premises
for
its
Swiss
office
with
an
unrelated
entity.
The
annual
rental
expense
amounts
to
approximately
$130,000
on
a
fixed term expiring on December 31, 2017. The company has been invited by the landlord to discuss
a
continuation
or
termination
of
the
rental
agreement.
The
objective
is
to
come
to
a
decision
before
the middle of the calendar year 2017.
Future lease commitments
March 31, 2017
$
2017
97,500
15.
NOTE PAYABLE
March 31, 2017
December 31, 2016
$
$
Promissory note
1,000,000
1,500,000
Total
1,000,000
1,500,000
Promissory Note
On September 19, 2016, the Company signed an agreement with the counterparty, which stipulated
payment terms of four quarterly instalments of $500,000 each starting on November 21, 2016.
27
SUNVESTA, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017
16.
OPENING DATE “PARADISUS PAPAGAYO BAY RESORT & LUXURY VILLAS”
On
June
2,
2014,
the
Company amended
its
agreement
with
Meliá
(“Sixth addendum to
the
management agreement of March 8, 2011”) to postpone the opening date as follows:
-
The construction of the “Paradisus” will be completed by November 15,
2015
-
Should
the
“Paradisus”
not
be
completed
by
November
15,
2015,
(subject
to
force
majeure)
and
should
an
extension
date
not
be
agreed, subsequent
to
November
15,
2015,
the
Company
will be obligated to pay Meliá a daily amount of $2,000 as liquidated
damages.
-
Should
the
Company
be
unable
to
complete
the
construction
of
the
“Paradisus”
by
February
15,
2016,
Meliá,
can
terminate
the
management
agreement
obligating
the
Company
to
compensate
Meliá
in
the
amount
of
$5,000,000
unless
the
respective
parties
agree
to
extend
such date.
Dated
April
27,
2016
a
seventh
addendum
was
signed
between
the
Company
and
Melía
with
the
following major conditions:
a.
New completion date: September 15, 2018 (subject to force
majeure)
b.
Should
the
completion
not
occur
by
September
15,
2018
and
should
the
parties
not
have
agreed
in
writing
an
extension
to
such
date,
after
September
15,
2018,
the
Company
shall
pay Melía a daily amount of $2,000 as liquidated
damages.
c.
Should
the
completion
not
occur
by
November
15,
2018,
Melía
shall
be
entitled
to
terminate
the
agreement
unless
the
parties
agree
in
writing
to
extend
the
completion
date
and
the
Company shall
be obliged to
pay Melía $5,000,000
as liquidated
damages
solely to
compensate the
Manager.
17.
EARNINGS PER SHARE
Basic
earnings
per
share
are
the
result
of
dividing
the
Company’s
net
income
(or
net
loss)
by
the
weighted
average
number
of
shares
outstanding
for
the
contemplated
period.
Diluted
earnings
per
share
are
calculated
applying
the
treasury
stock
method.
When
there
is
a
net
income
dilutive
effect,
all stock-based compensation awards or
participating financial instruments are considered. When the
Company
posts
a
loss,
basic
loss
per
share
equals
diluted
loss
per
share.
The
following table
depicts
how
the
denominator
for
the
calculation
of
basic
and
diluted
earnings
per
share
was
determined
under the treasury stock method.
Three-month
Three-month
Earnings per share
period ended
period ended
March 31,
March 31,
2017
2016
Company posted
Net loss
Net loss
Basic weighted average shares
outstanding
108,234,104
98,506,438
Dilutive effect of common
stock equivalents
None
None
Dilutive weighted average
shares outstanding
108,234,104
98,506,438
A
total
of
11,233,335
common
shares
vested
have
not
been
issued
as
per
balance
sheet
date
but
are
included in the basic weighted average shares outstanding.
28
SUNVESTA, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017
17.
EARNINGS PER SHARE - CONTINUED
The
following
table
shows
the
number
of
stock
equivalents
of
SunVesta
Inc.
that
were
excluded
from the computation of diluted earnings per share for the respective period because the effect would
have been anti-dilutive.
