NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2017 and 2016
1.
CORPORATE INFORMATION
On
August 27, 2007, SunVesta Inc. (“Company”) acquired SunVesta Holding AG (“SunVesta AG”). Until May 20,
2016, SunVesta AG held five wholly-owned subsidiaries: SunVesta Projects and Management AG, a Swiss company; Rich Land Investments
Limitada, a Costa Rican company (“Rich Land”); SunVesta Costa Rica Limitada, a Costa Rican company (“SVCR”),
Altos del Risco SA, a Costa Rican company (“AdR”) and SunVesta Holding España SL (“España”),
a Spanish company. Effective May 21, 2016 the three Costa Rican companies were merged, whereby Altos del Risco SA absorbed its
two affiliated companies and subsequently changed its name to SunVesta Costa Rica SA.
In
January 2005, the Company changed its business focus to the development of holiday resorts and investments in the hospitality
and related industry. The Company has one major project in Costa Rica. Planning for this project has been fully completed, all
consents have been granted, and excavation work is underway. The Company is still in process of securing financing for the project
and has not realized revenue to date. Since financing to complete the project has not been secured, the Company’s activities
are subject to significant risks and uncertainties.
These
consolidated financial statements are prepared in US Dollars on the basis of generally accepted accounting principles in the United
States of America (“US GAAP”).
2.
SIGNIFICANT ACCOUNTING POLICIES
Principles
of Consolidation
The
consolidated financial statements include those of the Company and its subsidiaries. One hundred percent of assets and liabilities
as well as revenues and expenses of all consolidated companies are included. Receivables, payables, as well as revenues and expenses
between consolidated companies are eliminated. Unrealized intercompany profits, which may be included in assets as of the end
of the respective periods are also eliminated. Certain previously reported amounts have been reclassified to conform to the current
presentation.
Fiscal
year
The
fiscal year of the Company and all its subsidiaries correspond with the calendar year.
Use
of estimates
These
consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States
of America (“US GAAP”) and require management to make assumptions and estimates, which have an impact on the reported
assets and liabilities as well as on the disclosure of contingent assets and liabilities at the balance sheet dates. These considerations
also impact reported income statement items. While the effective amounts may vary from the estimates, management is convinced
that all relevant information having an impact on the estimates have been taken into consideration and are appropriately disclosed.
Management believes that the valuation of property and equipment includes substantial estimates.
SUNVESTA, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2017 and 2016
2. SIGNIFICANT
ACCOUNTING POLICIES - CONTINUED
Cash
and cash equivalents
Cash
and cash equivalents include petty cash and bank accounts as well as time deposits with maturities of less than three months.
Allowance
for Doubtful Accounts
Management
makes ongoing estimates relating to the collectability of receivable balances and maintains a reserve for estimated losses resulting
from the inability of counterparties to meet their financial obligations to us. As of December 31, 2017, and 2016 the Company
does not have any amounts reserved in the consolidated balance sheet or any bad debt expense recorded in the statement of comprehensive
loss.
Other
assets
Other
assets include items, such as value added tax, withholding tax or similar credits with maturities of less than one year.
Property
and equipment
Property
and equipment are valued at cost less accumulated depreciation. Repair and maintenance expenses are charged to the income statement
when incurred. The cost of fixed assets, including leasehold improvements are capitalized and depreciated over the following useful
lives:
|
—
|
|
Land
(concessions) not depreciated
|
|
—
|
|
Other
equipment and furniture 5 years
|
|
—
|
|
Leasehold
improvements 5 years
|
|
—
|
|
Project
in process not depreciated until project finished
|
The
cost and the related accumulated depreciation are removed from the balance sheet at the time of disposal.
Project
in process relates to costs incurred directly related to the planning and construction of the hotel in the Papagayo Gulf Tourism
Project of Costa Rica and are reasonably recoverable from future hotel and rental operations or the sale of certain apartments.
Once the project in process is finished the Company will reclassify the capitalized costs to corresponding categories and determine
the depreciation method and depreciation period.
SUNVESTA, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2017 and 2016
2.
SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Interest
capitalization
Interest
expense is capitalized on the carrying value of the construction in progress during the construction period, in accordance with
ASC 835-20,
Capitalization of Interest
.
