NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2017
1.
Corporate Information
On
August 27, 2007, SunVesta Inc. (“Company”) acquired SunVesta Holding AG (“SunVesta AG”). SunVesta AG has
three wholly-owned subsidiaries: SunVesta Projects and Management AG, a Swiss company; SunVesta Costa Rica SA, a Costa Rican company
and SunVesta Holding España SL, a Spanish company.
The
Company is focused on the development of a holiday resort in Costa Rica. Planning for this project has been fully completed, all
consents have been granted, and excavation work began in March 2013. The Company is in the process of securing financing for the
project and has not realized revenue to date. Since the financing of the project is not complete, the Company’s activities
are subject to significant risks and uncertainties.
These
consolidated financial statements are prepared in US Dollars on the basis of generally accepted accounting principles in the United
States of America (“US GAAP”).
2.
Significant Accounting Policies
New
accounting standards – not adopted
In
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.
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.
SUNVESTA,
INC.
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2017
2.
SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
New
accounting standards – not adopted
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.
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.
SUNVESTA,
INC.
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2017
2.
SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
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.
SUNVESTA,
INC.
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2017
3.
GOING CONCERN
The
Company is currently working on building a holiday resort in the Papagayo Gulf Tourism Project area of Guanacaste, Costa Rica.
The project is not expected to open before the end 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 debt facilities, for which negotiations
are in progress. 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 Dr. 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.
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, Dr. 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 September 30, 2017 and the filing date.
4.
CASH AND CASH EQUIVALENTS
Cash
and cash equivalents are available to the Company without any restriction or limitation on withdrawal and/or use of these funds.
The Company’s cash equivalents are placed with financial institutions that maintain high credit ratings. The carrying amounts
of these assets approximate their fair value.
Cash
and cash equivalents
|
|
USD
|
|
CHF
|
|
Other
|
|
Total
|
|
Total
|
|
|
|
|
|
|
|
|
September
30,
2017
|
|
December
31,
2016
|
original
currency
|
|
|
4,600
|
|
|
|
4,419,670
|
|
|
|
12,905
|
|
|
|
|
|
|
|
|
|
in
$
|
|
|
4,600
|
|
|
|
4,535,977
|
|
|
|
13,295
|
|
|
|
4,553,872
|
|
|
|
806,440
|
|
USD
($)
|
=
|
US
Dollar
|
CHF
|
=
|
Swiss
Francs
|
Other
|
=
|
Australian
Dollar and Costa Rican Colón
|
SUNVESTA,
INC.
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2017
5.
RESTRICTED CASH
As
of September 30, 2017, the Company has the following restricted cash positions:
|
|
September
30, 2017
|
|
December
31, 2016
|
|
|
$
|
|
$
|
Credit
Suisse in favor of BVK pension fund
|
|
|
131,061
|
|
|
|
125,400
|
|
Banco
Lafise in favor of the Costa Rican Tourism Board
|
|
|
933,350
|
|
|
|
933,350
|
|
Banco
Lafise in favor Costa Rican Environmental Agency – SETENA
|
|
|
605,753
|
|
|
|
608,302
|
|
Gross
|
|
|
1,670,164
|
|
|
|
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.
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, was fully impaired as of March 31, 2017.
7.
PROPERTY & EQUIPMENT
|
|
September
30, 2017
|
|
December
31, 2016
|
Concession
Land
|
|
$
|
19,700,000
|
|
|
|
19,700,000
|
|
IT
Equipment
|
|
|
231,220
|
|
|
|
221,060
|
|
Other
equipment and furniture
|
|
|
231,233
|
|
|
|
219,734
|
|
Leasehold
improvements
|
|
|
77,405
|
|
|
|
74,004
|
|
Vehicles
|
|
|
—
|
|
|
|
74,000
|
|
Construction
in-process
|
|
|
53,343,006
|
|
|
|
46,457,172
|
|
Gross
|
|
|
73,582,864
|
|
|
|
66,745,970
|
|
Less
accumulated depreciation
|
|
|
(529,093
|
)
|
|
|
(529,312
|
)
|
Net
|
|
$
|
73,053,771
|
|
|
|
66,216,658
|
|
Depreciation
expenses for the period ended September 30, 2017 and December 2016
|
|
|
29,880
|
|
|
|
61,771
|
|
SUNVESTA,
INC.
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2017
7.
PROPERTY & EQUIPMENT – CONTINUED
Concession
Properties
Property
and equipment is comprised of concession land held in Costa Rica that is being developed for a hotel, planning expenses, earth
works 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 (~94,000 m2) and $12.7 million (~133,000 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 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 to expire in November 2036.
On
July 14, 2015 the Consejo del Polo de DesarrolloTuristico Papagayo at ICT (Council of Papagayo Tourism Development Project), unanimously
approved the extension of both concessions until 2052.