Three-month
Three-month
Earnings per share
period ended
period ended
March 31, 2017
March 31, 2016
Options to Hans Rigendinger
10,000,000
10,000,000
Options to Dr. M. Rössler
10,000,000
10,000,000
Options to Josef Mettler
12,000,000
Total Options
20,000,000
32,000,000
Shares to Hans Rigendinger
2,500,000
5,000,000
(retention bonus – non vested)
Shares to Josef Mettler (retention award)
-
15,000,000
Shares to third party
1,666,665
400,000
Shares to Howard Glicken and José Maria Figueres
(retention award)
400,000
400,000
Total Shares
4,566,665
20,400,000
Total Options and Shares
24,566,665
52,400,000
Options
related
to
Convertible
CHF
bonds:
Each
bond
in
the
principal
amount
of
CHF
5,000
can
be
converted
on
any
business
day
during
the
conversion
period
into
625
common
shares
of
SunVesta
Holding AG at a conversion price equal to CHF 8.
A
number
of
4,343,840
stock
equivalents
of
SunVesta
Holding
AG
associated
with
the
Convertible
CHF
Bond
were
excluded
from
the
computation
of
diluted
earnings
per
share
for
the
three-month
period
ended
March
31,
2017
because
the
effect
would
have
been
anti-dilutive
(3,877,625
for
the
three-month period ended March 31, 2016).
18.
GENERAL AND ADMINISTRATIVE EXPENSES
General
and
administrative
expenses
according
to
the
consolidated
statement
of
comprehensive
loss
include:
Three-month
Three-month
period ended
period ended
March 31, 2017
March 31, 2016
$
$
Rental & related expenses
39,120
54,617
Audit
99,610
(12'777)
Consulting
695,751
211,319
Marketing, Investor & public relations
10,500
28,777
Travel expenses
133,958
103,746
Personnel costs including social security’s costs and
share based remuneration
283'533
463,701
Expense for penalty on management agreement
-
5,000,000
Office Expenses
203
-
Various other operating expenditures
113,295
223,588
Total according statement of comprehensice loss $
1,375,970
6,072,970
29
SUNVESTA, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017
19.
SUBSEQUENT EVENTS
Management
has
evaluated
subsequent
events
after
the
balance
sheet
date,
through
the
issuance
of
the
financial
statements,
for
appropriate
accounting
and
disclosure.
The
Company
has
determined
that
there
were
the
following
events
that
warrant
disclosure
or
recognition
in
the
financial
statements.
Litigation
The
Company
initiated
legal
proceedings
on
April
21,
2017,
against
the
seller
of
the
additional
concession properties in Polo Papagayo, Costa Rica.The claim is based on the seller’s alleged failure
to perform according to the terms of a purchase and sale agreement dated April 24, 2013, pursuant to
which
the
seller
was
to
return
deposits
in
the
amount
of
$1,669,701
on
receiving
notice
of
cancellation minus 5% in liquidated damages.
As of March 31, 2017, no gain has been recognized with respect to the claim against the seller of the
additional concession properties.
30
ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This
Management’s Discussion and Analysis of Financial Condition and Results of Operations
and
other parts of this quarterly report contain forward-looking statements that involve risks and
uncertainties. Forward-looking statements can be identified by words such as “anticipates,” “expects,”
“believes,” “plans,” “predicts,” and similar terms. Forward-looking statements are not guarantees of
future performance and our actual results may differ significantly from the results discussed in the
forward-looking statements. Factors that might cause such differences include but are not limited to
those discussed in the subsection entitled
Forward-Looking Statements and Factors That May Affect
Future Results and Financial Condition
below. The following discussion should be read in
conjunction with our financial statements and notes hereto included in this report. All information
presented herein is based on our three-month periods ended March 31, 2017 and March 31, 2016. Our
fiscal year end is December 31.