With
respect to the construction in progress, the Company has capitalized a cumulative amount of $16.2 million and $13.1 million of
interest expense and debt issuance costs as of December 31, 2017 and December 31, 2016, respectively to property and equipment.
Deposits
related to construction work
The
Company prepays deposits for construction work, which costs are capitalized initially and will be amortized once construction
has begun.
Debt
issuance cost
The
Company reclassified debt issuance cost to be presented net with the issued debt as per ASU 2015-3. This ASU was applied retrospectively
for all periods presented
Down
payment for property and equipment
Down
payments for property and equipment are recorded at cost. Once the corresponding property and equipment item has been completely
purchased, it will be reclassified to a corresponding subcategory within property and equipment and amortized. The Company assesses
regularly if the down payments are recoverable in accordance with ASC 360
Property, Plant, and Equipment.
Should any down
payments due to specific circumstances not be assessed as recoverable, they will be impaired.
Restricted
Cash
Restricted
cash includes cash that is not disposable for the Company without third party permission such as rental deposits or deposits related
to the project in process. Based on the nature of the Company’s underlying business it will be determined whether a deposit
is recorded as a current or non-current asset.
Impairment
of Long-Lived Assets
Long-lived
assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets
may not be recoverable. The carrying value of a long-lived asset or asset group is considered to be impaired when the undiscounted
expected cash flows from the asset or asset group are less than its carrying amount. An impairment loss is recognized to the extent
that the carrying value of the asset exceeds its fair value. Fair value is determined based on quoted market prices, where available,
or is estimated as the present value of the expected future cash flows from the asset or asset group discounted at a rate commensurate
with the risk involved.
SUNVESTA, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2017 and 2016
2.
SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Income
taxes
The
Company has not incurred material current taxes on income as it has not generated taxable income in any of the jurisdictions in
which it operates.
Deferred
taxes are calculated on the temporary differences that arise between the tax base of an asset or liability and its carrying value
on the balance sheet of the Company prepared for consolidation purposes, with the exception of temporary differences arising on
investments in foreign subsidiaries where the Company has plans to permanently reinvest profits into the foreign subsidiaries.
Deferred
tax assets on tax loss carry-forwards are only recognized to the extent that it is more likely than not, that future profits will
be available and the tax loss carry-forward can be utilized.
Changes
to tax laws or tax rates enacted at the balance sheet date are taken into account in the determination of the applicable tax rate
provided that they are likely to be applicable in the period when the deferred tax assets or tax liabilities are realized.
The
Company is subject to income taxes in the United States of America, Switzerland, Spain and Costa Rica. Significant judgment is
required in determining income tax provisions and in evaluating tax positions.
The
Company recognizes the benefit of uncertain tax positions in the financial statements when it is more likely than not that the
position will be sustained on examination by the tax authorities. The benefit recognized is the largest amount of tax benefit
that is greater than 50 percent likely of being realized on settlement with the tax authority, assuming full knowledge of the
position and all relevant facts. The Company adjusts its recognition of these uncertain tax benefits in the period in which new
information is available impacting either the recognition or measurement of its uncertain tax position. Interest and penalties
related to uncertain tax positions are recognized as income tax expense.
Concentration
of risks
Financial
instruments that potentially subject the Company to concentrations of credit risk are primarily cash and cash equivalents. Cash
and cash equivalents are maintained with several financial institutions. Deposits held with banks may exceed the amount of insurance
provided on such deposits. Generally, these deposits may be redeemed upon demand. Cash and cash equivalents are subject to currency
exchange rate fluctuations.
SUNVESTA, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2017 and 2016
2.
SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Foreign
Currency Translation and Transactions
The
consolidated financial statements of the Company are presented in US Dollars (“$”) which is also the functional currency
of the parent company. The financial position and results of operations of our foreign subsidiaries are determined using the currency
of the environment in which an entity primarily generates and expends cash as the functional currency. Assets and liabilities
of these subsidiaries are translated at the exchange rate in effect at each year-end. Statement of comprehensive loss accounts
are translated at the average rate of exchange prevailing during the year. Translation adjustments arising from the use of differing
exchange rates from period to period are included in accumulated other comprehensive income (loss) in
stockholders’
deficit
Gains
and losses resulting from foreign currency transactions are included in other income and expenses (exchange differences), except
intercompany foreign currency transactions that are of a long-term-investment nature which are included in accumulated other comprehensive
income in stockholders’ equity.