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 $300,000 in liqudated 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 againt the seller has since been dismissed on technical grounds and the legal proceeding against the third
party has been withdrawn by the Company on contractual grounds. The Company is assessing whether to file a new complaint against
the seller.
As
of September 30, 2017, no gain has been recognized with respect to the claims against the seller and the third party in connection
with the additional concession properties.
All
expenses related to the agreements with the seller and the agreement with the third party seller, were impaired as of December
31, 2016.
Deposit
related to construction work
The
Company placed deposits with contractors for earth moving groundwork and infrastructure work. These deposits will be offset against
invoices as such works is completed. As of September 30, 2017 and December 31, 2016, the Company has deposits of $1,069,477 and
$190,549 respectively, which have not yet been set off.
SUNVESTA,
INC.
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 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 September 30, 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:
SUNVESTA,
INC.
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 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% or 6.5% respectively
for CHF bonds, which represented the current market rate based on the creditworthiness of the Company at issuance. Hence,
the carrying values approximate fair value.
|
—
|
Notes
payable to related parties – Aires and Global Care (non-current) – The fair values of the notes payable to Aires
International Investments Inc. and Global Care AG are classified as level 3. The fair values of the notes were determined
by discounting cash flow projections discounted at the respective interest rates of 7.25%, which represents the current market
rate based on the creditworthiness of the Company. Hence, the carrying value approximates fair value.
|
—
|
Convertible
CHF-bonds – The fair values of the convertible bonds payable are classified as level 3 fair values. The fair values
of the convertible bonds have been determined by discounting cash flow projections discounted at the respective interest rates
of 6.00% for convertible CHF bonds, which represents the current market rate based on the creditworthiness of the Company.
Hence, the carrying values approximate fair value.
|
—
|
Liability
related to conversion feature - The fair value of the liability related to conversion feature is classified as level 3 in
the fair value hierarchy. The fair value of the liability is determined using a Black Scholes model to calculate the option
value at each reporting date and multiplied by the number of potentially convertible shares.
|
SUNVESTA,
INC.
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2017
8.
FAIR VALUE MEASUREMENT – CONTINUED
The
fair value of our financial instruments is presented in the table below:
|
|
September
30, 2017
|
|
December
31, 2016
|
|
|
|
|
|
|
Carrying
Amount $
|
|
Fair
Value $
|
|
Carrying
Amount $
|
|
Fair
Value $
|
|
Fair
Value Levels
|
|
Ref-erence
|
Cash
and cash equivalents
|
|
|
4,553,872
|
|
|
|
4,553,872
|
|
|
|
806,440
|
|
|
|
806,440
|
|
|
|
1
|
|
|
|
Note
4
|
|
Restricted
cash
|
|
|
1,670,164
|
|
|
|
1,670,164
|
|
|
|
1,667,052
|
|
|
|
1,667,052
|
|
|
|
1
|
|
|
|
Note
5
|
|
Receivables
from related parties – other (current)
|
|
|
—
|
|
|
|
—
|
|
|
|
49,292
|
|
|
|
49,292
|
|
|
|
3
|
|
|
|
Note
9
|
|
Accounts
Payable
|
|
|
2,312,044
|
|
|
|
2,312,044
|
|
|
|
3,311,512
|
|
|
|
3,311,512
|
|
|
|
1
|
|
|
|
—
|
|
Note
payable
|
|
|
—
|
|
|
|
—
|
|
|
|
1,500,000
|
|
|
|
1,500,000
|
|
|
|
1
|
|
|
|
Note
15
|
|
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
|
|
|
12,711,869
|
|
|
|
12,711,869
|
|
|
|
38,095,533
|
|
|
|
38,095,533
|
|
|
|
3
|
|
|
|
Note
10
|
|
CHF-bonds
|
|
|
30,087,541
|
|
|
|
30,087,541
|
|
|
|
16,384,893
|
|
|
|
16,384,893
|
|
|
|
3
|
|
|
|
Note
10
|
|
Notes
payable to related parties (non-current)
|
|
|
93,153,232
|
|
|
|
93,153,232
|
|
|
|
51,473,793
|
|
|
|
51,473,793
|
|
|
|
3
|
|
|
|
Note
9
|
|
Liability
related to conversion feature
|
|
|
1,334,210
|
|
|
|
1,334,210
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3
|
|
|
|
Note
10
|
|
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
|
|
|
(1,297,206
|
)
|
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
|
|
|
202,093
|
|
Balance
at September 30, 2017
|
|
|
1,334,210
|
|
Total
income related to the conversion feature including the gain on the extinguishment of debt in the nine months up to September 30,
2017, amounts to $4,804,261. The Company used a Black-Scholes model to value the liability related to conversion feature as of
September 30, 2017 and December 31, 2016. Decrease of the conversion feature due to a decrease of bond volume are accounted for
within interest expense. In the consolidated statement of comprehensive loss, an amount of $3,466,897 has been reclassed from
impact of the conversion feature to gain on extinguishment of debt, due to a reclass from the CHF convertible bonds to non-convertible
CHF-bonds.