Discussion and Analysis
Business Overview
We are in the business of developing high-end luxury hotels and resorts in countries that are emerging
as popular tourist destinations. Our intention is to develop luxury hotel products located in countries
such as Costa Rica that are emerging as popular tourist destinations. Our first hospitality
development, to be constructed on 20.5 hectares of prime land located in Guanacaste Province, Costa
Rica is the Paradisus Papagayo Bay Resort & Luxury Villas, a five-star luxury hotel. All permitting
for the project is in place, including permission to incorporate the beachfront adjacent to the two
concessions into the development and all significant site work completed. Vertical construction is
expected to commence at the beginning of the second quarter of 2017, while the opening of the
Paradisus Papagayo Bay Resort & Luxury Villas is scheduled for the fourth quarter 2018. The
estimated commencement of construction and opening dates are subject to securing sufficient capital
commitments to complete the development.
Specifications
Paradisus Papagayo Bay Resort & Luxury Villas’ initial specifications are to be as follows:
— eco-luxury all-inclusive resort
— 382-keys
— direct beach access
— five restaurants and five bars
— Yhi Spa and Health Club
— Paradisus’ adults-only “Royal Service” level of accommodations
— Paradisus’ “Family Concierge” program
— 19,000 square feet of meeting facilities with the business traveler in mind
Vista Mar
Family Concierge
The Family Concierge will be a family orientated part of the Paradisus Papagayo Bay Resort &
Luxury Villas. The accommodations will be designed to satisfy the needs of the modern family.
The Family Concierge area will include:
31
—
166 Junior Suites Deluxe
(47* square meters)
—
34 Suites Deluxe
(87* square meters)
—
33 Suites Premium
(93* square meters)
—
6 Handicapped Junior Suites Deluxe
(47* square meters)
—
1 Bridal Suites
(93* square meters)
—
2 Deluxe Suites Presidential
(88* square meters)
—
1 Presidential Suite
(194* square meters)
*
Room size does not include balconies and terraces.
All ground floor suites will have direct access to swim-up pools. Each of the suites and villas will
have a full view of the sea. Family Concierge guests will furthermore have access to restaurants, bars,
and lounges. The planned Onyx Night Club and the Gabi Club will be located near the beach.
Vista Bahia
Royal Service
Our Royal Service will include an extensive range of services such as a butler service, private pools
for each Garden Villa and/or a Jacuzzi in every suite.
The Royal Service area will include:
— 108 Junior Suites Grand Deluxe
(43-60* square meters)
— 2 Junior Suites Grand Deluxe for Handicapped Guests
(53* square meters)
— 6 Grand Master Suites
(87* square meters)
— 2 Deluxe Suites Presidential
(60 square meters)
— 1 Grand Presidential Suite (4 bedrooms)
(145* square meters)
— 20 one or two-bedroom Garden Villas
(91–212* square meters)
— Room size does not include balconies and terraces.
* Room size does not include balconies and terraces.
All ground floor suites will have direct access to swim-up pools. Each of the suites and villas will
have a full view of the sea. Royal Service guests will furthermore have access to restaurants, bars,
lounges, fitness equipment, spas and outside massage areas.
The Paradisus Papagayo Bay Resort & Luxury 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. The present intention
being that these villas will be sold to individuals who will then lease them back to the resort when
not occupied by the owners.
32
Management
Overall project development is led by Hans Rigendinger, our Chairman of the Board and Chief
Executive Officer, Charles Fessel, Project Director Paradisus Papagayo Bay Resort & Luxury Villas
and Ernst Rosenberger, the Company’s Corporate Controller. The lead architect is Ossenbach,
Pendones & Bonilla, one of Costa Rica’s largest architectural offices with over 45 architects and
designers. Civil engineering services are provided by DEHC Engineers and structural engineering
services by IEAC. Landscape architects are TPA and interior designers are led by Laboratorio
Quattro.
Resort management is to be provided by 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 represents all-inclusive luxury resorts with hotels in Mexico and the Dominican
Republic.
Since the completion date for the Paradisus Papagayo Bay Resort & Luxury Villas development has
been delayed to the fourth quarter of 2018, the Company reached an agreement dated April 28, 2016,
to amend the original agreement with Meliá dated March 8, 2011. The current agreement stipulates
the following major conditions:
a.
New completion date: September 15, 2018 (subject to force majeure)
b.
Should the completion not occur by September 15, 2018 and should the Parties not have
agreed in writing an extension to such date, after September 15, 2018 the Owner shall
pay
the Manager a daily amount of $ 2,000 as liquidated damages.
c.