Bonds,
net of debt issuance costs
Bonds
comprise of bonds payable in Euros (“EUR”) and Swiss Francs (“CHF”), which bear fixed interest rates.
Bonds are carried at notional value. If a bond becomes repayable within the next 12 months from the balance sheet date on, such
bond or the corresponding portion of this bond will be categorized as current. Commissions paid to bondholders themselves are
reflected as debt discounts and amortized over the term of the bond, based on the “effective interest method”. The
amortization expense is reflected in amortization of debt issuance cost.
Bonds
are presented net of debt issuance costs that arise as a result of issuing debt, i.e. the EUR bonds, CHF bonds, CHF convertible
bonds and the loan with Aires International Investments Inc. These costs are amortized over the life of the debt using the effective
interest method. The costs comprise of finder's fees of generally between three and twelve percent of the amount issued and costs
incurred in connection with issuing the bonds, such as legal and accounting fees, and stamp duty taxes. The accumulated amortization
of debt issuance costs of bonds outstanding was $3,899,033 and $1,242,172 as of December 31, 2017 and December 31, 2016, respectively.
Related
parties
Parties
are considered related if one party directly or indirectly controls, is controlled by, or is under common control of the other
party, if it has an interest in the other party that gives significant influence, if it has joint control over the party, or if
it is an associate or a joint venture. Senior management or close family members are also deemed to be related parties.
SUNVESTA, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2017 and 2016
2. SIGNIFICANT
ACCOUNTING POLICIES - CONTINUED
Pension
Plan
The
Company maintains a pension plan covering all employees in Switzerland; it is considered a defined benefit plan and accounted
for in accordance with ASC 715 C
ompensation - Retirement Benefits
. This model allocates pension costs over the service
period of employees in the plan. The underlying principle is that employees render services ratably over this period, and therefore,
the statement of comprehensive loss effects of pensions should follow a similar pattern. ASC 715 requires recognition of the funded
status, or difference between the fair value of plan assets and the projected benefit obligations of the pension plan on the balance
sheet, by recording a corresponding expense in the net loss. If the projected benefit obligation exceeds the fair value of plan
assets, then that difference or unfunded status represents the pension liability.
The
Company records a net periodic pension cost in the statement of comprehensive loss. The liabilities and annual income or expense
of the pension plan is determined using methodologies that involve several actuarial assumptions, the most significant of which
are the discount rate and the long-term rate of asset return (based on the market-related value of assets). The fair values of
plan assets are determined based on prevailing market prices.
Earnings
per Share
Basic
earnings per share are calculated using the Company’s weighted-average outstanding common shares. When the effects are not
anti-dilutive, diluted earnings per share is calculated using the weighted-average outstanding common shares and the dilutive
effect of warrants and stock options, if any, as determined under the treasury stock method.
Additionally,
the Company's two convertible CHF-Bonds were issued in October 2015. These convertible CHF bonds convert into shares of Sunvesta
Holding AG, the Company's wholly owned subsidiary. The resulting common shares assumed to be converted as of the issuance date
are included in the denominator for diluted EPS under the if-converted method to the extent that their effect is considered dilutive.
Fair
Value of Financial Instruments
The
Company’s financial instruments consist of cash and cash equivalents, restricted cash, receivables from related parties,
bank liabilities, accounts payable to third or related parties, note payables to third or related parties, bonds as well as the
conversion feature of the convertible bonds. The fair value of these financial instruments approximate their carrying value due
to the short maturities of these instruments, unless otherwise explicitly noted.
ASC
820
Fair Value Measurements
establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring
fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined
as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as
unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.