The
assumptions as of September 30, 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: 1.00 years
|
|
|
The
assumptions as of December 31, 2016 are as follows:
Stock Price:
CHF 5.08
|
Annualized
Risk Free Rate: 0.001%
|
|
Exercise Price: CFH 8
|
Annualized Volatility: 80%
|
|
Time to maturity: 1.75 years
|
|
|
SUNVESTA,
INC.
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2017
9.
RELATED PARTY TRANSACTIONS
The
advances from (to) related parties are composed as follows:
|
|
|
|
Receivables
|
|
Payables
|
|
|
|
|
September
30, 2017
|
|
December
31, 2016
|
|
September
30, 2017
|
|
December
31, 2016
|
1
|
|
Aires
International
|
|
|
—
|
|
|
|
—
|
|
|
|
56,684,218
|
|
|
|
51,473,793
|
|
2
|
|
Global
Care AG
|
|
|
—
|
|
|
|
—
|
|
|
|
36,469,014
|
|
|
|
—
|
|
3
|
|
Turan
Tokay
|
|
|
—
|
|
|
|
49,292
|
|
|
|
—
|
|
|
|
—
|
|
|
|
Total
|
|
|
—
|
|
|
|
49,292
|
|
|
|
93,153,232
|
|
|
|
51,473,793
|
|
|
|
of
which non-current
|
|
|
—
|
|
|
|
—
|
|
|
|
93,153,232
|
|
|
|
51,473,793
|
|
As
of December 31, 2016, a payable of $290,000 was presented as a liability to the 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.
|
|
Related
party
|
|
Capacity
|
|
Interest
Rate
|
|
Repayment
Terms
|
|
Security
|
1
|
|
Aires
International
|
|
Company
owned by Dr. Rössler, a board member
|
|
|
7.25
|
%
|
|
See
below
|
|
|
none
|
|
2
|
|
Global
Care AG
|
|
Company
owned by Dr. Rössler, a board member
|
|
|
7.25
|
%
|
|
See
below
|
|
|
none
|
|
3
|
|
Turan
Tokay
|
|
Shareholder
|
|
|
3
|
%
|
|
none
|
|
|
none
|
|
Loan
agreement Aires International Investment Inc.
As
of September 30, 2017, the Company owed Aires International Inc. the following:
Borrower
|
|
Debt
instrument denominated in CHF
|
|
Amount
in CHF
|
|
Amount
in USD
|
|
Annual
interest rate
|
|
Repayment
date *
|
SunVesta
Inc.
|
|
Promissory
note
|
|
|
10,044,371
|
|
|
|
10,308,739
|
|
|
|
7.25
|
%
|
|
After
Dec 31, 2020
|
SunVesta
Inc.
|
|
Promissory
note
|
|
|
10,000,000
|
|
|
|
10,263,200
|
|
|
|
7.25
|
%
|
|
After
Dec 31, 2020
|
SunVesta
Inc.
|
|
Promissory
note
|
|
|
10,000,000
|
|
|
|
10,263,200
|
|
|
|
7.25
|
%
|
|
After
Dec 31, 2020
|
SunVesta
Inc.
|
|
Loan
agreement
|
|
|
11,866,619
|
|
|
|
12,174,254
|
|
|
|
7.25
|
%
|
|
After
Dec 31, 2020
|
SunVesta
Holding
|
|
Loan
agreement
|
|
|
13,324,189
|
|
|
|
13,674,825
|
|
|
|
7.25
|
%
|
|
After
Dec 31, 2020
|
Total
|
|
|
|
|
|
|
|
|
56,684,218
|
|
|
|
|
|
|
|
*
The notes may be repaid in whole or in part.
Loan
due to Global Care AG
In
2017, Global Care AG, a company owned by Dr. Rӧssler (a director of the Company), provided $36,469,014 ($1,564,444 with
a transfer of convertible bonds to the loan and $15,375,505 with a transfer of bonds to the loan) to the Company at 7.25% interest,
repayable not before December 31, 2020.
SUNVESTA,
INC.
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2017
10.
BONDS
Description
|
|
EUR
(€) bond new I
(repaid)
|
|
EUR
(€) bond new II (parallel)
(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
02
|
|
December
02
|
Applicable
law:
|
|
Swiss
|
|
Swiss
|
EURO
(€) Bond new I
|
|
EURO
Bond (New) 2017
|
|
EURO
Bond (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
September 30 and December 31 (Carrying value)
|
|
|
—
|
|
|
|
6,564
|
|
SUNVESTA,
INC.