Should the completion not occur by November 15, 2018, and should the parties to the
management agreement not agree to an extension, the Company will be obligated to pay
Meliá $5,000,000 as liquidated damages.
Additional Concession Properties
The Company entered into a Purchase and Sale Agreement dated April 24, 2013, with Meridian IBG,
Inc., (“Meridian”) to purchase Marina Rose Ltda. (“Marina Rose”), a Costa Rican company that held
certain concessions located in the Gulf of Papagayo, Guanacaste Province, Costa Rica (“Meridian
Agreement”) for $17,500,000. One of the concessions lies adjacent to the SunVesta Costa Rica SA
concessions (La Punta) and the other is in close proximity. The Meridian Agreement caused the
Company to enter into a Purchase and Sale Agreement dated April 24, 2013, with RBAT Costa Rica
LLC, an entity controlled by Varde Investment Partners LP (“Varde”) to pay $8,000,000 of the
purchase price payable to Meridian to Varde (“Varde Agreement”). Varde delivered a notice of
termination of the Varde Agreement to the Company on January 4, 2014, and the Company noticed
cancellation of the Meridian Agreement to Meridian on February 24, 2017.
The Meridian Agreement entitled the Company to reimbursement for all amounts paid as deposits
against the purchase of Marina Rose less a liquidated damages penalty of 5% on providing notice of
cancellation. The Varde Agreement entitled the Company to reimbursement for all amounts paid as
deposits minus a non-refundable payment of $300,000 and a 5% liquidated damages penalty on
receiving notice of termination, the company entered into a new Stock Purchase Agreement with RBAT Costa Rica pursuant to which amounts refundable from the Varde Agreement were no longer refundable.
The Company delivered notice of its claims for reimbursement to the respective parties and has since
period end initiated legal proceedings to recoup amounts it believes to be due.
33
Finance
The anticipated completion of the Paradisus Papagayo Bay Resort & Luxury Villas in the fourth
quarter of 2018 will require a net investment of approximately $217 million (excluding non-
recuperated overhead expenses), of which approximately $67 million has been expended as of March
31, 2017. We aim to realize a minimum of $140 million in new funding over the next nine months.
New funding over the next nine 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
The Company has four bond issues outstanding, denominated in Swiss Francs (CHF).
Swiss Francs (CHF) Convertible Bonds
The Company initiated an 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, which are convertible into shares of
SunVesta Holding AG at CHF 8.00. We had realized $3,708,645 as of March 31, 2017 and
$3,648,383 as of December 31, 2016 in connection with this offering.
The Company initiated a parallel 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 matures on September 30, 2018, which are convertible into
shares of SunVesta Holding AG at CHF 8.00. We had realized $35,613,725 as of March 31, 2017 and
$36,770,369 as of December 31, 2016, in connection with this offering. Included in these amounts
was approximately $6.2 million (CHF 6.32 million) that by agreement with certain bondholders
deviated from the standard terms to provide for repayment by February 28, 2017. An amount of
$1,795,594 was repaid as of March 31, 2017. The remaining amount was rolled forward unchanged
from the original conditions of the offering.
Swiss Francs (CHF) Bonds
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. We had realized $16,796,665 as of March
31, 2017 and $15,601,389 as of December 31, 2016.
The Company initiated a new 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 16, over a four year term that matures on August 15, 2020. We had realized $977,478 as
of March 31, 2017 and $961,595 as of December 31, 2016.
Aires International Investment, Inc.
On July 27, 2011, SunVesta AG entered into a line of credit agreement with Aires International
Investments Inc. (
“
Aires
”
), a company owned by Dr. R
ӧ
ssler (a director of the Company). The credit
line was amended and then replaced by a new loan agreement on December 31, 2016, that includes
the following conditions:
34
—
All existing loan agreements or credit facilities, including amendments, between SunVesta AG
and Aires were cancelled and superseded by the new loan agreement.
—
The loans are due after December 31, 2020 and before December 31, 2022.
—
After December 31, 2020, the lender has the option to cancel the loan agreement with a prior
notice period of 90 days, requiring repayment of the loans in full.