SUNVESTA, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2017 and 2016
2. SIGNIFICANT
ACCOUNTING POLICIES - CONTINUED
Stock-based
compensation
Stock-based
compensation costs are recognized in earnings using the fair value based method for all awards granted. Compensation costs for
unvested stock options and awards are recognized in earnings over the requisite service period based on the fair value of those
options and awards. For employees, fair value is estimated at the grant date and for non-employees’ fair value is re-measured
at each reporting date as required by ASC 718
Compensation-Stock Compensation
, and ASC 505- 50
Equity-Based Payments
to Non-Employees
. Fair values of awards granted under the share option plans are estimated using a Black-Scholes option pricing
model. The model’s input assumptions are determined based on available internal and external data sources. The risk-free
rate used in the model is based on the US treasury rate for the expected contractual term. Expected volatility is based on historical
volatilities of a peer group of similar companies in the same industry.
Derivative
Financial Instruments
Derivative
financial instruments are initially measured at fair value at the contract date and are subsequently measured to fair value at
each reporting date. The Company's derivative financial instrument relates to the conversion feature bifurcated from the Company's
convertible CHF Bond (Note 10), is accounted for under ASC 815 and recorded as Liability related to conversion feature in the
consolidated balance sheets. Changes in the fair value each period (gains or losses) are reflected in the statement of comprehensive
loss as Change in Fair Value of Conversion Feature.
New
accounting standards – not adopted
In
January 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update 2016-01, Financial Instruments—Overall
(Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The update requires several changes
with respect to recognition and measurement as well as disclosure requirements with respect to financial instruments). The amendments
to (ASU) 2016-01 are effective for the annual period ending after December 15, 2017, and for annual periods and interim periods
thereafter. Early application is permitted. The Company has concluded that (ASU) 2016-01 will not have an impact on its consolidated
results of operations, financial condition, cash flows, and financial statement disclosures.
SUNVESTA, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2017 and 2016
2.
SIGNIFICANT ACCOUNTING POLICIES – CONTINUED
New
accounting standards – not adopted - continued
In
February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update 2016-02, Leases (Topic 842).
The standard requires the recognition of lease assets and lease liabilities by lessees for those leases classified as operating
leases. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition.
The standard requires lessors to classify leases as either sales-type, finance or operating. A sales-type lease occurs if the
lessor transfers all of the risks and rewards, as well as control of the underlying asset, to the lessee. If risks and rewards
are conveyed without the transfer of control, the lease is treated as a financing lease. If the lessor does not convey risks and
rewards or control, an operating lease results. The standard will become effective for the Company beginning January 1, 2019.
The Company is currently assessing the impact adoption of this standard will have on its consolidated results of operations, financial
condition, cash flows, and financial statement disclosures.
In
June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Updates ASU 2016-13, Financial Instruments—Credit
Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, requiring certain changes to the recognition and measurement
as well as disclosure of incurred and expected credit losses. The standard will become effective for the Company beginning January
1, 2020. The Company is currently assessing the impact adoption of this standard will have on its consolidated results of operations,
financial condition, cash flows, and financial statement disclosures.
In
November 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Updates ASU 2016-18, requiring that
restricted cash and restricted cash equivalents be included with cash and cash equivalents when reconciling the beginning-of-period
and end-of- period total cash amounts shown on the statement of cash flows. Consequently, transfers between cash and restricted
cash will not be presented as a separate line item in the operating, investing or financing sections of the cash flow statement.
The amendments are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods
within those fiscal years. The Company considers that ASU 2016-18 will have a limited impact on the presentation of the statement
of cash flows.
In
March 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Updates ASU 2017-07, requiring certain
changes to the presentation of the expenses related to postretirement benefits accounted for under Topic 715. The amendments are
effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal
years. The Company is currently assessing the impact adoption of this standard will have on its consolidated results of operations,
financial condition, cash flows, and financial statement disclosures.
SUNVESTA, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2017 and 2016
2.
SIGNIFICANT ACCOUNTING POLICIES – CONTINUED
New
accounting standards – not adopted - continued
In
May 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Updates ASU 2017-09, requiring certain changes
to the presentation and disclosures of changes to share-based payment awards under Topic 718. The amendments are effective for
public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The
Company is currently assessing the impact adoption of this standard will have on its consolidated results of operations, financial
condition, cash flows, and financial statement disclosures.
In
July 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Updates ASU 2017-11, requiring certain
changes to the presentation and disclosures of changes to liability or equity classification of financial instruments. The amendments
are effective for public business entities for fiscal years beginning after December 15, 2018, and interim periods within those
fiscal years. The Company is currently assessing the impact adoption of this standard will have on its consolidated results of
operations, financial condition, cash flows, and financial statement disclosures.