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2017
10.
BONDS – CONTINUED
EURO
(€) Bond new II
|
|
EUR
Bond
new II
2017
|
|
EUR
Bond
new II
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
September 30 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,
convertible into shares of the
issuer, in accordance with
Swiss law
|
|
Senior
convertible bonds,
convertible into shares of the
issuer, 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
|
SUNVESTA,
INC.
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2017
10.
BONDS – CONTINUED
Convertible
CHF BOND I
|
|
Convertible
CHF Bond I 2017
|
|
Convertible
CHF Bond I 2016
|
|
|
$
|
|
$
|
Balances
January 1
|
|
|
3,648,383
|
|
|
|
2,250,048
|
|
Cash
inflows
|
|
|
—
|
|
|
|
1,640,887
|
|
Cash
outflows
|
|
|
—
|
|
|
|
(103,008
|
)
|
Foreign
currency adjustments
|
|
|
167,678
|
|
|
|
(105,058
|
)
|
Reclassification
from / to Bond (net)
|
|
|
—
|
|
|
|
(34,486
|
)
|
Sub-total
|
|
|
3,816,061
|
|
|
|
3,648,383
|
|
Discounts
(commissions paid to bondholders) and debt issuance costs
|
|
|
(240,760
|
)
|
|
|
(136,722
|
)
|
Accumulated
Amortization of discounts and debt issuance costs
|
|
|
167,180
|
|
|
|
117,652
|
|
Reclassification
from / to Bond (net)
|
|
|
—
|
|
|
|
(104,038
|
)
|
Total
Accumulated Unamortized discounts and debt issuance costs
|
|
|
(73,580
|
)
|
|
|
(123,108
|
)
|
Balances
September 30 and December 31 (Carrying value)
|
|
|
3,742,480
|
|
|
|
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 $2.26 million (CHF 2.20 million) related to the CHF Convertible
Bond I. The difference between the carrying value as of September 30, 2017 and the value as per date of this report is due to
a transfer of $1.49 million in other bonds. The transfers in detail are: $1.23 million (CHF 1.2 million) to CHF Bond III original,
$0.16 million (CHF 0.15 million) to Convertible CHF bond II and $0.1 million (CHF 0.1) to CHF Bond IV.
Convertible
CHF BOND II
|
|
Convertible
CHF Bond II 2017
|
|
Convertible
CHF 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
|
|
|
1,229,708
|
|
|
|
(1,187,441
|
)
|
Reclassification
from / to Bond (net)
|
|
|
(27,174,249
|
)
|
|
|
5,131,937
|
|
Sub-total
|
|
|
9,050,313
|
|
|
|
36,770,369
|
|
Discounts
(commissions paid to bondholders) and debt issuance costs
|
|
|
(4,791,566
|
)
|
|
|
(4,890,690
|
)
|
Accumulated
Amortization of discounts and debt issuance costs
|
|
|
4,710,642
|
|
|
|
2,586,541
|
|
Reclassification
from / to Bond (net)
|
|
|
(0
|
)
|
|
|
104,038
|
|
Total
Accumulated Unamortized discounts and debt issuance costs
|
|
|
(80,924
|
)
|
|
|
(2,200,111
|
)
|
Balances
September 30 and December 31 (Carrying value)
|
|
|
8,969,389
|
|
|
|
34,570,259
|
|
SUNVESTA,
INC.
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2017
10.
BONDS – CONTINUED
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. In 2017, $26,138,355 was transferred to the new CHF-Bond
IV and $1,035,894 to a note payable 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 were recognized as a gain on extinuishment of debt in the statement of comprehensive
income. As per date of this report, the Company has realized a cumulative amount of $9.13 million (CHF 8.89 million) related to
the Convertible Bond II. The difference between the carrying value as of September 30, 2017 and the value as of date of this report
is due to a transfer of $0.16 million (CHF 0.15 million) from the Convertible CHF Bond I.
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 2017
|
|
CHF
Bond III 2016
|
|
|
$
|
|
$
|
Balances
January 1
|
|
|
15,601,389
|
|
|
|
—
|
|
Cash
inflows
|
|
|
1,374,842
|
|
|
|
699,650
|
|
Cash
outflows
|
|
|
—
|
|
|
|
—
|
|
Foreign
currency adjustments
|
|
|
918,879
|
|
|
|
(290,665
|
)
|
Reclassification
from / to Bond (net)
|
|
|
(15,375,505
|
)
|
|
|
15,192,404
|
|
Sub-total
|
|
|
2,519,605
|
|
|
|
15,601,389
|
|
Discounts
(commissions paid to bondholders) and debt issuance costs
|
|
|
(188,000
|
)
|
|
|
(56,643
|
)
|
Accumulated
Amortization of discounts and debt issuance costs
|
|
|
95,689
|
|
|
|
3,814
|
|
Reclassification
from/to Bond (net)
|
|
|
—
|
|
|
|
(49,975
|
)
|
Total
Accumulated Unamortized discounts and debt issuance costs
|
|
|
(92,311
|
)
|
|
|
(102,804
|
)
|
Balances
September 30 and December 31 (Carrying value)
|
|
|
2,427,294
|
|
|
|
15,498,586
|
|
SUNVESTA,
INC.