—
The borrower has the right to repay the loan at any time with a prior notice period of 90 days.
—
Loan amounts outstanding including any additional amounts and additions are subordinated.
—
Interest on the loan amounts is 7.25% per annum, which is accrued to the loan account.
The Company had borrowed $53,205,093 from Aires as of March 31, 2017 and $51,473,793 as of
December 31, 2016.
Loan Global Care AG
During the first quarter of 2017, Global Care AG, a company owned by Dr. R
ӧ
ssler (a director of the
Company), provided $7,048,257 to the Company at 7.25% interest, repayable not before December
31, 2020.
Loan Blue Dot SA (formerly DIA S.A)
On March 8, 2013, the Company entered into an interest free loan agreement with Blue Dot SA
(formerly DIA SA) (“Blue Dot”) in connection with the purchase of the land concession for the
Paradisus Papagayo Bay Resort & Luxury Villas project.
On September 21, 2016, the Company signed a new agreement, which stipulates that the total
amount of $2,000,000 is repayable in four quarterly installments of $500,000 each, starting on
November 21, 2016.
Blue Dot was due $1,000,000 as of March 31, 2017 and $1,500,000 as of December 31, 2016.
Timeline
Our expected timeline for developing the Paradisus Papagayo Bay Resort & Luxury Villas is as
follows:
—
commence onsite vertical construction in the second quarter of 2017
—
complete construction in the fourth quarter of 2018
—
handover to Melía in the fourth quarter of 2018
Results of Operations
During the three-month period ended March 31, 2017, our operations were focused on (i) completing
earth work excavations on the Paradisus Papagayo Bay Resort & Luxury Villas property; (ii)
furthering discussions with prospective project development partners; and (iii) pursuing additional
debt financing to fund the construction of the project.
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 allocated primarily to the development of
the Costa Rican property, including the purchase of the land and general and administrative costs.
35
Comprehensive Losses
The variance in losses over the comparative three- month periods is reconciled:
Three months January to March 2016
(9,526,075)
Variances during the 3 months
Decrease in general and administrative expenses
4,696,999 Decrease was due to the accrual of a
penalty in 2016.
Increase in impairment expenses
(280,242) Impairment of REP Caribbean receivable
Increase in interest income
5,047 Increase in deposits
Decrease in interest expenses
930,493 Primarily increase in volume of
conversion feature in 2016 and decrease
in 2017.
Change in fair values of conversion features
253,903 Primarily decrease in time value of
conversion feature
Decrease in unrealized exchange gains
(414,602) Currency fluctuations
Decrease in other income / (expenses)
30,860 Not material
Decrease in foreign currency translation losses
665,068 Currency fluctuations
Total variances
5,887,526
Three months January to March 2017
(3,638,549)
The penalty accounted for during the period ended March 31, 2016 was in respect to the management
agreement with Meliá dated March 8, 2011. The amended agreement stipulated that if the Papagayo
Bay Resort & Luxury Villa’s would not be completed by November 15, 2018, and if an extension date
is not agreed, then Meliá could terminate the management agreement and cause the Company to pay a
penalty of $5 million. Consequently, an accrual in the amount of $5 million was charged against
operating expenses. In light of the seventh addendum to the management agreement that was signed
on April 27, 2016, this accrual was reversed in the second quarter of 2016.
We did not generate revenue during this period and we expect to continue to incur losses through the
year ended December 31, 2017.
Income Tax Expense (Benefit)
The Company has a prospective income tax benefit resulting from a net operating loss carry-forward
and startup costs that will offset future operating profits.
Capital Expenditures
The Company expended a significant amount on capital expenditures for the period from inception to
March 31, 2017, in connection with the purchase of land concessions in Costa Rica, as well as the
planning and construction of the project and expects to incur future cash outflows on capital
expenditure as discussed in the "Liquidity and Capital Resources" and the "Going Concern"
paragraphs below.
Liquidity and Capital Resources
Since inception the Company has experienced significant changes in liquidity, capital resources, and
stockholders’ equity.