New
accounting standard updates - adopted
In
August 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Updates (ASU) 2014-15 requiring an entity’s
management to evaluate whether there are conditions or events, considered in aggregate, that raise substantial doubt about entity’s
ability to continue as a going concern within one year after the date that the financial statements are issued (or within one
year after the date that the financial statements are available to be issued when applicable). The amendments to (ASU) 2014-15
are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early
application is permitted. The Company has assessed that ASU 2014-15 has no effect on its financial statements, as a note with
respect to the going concern assumption is already presented.
In
March 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Updates ASU 2016-9, Compensation—Stock
Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, requiring certain changes to recognition and
measurement as well as disclosure of Share-Based Payments. The standard will become effective for the Company beginning January
1, 2017. The Company has assessed the impact that adoption of this standard has on its consolidated results of operations, financial
condition, cash flows, and financial statement disclosures. ASU 2016-9 is part of the FASB’s simplification initiative and
offers certain accounting policy choices and simplifications. Based on the current stock option plans, there is no effect from
ASU 2016-9 on the Company’s consolidated results of operations, financial condition, cash flows, and financial statement
disclosures.
SUNVESTA, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2017 and 2016
3.
GOING CONCERN
The
Company is currently working on building a hotel in the Papagayo Gulf Tourism Project area of Guanacaste, Costa Rica. The project
is expected to open mid-2020. Until the completion of the project, the following expenditures are estimated to be incurred:
|
a.
|
|
Gross
project cost
|
|
$
|
240,000,000
|
|
|
b.
|
|
Less:
Proceeds from sale of villas
|
|
|
(25,000,000
|
)
|
|
c.
|
|
Net
project cost
|
|
|
215,000,000
|
|
|
d.
|
|
Overhead
expenses
|
|
|
20,000,000
|
|
|
e.
|
|
Total,
excluding other potential projects
|
|
$
|
235,000,000
|
|
Sixty
to seventy percent of the net project cost is intended to be financed through the issuance of secured debt facilities, for which
negotiations are in progress. The remaining thirty to forty percent of the net project cost, as well as non-recuperated overhead
expenses are intended to be financed by the main shareholders or lenders of the project, i.e Hans Rigendinger, shareholder, Company
Director and Chief Executive Officer, and Dr. Max Rӧssler, controlling shareholder of Aires International Investment Inc.
and Global Care AG as well as Company Director.
On
July 16, 2012, certain principal shareholders of the Company or principal lenders to the project entered into a Guaranty Agreement
in favor of the Company. The purpose of the guaranty is to ensure that until such time as financing is secured for the entire
project that they will act as guarantors to creditors of SunVesta Holding AG.
The
Guaranty Agreement requires that within 30 days of receiving a demand notice, requested funds are made available by the guarantors
to the Company. Based on this guaranty, management believes that available funds are sufficient to finance cash flows for the
twelve months subsequent to December 31, 2017 and the filing date, though future anticipated cash outflows for investing activities
continue to depend on the availability of financing.
On
September 22, 2015, the signatories to the guaranty formally agreed to maintain the guaranty, as necessary, until December 31,
2018.
On
October 28, 2016, Hans Rigendinger and Dr. Max Rössler formally agreed to maintain the guaranty, as necessary, until completion
of the construction of Paradisus Papagayo Bay Resort & Luxury Villas, after which date the guaranty will expire.
SUNVESTA, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2017 and 2016
4.
CASH AND CASH EQUIVALENTS
Cash
and cash equivalents are available to the Company without any restriction or limitation on withdrawal and/or use of these funds.
The Company’s cash equivalents are placed with financial institutions that maintain high credit ratings. The carrying amounts
of these assets approximate their fair value.
|
|
|
|
|
|
|
|
|
Total
|
|
Total
|
|
Cash and cash equivalents
|
|
|
USD
|
|
|
|
CHF
|
|
|
|
Other
|
|
|
|
December
31,
2017
|
|
|
|
December
31,
2016
|
|
|
original
currency
|
|
|
387,440
|
|
|
|
3,570,430
|
|
|
|
12,551
|
|
|
|
|
|
|
|
|
|
|
in
$
|
|
|
387,440
|
|
|
|
3,658,051
|
|
|
|
13,491
|
|
|
|
4,058,982
|
|
|
|
806,440
|
|
USD
($) = US Dollar EURO = Euro
CHF = Swiss
Francs
5.