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2017
10.
BONDS – CONTINUED
During
the year 2016 an amount of $15,192,404 (CHF 15.2 million) was subscribed into this CHF Bond III with 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 the third quarter 2017, $ 15,375,505 (CHF 14.8 million) was transferred
from this CHF Bond III to loans from related parties. The exchange was treated as an extinguishment of debt with a corresponding
expense $106,762.
As
per date of this report, the Company has realized a cumulative amount of $3.60 million (CHF 3.51 million) related to
the
CHF Bond III original.
The difference between the carrying value as of September 30, 2017 and the value as of date of this
report is due to a transfer from Convertible CHF Bond I.
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.
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 2017
|
|
CHF
Bond III 2016
|
|
|
$
|
|
$
|
Balances
January 1
|
|
|
961,595
|
|
|
|
—
|
|
Cash
inflows
|
|
|
—
|
|
|
|
—
|
|
Cash
outflows
|
|
|
—
|
|
|
|
—
|
|
Foreign
currency adjustments
|
|
|
43,674
|
|
|
|
(17,915
|
)
|
Reclassification
from / to Bond (net)
|
|
|
43,015
|
|
|
|
979,510
|
|
Sub-total
|
|
|
1,048,284
|
|
|
|
961,595
|
|
Discounts
(commissions paid to bondholders) and debt issuance costs
|
|
|
(79,289
|
)
|
|
|
(79,289
|
)
|
Accumulated
Amortization of discounts and debt issuance costs
|
|
|
15,959
|
|
|
|
4,001
|
|
Reclassification
from / to Bond (net)
|
|
|
—
|
|
|
|
—
|
|
Total
Accumulated Unamortized discounts and debt issuance costs
|
|
|
(63,330
|
)
|
|
|
(75,288
|
)
|
Balances
September 30 and December 31 (Carrying value)
|
|
|
984,954
|
|
|
|
886,307
|
|
As
per date of this report, the Company has realized a cumulative amount of $0.98 million (CHF 0.96 million) related to
the
CHF Bond III parallel.
SUNVESTA,
INC.
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2017
10.
BONDS – CONTINUED
As
of March 6, 2017 the Company has approved issuance of a new bond with the following conditions.
Description
|
|
CHF
Bond IV
|
Issuer:
|
|
SunVesta
Holding AG
|
Type
of securities:
|
|
Senior
bonds
|
Approval
by SunVesta AG BOD:
|
|
March
6, 2017
|
Volume:
|
|
Up
to CHF 50,000,000
|
Denomination:
|
|
CHF
1,000
|
Offering
period:
|
|
May
1
st
– November 1
st
, 2017
|
Maturity
date:
|
|
August
15, 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
|
CHF BOND IV
|
|
CHF
Bond IV 2017
|
|
|
$
|
Balances
January 1
|
|
|
—
|
|
Cash
inflows
|
|
|
1,405,881
|
|
Foreign
currency adjustments
|
|
|
415,791
|
|
Reclassification
from / to Bond (net)
|
|
|
26,138,355
|
|
Sub-total
|
|
|
27,960,026
|
|
Discounts
(commissions paid to bondholders) and debt issuance costs
|
|
|
(1,388,875
|
)
|
Accumulated
Amortization of discounts and debt issuance costs
|
|
|
104,142
|
|
Reclassification
from / to Bond (net)
|
|
|
—
|
|
Total
Accumulated Unamortized discounts and debt issuance costs
|
|
|
(1,284,733
|
)
|
Balances
September 30 (Carrying value)
|
|
|
26,675,293
|
|
In
2017, $26,138,355 were transferred from CHF Bond III original.
As
per date of this report, the Company has realized a cumulative amount of $26.77 million (CHF 26.08 million) related to
the
CHF Bond IV.
The difference between the carrying value as of September 30, 2017 and the value as of date of this report
is due to a transfer of $0.10 million (CHF 0.10 million) from Convertible CHF Bond I.
SUNVESTA,
INC.