36
As of March 31, 2017 and December 31, 2016, the following were working capital items:
March 31, 2017
December 31, 2016
Current assets
Cash and cash equivalents
2,557,181
806,440
Receivable from related parties
65,483
49,292
Other assets
460,977
456,099
Total current assets
3,083,641
1,311,830
Current liabilities
Accounts payable
1,979,141
3,311,512
Accrued expenses
2,810,375
3,160,722
Notes payable
1,521,648
1,500,000
Notes payable to related parties
7,338,257
307,088
Other liabilities
1,641
120
Bonds
-
6,687,384
Total current liabilities
13,651,063
14,966,825
Net working capital
(10,567,422)
(13,654,994)
As of March 31, 2017, and December 31, 2016, the following were the items making up the total
stockholders’ deficit:
March 31, 2017
December 31, 2016
Assets
Current assets
3,083,641
1,311,830
Non-current assets
69,608,843
68,354,502
Total assets
72,692,485
69,666,332
Liabilities
Current liabilities
13,651,063
14,966,825
Non-current liabilities
113,581,579
105,872,146
Total liabilities
127,232,642
120,838,971
Total stockholders’ deficit
(54,540,158)
(51,172,639)
The Company’s negative net working capital of $10,567,422 is a concern going forward. However,
based on the guaranty signed by certain principals, the Company is convinced that it can address
liquidity problems.
Net cash flow used in operating activities for the three-month period ended March 31, 2017, was
$3,309,830, as compared to $928,807 for the three-month period ended March 31, 2016.
We expect to continue to use net cash flow in operating activities until we complete the Paradisus
Papagayo Bay Resort & Luxury Villas project, which completion is projected for the fourth quarter of
2018.
Net cash used in investing activities for the three-month period ended March 31, 2017, was $596,408
as compared to $1,887,727 for the three-month period ended March 31, 2016. Net cash used in
investing activities in the current three-month period is comprised of the purchase of property and
equipment, offset by the sale of equipment. Net cash used in investing activities in the prior
comparable three-month period was comprised of the purchase of property and equipment, and
deposits related to construction, offset by receivables from related parties and restricted cash.
We expect negative net cash flow in investing activities to continue while in the process of developing
the Paradisus Papagayo Bay Resort & Luxury Villas.
37
Net cash provided by financing activities for the three-month period ended March 31, 2017, was
$5,655,631 as compared to $2,905,132 for the three-month period ended March 31, 2016. Net cash
provided by financing activities in the current three-month period is comprised of proceeds from notes
payable to related parties, proceeds from bond issuances net of commissions, and proceeds from other
debt, offset by repayments of bonds and other debt. Net cash provided by financing activities in the
prior comparable three-month period was comprised of proceeds from notes payable related parties,
and proceeds from bond issuances net of commissions, offset by the decrease in bank liabilities and
the repayment of other debt.
We expect net cash flow provided by financing activities to continue due to the financing necessary to
complete the development of the Paradisus Papagayo Bay Resort & Luxury Villas.
Management believes that cash on hand, related party loans, current bond offerings and the assurance
of the Guaranty Agreement as described in the going concern paragraph below are sufficient for us to
conduct operations over the next twelve months.
We had no formal lines of credit or other bank financing arrangements as of March 31, 2017.
We have commitments that include an award letter issued in favor of certain general contractors
together with purchase orders and related agreements for $130 million as of March 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 $217 million to complete the
project.
We maintain a defined benefit plan that covers all of our Swiss employees.
We have no current plans for significant purchases or sales of plant or equipment, except in
connection with the planned construction of the Paradisus Papagayo Bay Resort & Luxury Villas.
We have no current plans to make any changes in the number of our employees as of March 31, 2017.
Future Financings
As
of
March
6,
2017,
the
Company
has
approved
issuance
of
a
new
6.5%
bond.
There
were
no
amounts outstanding as of March 31, 2017.
Off-Balance Sheet Arrangements
As of March 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 intends to build a hotel in the Papagayo Gulf Tourism Project area of Guanacaste,
Costa Rica. The total net investment is estimated to be approximately $237 million.
The project is expected to open in the fourth quarter of 2018. Until the completion of the project, the
following expenditures are estimated to be incurred:
38
a.