RESTRICTED CASH
As
of December 31, 2017, the Company has the following restricted cash positions:
|
Restricted Cash
|
|
|
|
|
|
|
|
December
31, 2017
|
|
December
31, 2016
|
|
|
|
$
|
|
$
|
|
Credit
Suisse in favor of BVK pension fund
|
|
|
130,814
|
|
|
|
125,400
|
|
|
Banco
Lafise in favor of the Costa Rican Tourism Board
|
|
|
933,350
|
|
|
|
933,350
|
|
|
Banco
Lafise in favor Costa Rican Environmental Agency – SETANA
|
|
|
605,753
|
|
|
|
608,302
|
|
|
Gross
|
|
|
1,669,917
|
|
|
|
1,667,052
|
|
Restricted
cash positions in favor of Costa Rican Tourism Board and Costa Rican Environmental Agency – SETANA are related to the hotel
project in Costa Rica and therefore their release is not expected before finalization of the corresponding project. Due to this
fact these restricted cash positions have been classified as long term.
The
restricted cash position in favor of BVK pension fund is a rental deposit related to a long term lease contract for office space.
Due to this fact this restricted cash position is also classified as long term.
SUNVESTA, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2017 and 2016
6.
NOTES RECEIVABLE
On
June 15, 2015, the Company loaned REP Caribbean Development Corporation (“REP Caribbean”), a third party, $250,000
secured by a non-related Swiss individual. The loan was due on November 30, 2015, in addition to a fixed interest payment of $5,000.
On September 15, 2015, the Company entered into an agreement with REP Caribbean and 4f Capital, formerly a related party, netting
receivables due to the respective parties that resulted in the satisfaction of the full loan amount due from REP Caribbean to
the Company and a receivable against 4f Capital in the amount of approximately $250,000 as of December 31, 2016. On December 10,
2015, the Company loaned an additional unsecured amount of $25,000 to REP Caribbean. The Company erroneously reported as of December
31, 2016, that the amount due from REP Caribbean was approximately $280,000. Since 4f Capital is in liquidation, and the likelihood
that REP Caribbean will repay the unsecured $25,000 due is in doubt, the receivable erroneously reported as approximately $280,000,
was fully impaired as of in 2017.
7.
PROPERTY & EQUIPMENT
|
|
|
December
31, 2017
|
|
December
31, 2016
|
|
Concession
Land
|
|
$
|
19,700,000
|
|
|
|
19,700,000
|
|
|
IT
Equipment
|
|
|
230,820
|
|
|
|
221,060
|
|
|
Other
equipment and furniture
|
|
|
230,836
|
|
|
|
219,734
|
|
|
Leasehold
improvements
|
|
|
77,271
|
|
|
|
74,004
|
|
|
Vehicles
|
|
|
—
|
|
|
|
74,000
|
|
|
Construction
in-process
|
|
|
56,722,733
|
|
|
|
46,457,172
|
|
|
Gross
|
|
|
76,961,659
|
|
|
|
66,745,970
|
|
|
Less
accumulated depreciation
|
|
|
(537,965
|
)
|
|
|
(529,312
|
)
|
|
Net
|
|
$
|
76,423,695
|
|
|
|
66,216,658
|
|
|
Depreciation expenses
for the period ended December 31, 2017 and December 2016
|
|
|
39,563
|
|
|
|
61,771
|
|
Property
and equipment is comprised primarily of land held in Costa Rica that is currently being developed for hotels and capitalized project
costs in connection with the Papagayo Gulf Tourism project. The land amounts to $19.7 million comprised of $7 million related
to the concession formerly held by Rich Land (~84,000 m2) and $12.7 million formerly held by AdR (~120,000 m2).
The
$7 million concession is a right to use the property for a specific period of time of initially 20 years from the date of grant,
which thereafter can be renewed at no further cost, if the landholder is up to date with its obligations and if there is no significant
change in government policies. The current concession was initially set to expire in June 2022.