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 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:
Pension
expense
|
|
Three
months ended
September
30, 2017
|
|
Nine
months ended
September
30, 2017
|
|
Three
months ended
September
30, 2016
|
|
Nine
months
ended
September
30, 2016
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
Current
service cost
|
|
|
14,055
|
|
|
|
42,166
|
|
|
|
15,357
|
|
|
|
46,070
|
|
Net actuarial
(gain) loss recognized
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Interest
cost
|
|
|
577
|
|
|
|
1,732
|
|
|
|
945
|
|
|
|
2,836
|
|
Expected
return on assets
|
|
|
(1,431
|
)
|
|
|
(4,292
|
)
|
|
|
(1,916
|
)
|
|
|
(5,749
|
)
|
Employee
contributions
|
|
|
(5,020
|
)
|
|
|
(15,059
|
)
|
|
|
(5,877
|
)
|
|
|
(17,631
|
)
|
Net
periodic pension cost
|
|
|
8,182
|
|
|
|
24,546
|
|
|
|
8,509
|
|
|
|
25,526
|
|
During
the three month, periods ended September 30, 2017 and September 30, 2016, the Company made cash contributions of $5,020 and $15,534,
respectively, to its defined benefit pension plan.
All
of the assets are held under a collective contract by the plan’s re-insurance company and are invested in a mix of Swiss
and international fixed-income and equity securities within the limits set out by the Swiss pension law.
The
remaining expected future cash flows to be paid by the Company in respect to employer contributions to the pension plan for the
year ended December 31, 2017, are $10,039.
SUNVESTA,
INC.
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 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 Dr. 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. Dr. 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, 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.
SUNVESTA,
INC.
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2017
12.
STOCK COMPENSATION – CONTINUED
Share
Grants –Howard Glicken
On
March 10, 2014, the Company granted 500,000 common shares to Howard Glicken, valued at $0.10, an amount equal to the share price
and therefore the fair value on grant date, in connection with his appointment to the Board of Directors. His appointment obligates
the Company to issue 200,000 common shares for each fully completed year of service.
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 appointment obligated the
Company to issue 1,666,667 common shares for each fully completed month of service. From November 1, 2016 to April 30, 2017, the
individual earned a total of 10,000,000 shares, creating an expense for the Company in the amount of $240,947. In the second quarter
of 2017, it was agreed with the third party to replace the granted shares with a cash compensation $240,947 (CHF 240,000).
Share
Grants – Summary
Based
on these contracts, the Company has included the following stock-based compensation in the Company’s results:
Stock-based
compensation (shares)
|
Three
and nine months
ended September 30, 2017
|
Three
and nine months
ended September 30, 2016
|
Shares
granted
|
57,200,000
shares
|
46,800,000
shares
|
Fair
Value respectively market price on grant date
|
$0.0659
|
$0.0737
|
|
Total
maximal expenses (2013-2020)
|
$3,770,947
|
$3,450,000
|
|
Shares
vested
|
32,700,000
shares
|
29,800,000
shares
|
|
Shares
forfeited
|
22,000,000
shares
|
12,000,000
shares
|
|
Unvested
shares
|
2,500,000
shares
|
17,000,000
shares
|
|
Of
the granted shares, 12,000,000 were forfeited due to the death of Josef Mettler during the third quarter 2016. In the second quarter
2017, 10,000,000 were forfeited when replaced by cash compensation.
As
of September 30, 2017, the Company expects to record compensation expense in the future up to $50,000 as follows:
|
|
|
|
Year
ending December 31,
|
Stock-based
compensation (shares)
|
|
Through
December 31, 2017
$
|
|
2018
$
|
|
2019
$
|
|
2020
$
|
Unrecognized
compensation expense
|
|
|
50,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Stock
Options – Dr. Hans Rigendinger
The
Company granted 10,000,000 stock options to Dr. Hans Rigendinger on January 1, 2013, in connection with his employment contract.
Each option entitles Dr. Rigendinger to buy one Company share at an exercise price of $0.05. These options vest in two identical
installments (Installment A and Installment B) of 5,000,000.
SUNVESTA,
INC.
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2017
12.
STOCK COMPENSATION – CONTINUED
Stock
Options – Dr. 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 further to a date after 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 Rӧssler
The Company granted 10,000,000 stock options to Dr. Max Rӧssler on July 3, 2013, in connection with his appointment to the
Board of Directors. Each option entitles Dr. Rӧssler to buy one Company share at an exercise price of $0.05. These options
vest in two identical installments (Installment A and Installment B) of 5,000,000 options.
Installment
A vesting is contingent on realizing a financing arrangement to complete the development of the Paradisus Papagayo Bay Resort
& Luxury Villas. As of the grant date, the fair value was $249,835. The Company has expensed the total fair value of the award
on a straight-line basis over the expected vesting period.