Gross project cost
$
242,000,000
b. Less: Proceeds from sale of villas
(25,000,000)
c.
Net project cost
217,000,000
d. Overhead expenses
20,000,000
e.
Total, excluding other potential projects
$
237,000,000
Seventy percent of the “Net project cost” is intended to be financed through the issuance of secured
bonds, for which negotiations have been initiated. The remaining thirty percent of the “Net project
cost”, as well as “non-recuperated overhead expenses” and the cost of potential “other projects” are
intended to be financed by the main shareholders or lenders of the project in the absence of alternative
financing committements, i.e. Mr. Hans Rigendinger, shareholder, interim Chief Executive Officer
and Company Board Member and Dr. Max Rössler, Company Board Member and controlling
shareholder of Aires.
On July 16, 2012, certain principal shareholders of the Company or principal lenders to the project
entered into a guaranty agreement in favor of SunVesta AG. The purpose of the guaranty is to ensure
that until such time as financing is secured for the entire project that they will act as a guarantor to
creditors to the extent of the project’s ongoing capital requirements.
On September 22, 2015, the signatories to the guaranty formally agreed to maintain the guaranty, as
necessary, until December 31, 2018, after which date the guaranty will expire.
On September 12, 2016, the signatories to the guaranty 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. The guaranty agreement requires that within 30 days of
receiving a demand notice, the requested funds are made available by the guarantors to the Company.
Based on this Guaranty Agreement, management believes that available funds are sufficient to finance
cash flows for the twelve months subsequent to March 31, 2017, and the filing date, though future
anticipated cash outflows for investing activities will continue to depend on the availability of
financing.
Forward-Looking Statements and Factors That May Affect Future Results and Financial
Condition
The statements contained in the section titled
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
and elsewhere in this current report, with the exception of
historical facts, are forward-looking statements. Forward-looking statements reflect our current
expectations and beliefs regarding our future results of operations, performance, and achievements.
These statements are subject to risks and uncertainties and are based upon assumptions and beliefs
that may or may not materialize. These statements include, but are not limited to, statements
concerning:
—
our anticipated financial performance and business plan
—
the sufficiency of existing capital resources
—
our ability to raise additional capital to fund cash requirements for future operations
—
uncertainties related to our future business prospects
—
our ability to generate revenues to fund future operations
—
the volatility of the stock market
—
general economic conditions
39
We wish to caution readers that our operating results are subject to various risks and uncertainties that
could cause our actual results to differ materially from those discussed or anticipated elsewhere in this
report. We also wish to advise readers not to place any undue reliance on the forward-looking
statements contained in this report, which reflect our beliefs and expectations only as of the date of
this report. We assume no obligation to update or revise these forward-looking statements to reflect
new events or circumstances or any changes in our beliefs or expectations, other than as required by
law.
Recent Accounting Pronouncements
Please see Note 2 to the accompanying consolidated financial statements for recent accounting
pronouncements.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Not applicable.
ITEM 4.
CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
In connection with the preparation of this current report, an evaluation was carried out by the
Company’s management, with the participation of its chief executive officer and chief financial
officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules
13a-15(e) under the Securities Exchange Act of 1934 (“Exchange Act”)). Disclosure controls and
procedures are designed to ensure that information required to be disclosed in reports filed or
submitted under the Exchange Act is recorded, processed, summarized, and reported within the time
periods specified in the Commission’s rules and forms, and that such information is accumulated and
communicated to management, including the chief executive officer and chief financial officer, to
allow timely decisions regarding required disclosures.
Based on that evaluation, the Company’s management concluded, as of the end of the period covered
by this report, that the Company’s disclosure controls and procedures were not effective in recording,
processing, summarizing, and reporting information required to be disclosed, within the time periods
specified in the Commission’s rules and forms, and that such information was not accumulated and
communicated to management, including the chief executive officer and the chief financial officer, to
allow timely decisions regarding required disclosures.
Changes in Internal Control over Financial Reporting
During the quarter ended March 31, 2017, there has been no change in internal control over financial
reporting that has materially affected, or is reasonably likely to materially affect our internal control
over financial reporting.
40