Installment
B vesting is contingent on Meliá assuming management responsibilities for the Paradisus Papagayo Bay Resort & Luxury
Villas. As of the grant date the fair value was $258,210 and the Company estimated that Meliá would assume responsibility
as of July 1, 2015. As of 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 further to a date after 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.
SUNVESTA,
INC.
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 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, were reversed as of September 30, 2016.
Stock
Options – Summary
A
summary of stock options outstanding as per September 30, 2017 is as follows:
Options
outstanding
|
|
Number
of Options
|
|
Weighted
average exercise price
|
|
Weighted
average remaining contractual life
|
Outstanding
January 1, 2017
|
|
|
20,000,000
|
|
|
$
|
0.05
|
|
|
|
6.38
years
|
|
Granted
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Forfeited
or expired
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Outstanding
September 30, 2017
|
|
|
20,000,000
|
|
|
$
|
0.05
|
|
|
|
5.63
years
|
|
Exercisable
September 30, 2017
|
|
|
—
|
|
|
|
|
|
|
|
|
|
The
following table depicts the Company’s non-vested options as of September 30, 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 September 30, 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 September 30, 2017 and September 30, 2016.
Assumption
|
|
|
September
30,
2017
|
|
|
|
September
30,
2016
|
|
Dividend
yield
|
|
|
n.a
|
|
|
|
n.a
|
|
Risk-free
interest rate used (average)
|
|
|
n.a
|
|
|
|
n.a
|
|
Expected
market price volatility
|
|
|
n.a
|
|
|
|
n.a
|
|
Average
expected life of stock options
|
|
|
n.a
|
|
|
|
n.a
|
|
The
computation of the expected volatility assumption used in the Black-Scholes calculation for new grants is based on historical
volatilities of a peer group of similar companies in the same industry. The expected life assumptions are based on underlying
contracts.
SUNVESTA,
INC.
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2017
12.
STOCK COMPENSATION – CONTINUED
As
of September 30, 2017, the Company had unrecognized compensation expenses related to stock options currently outstanding, to be
recognized in future quarters or years, respectively as follows:
Stock-based
compensation (options)
|
|
Through
December 31, 2017
$
|
|
Year
ending December 31, 2018
$
|
Unrecognized
compensation expense
|
|
|
10,241
|
|
|
|
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 September 30, 2017
and September 30, 2016, respectively:
Summary
of share and option based compensation expense
|
|
Three
months ended September 30, 2017
$
|
|
Three
months ended September 30, 2016
$
|
|
Nine
months ended September 30, 2017
$
|
|
Nine
months ended September 30, 2016
$
|
Share
grants (see Note 12 for details)
|
|
|
50,000
|
|
|
|
60,000
|
|
|
|
163,318
|
|
|
|
285,000
|
|
Option
grants (see Note 12 for details)
|
|
|
10,241
|
|
|
|
(550,823
|
)
|
|
|
30,723
|
|
|
|
(520,153
|
)
|
Total
(recorded under general & administrative expense)
|
|
|
60,241
|
|
|
|
(490,823
|
)
|
|
|
194,041
|
|
|
|
(235,153
|
)
|
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. This contract was extended
to December 31, 2018 in the third quarter 2017.
Future
lease commitments
|
|
September
30, 2017
$
|
|
2017
|
|
|
|
162,500
|
|
15.
NOTE PAYABLE
|
|
September
30, 2017
|
|
December
31, 2016
|
|
|
|
$
|
|
|
|
$
|
|
Promissory
note
|
|
|
0
|
|
|
|
1,500,000
|
|
Total
|
|
|
0
|
|
|
|
1,500,000
|
|
On
September 19, 2016, the Company signed an agreement with the counterparty, which stipulated payment terms of four quarterly installments
of $500,000 each starting on November 21, 2016. The last tranch was repaid in the 3
rd
quarter 2017.
SUNVESTA,
INC.
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2017
16.
OPENING DATE “Paradisus Papagayo Bay Resort & Luxury Villas”
On
April 27, 2016, the Company amended its agreement with Meliá (“Seventh addendum to the management agreement of March
8, 2011”) to postpone the opening date as follows:
|
a.
|
New
completion date: September 15, 2018 (subject to force majeure)
|
|
b.
|
Should
the completion not occur by September 15, 2018 and should the parties not have agreed
in writing an extension to such date, after September 15, 2018, the Company will be obligated
to pay Melía a daily amount of $2,000 as liquidated damages.
|
|
c.
|
Should
the completion not occur by November 15, 2018, Meliá will be entitled to terminate
the agreement and $5,000,000 in liquidated damages unless the parties agree in writing
to extend the completion date.
|
The
dates stipulated above are no longer likely to be realized. Consequently, it will be necessary to enter into an 8th Addendum with
Meliá. The Company is confident that it will be able to achieve this objective in due course.
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.
Earnings
per share
|
|
Three-month
period ended
September
30, 2017
|
|
Three-month
period ended September 30, 2016
|
|
Nine-month
period ended September 30, 2017
|
|
Nine-month
period ended September 30, 2016
|
Company
posted
|
|
|
Net
loss
|
|
|
|
Net
loss
|
|
|
|
Net
loss
|
|
|
|
Net
loss
|
|
Basic
weighted average shares outstanding
|
|
|
104,741,603
|
|
|
|
101,740,479
|
|
|
|
105,905,770
|
|
|
|
99,707,537
|
|
Dilutive
effect of common stock equivalents
|
|
|
None
|
|
|
|
None
|
|
|
|
None
|
|
|
|
None
|
|
Dilutive
weighted average shares outstanding
|
|
|
104,741,603
|
|
|
|
101,740,479
|
|
|
|
105,905,770
|
|
|
|
99,707,537
|
|
A
total of 2,900,000 common shares have vested, that had not been issued, as of the balance sheet date are included in the basic
weighted average of shares outstanding.
SUNVESTA,
INC.
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 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.
Earnings
per share
|
|
Three-month
period ended
September
30, 2017
|
|
Three-month
period ended
September
30, 2016
|
|
Nine-month
period ended
September
30, 2017
|
|
Nine-month
period ended
September
30, 2016
|
Options
to Hans Rigendinger
|
|
|
10,000,000
|
|
|
|
10,000,000
|
|
|
|
10,000,000
|
|
|
|
10,000,000
|
|
Options
to Dr. M. Rössler
|
|
|
10,000,000
|
|
|
|
10,000,000
|
|
|
|
10,000,000
|
|
|
|
10,000,000
|
|
Options
to Josef Mettler
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,000,000
|
|
Total
Options
|
|
|
20,000,000
|
|
|
|
20,000,000
|
|
|
|
20,000,000
|
|
|
|
32,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
to Hans Rigendinger
(retention bonus – non vested)
|
|
|
2,500,000
|
|
|
|
5,000,000
|
|
|
|
2,500,000
|
|
|
|
5,000,000
|
|
Shares
to Josef Mettler’s estate (retention award)
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
15,000,000
|
|
Shares
to Howard Glicken and José Maria Figueres (retention award)
|
|
|
400,000
|
|
|
|
400,000
|
|
|
|
400,000
|
|
|
|
400,000
|
|
Total
Shares
|
|
|
2,900,000
|
|
|
|
5,400,000
|
|
|
|
2,900,000
|
|
|
|
20,400,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Options and Shares
|
|
|
22,900,000
|
|
|
|
25,400,000
|
|
|
|
22,900,000
|
|
|
|
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 1,498,928 stock equivalents of SunVesta Holding AG associated with the Convertible CHF Bond were excluded from the computation
of diluted earnings per share for the nine-month period ended September 30, 2017, because the effect would have been anti-dilutive
(4,259,465 for the nine-month period ended September 30, 2016).
18.
GENERAL AND ADMINISTRATIVE EXPENSES
General
and administrative expenses according to the consolidated statement of comprehensive loss include:
|
|
Three-month
period ended September 30, 2017
|
|
Three-month
period ended September 30, 2016
|
|
Nine-month
period ended September 30, 2017
|
|
Nine-month
period ended September 30, 2016
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
Rental
& related expenses
|
|
|
35,192
|
|
|
|
49,032
|
|
|
|
111,305
|
|
|
|
153,817
|
|
Audit
|
|
|
2,800
|
|
|
|
63,698
|
|
|
|
152,406
|
|
|
|
251,338
|
|
Consulting
|
|
|
1,206,332
|
|
|
|
1,022,910
|
|
|
|
2,385,665
|
|
|
|
1,984,715
|
|
Marketing,
Investor & public relations
|
|
|
12,770
|
|
|
|
36,055
|
|
|
|
41,011
|
|
|
|
77,364
|
|
Travel
expenses
|
|
|
97,451
|
|
|
|
66,053
|
|
|
|
403,957
|
|
|
|
262,966
|
|
Personnel
costs including social security’s costs and share based remuneration
|
|
|
282,557
|
|
|
|
(219,192
|
)
|
|
|
796,525
|
|
|
|
686,963
|
|
Office
expenses
|
|
|
—
|
|
|
|
—
|
|
|
|
203
|
|
|
|
—
|
|
Various
other operating expenditures
|
|
|
103,242
|
|
|
|
53,270
|
|
|
|
362,527
|
|
|
|
581,397
|
|
Total
according statement of comprehensive loss
|
|
$
|
1,740,343
|
|
|
|
1,071,827
|
|
|
|
4,253,599
|
|
|
|
3,998,562
|
|
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 are no events that warrant disclosure or recognition in the financial
statements.