The
$12.7 million concession is also a right to use the property for a specific period of time of initially 30 years from the date
of grant, which thereafter can be renewed at no further cost, if the landholder is up to date with its obligations and if there
is no significant change in government policies. The current concession was initially set to expire in November 2036.
SUNVESTA, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2017 and 2016
7.
PROPERTY & EQUIPMENT– CONTINUED
On
July 14, 2015 the Consejo del Polo de DesarrolloTuristico Papagayo at ICT (Council of Papagayo Tourism Development Project), has
unanimously approved the extension of both concessions until 2052.
The
construction in process through December 31, 2017 and December 31, 2016, is represented primarily by architectural work related
to the hotel and apartments as well as earth work.
Additional
Properties
On
April 24, 2013, the Company entered into a new agreement to purchase two additional concession properties located in Polo Papagayo,
Guanacaste for a total of $17,500,000 payable to the seller and a third party against a refundable deposit of $1,369,816 payable
over terms minus a non-refundable deposit of $300,000 paid to a third party and liquidated damages of 5% in the event the purchase
did not close. The Company failed to perform according to the terms of the purchase agreement and the transaction was terminated
by the third party and thereafter by the Company.
The
Company initiated legal proceedings against the seller and separately the third party for the recovery of that portion of the
refundable deposits paid to the seller and to the third party. The aggregate amount in dispute was approximately $1.5 million.
The legal proceeding against the seller was dismissed on technical grounds and the legal proceeding against the third party was
withdrawn by the Company on contractual grounds.
All
expenses related to the agreements with the seller and the agreement with the third party seller, were impaired as of December
31, 2016. Based on the results of the legal proceeding mentioned above, the impaired asset was fully written-off as of December
31, 2017.
Deposit
related to construction work
For
the year ended December 31, 2017, the Company maintained deposits with several contractors to complete earth moving groundwork.
These deposits are offset against invoices for such groundwork as it is completed. As of December 31, 2017 and 2016, the Company
had deposits of $851,665 and $190,549 respectively, which have not been set off.
SUNVESTA, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2017 and 2016
8.
FAIR VALUE MEASUREMENT
The
guidance on fair value measurements defines fair value as the exchange price that would be received for an asset or paid to transfer
a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction
between market participants. This guidance also specifies a fair value hierarchy based upon the observability of inputs used in
valuation techniques. Observable inputs (highest level) reflect market data obtained from independent sources, while unobservable
inputs (lowest level) reflect internally developed market assumptions. In accordance with this guidance, fair value measurements
are classified under the following hierarchy:
Level
1
Quoted prices for identical instruments in active markets.
Level
2
Quoted process for similar instruments in active markets, quoted prices for identical or similar instruments in markets
that are not active; and model-derived valuations in which significant inputs or significant value drivers are observable in active
markets.
Level
3
Model derived valuations in which one or more significant inputs or significant value-drivers are unobservable.
When
available, the Company uses quoted market prices to determine fair value, and classifies such measurements within Level 1. In
some cases, where market prices are not available, the Company makes use of observable market based inputs to calculate fair value,
in which case the measurements are classified within Level 2. If quoted or observable market prices are not available, fair value
is based upon internally developed models that use, where possible, current market-based parameters such as interest rates, yield
curves and currency rates. These measurements are classified within Level 3.
Fair
value measurements are classified according to the lowest level input or value-driver that is significant to the valuation. A
measurement may therefore be classified within Level 3 even though there may be significant inputs that are readily observable.
Fair
value measurement includes the consideration of nonperformance risk. Nonperformance risk refers to the risk that an obligation
(either by counterparty or the Company) will not be fulfilled. For financial assets traded in an active market (Level 1), the
nonperformance risk is included in the market price. For certain other financial assets and liabilities (Level 2 and 3), the Company’s
fair value calculations have been adjusted accordingly.
As
of December 31, 2017 and December 31, 2016, respectively, there are no financial assets or liabilities measured on a recurring
basis at fair value with the exception of the liability related to the conversion feature.
SUNVESTA, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2017 and 2016
8.
FAIR VALUE MEASUREMENT - CONTINUED
In
addition to the methods and assumptions to record the fair value of financial instruments as discussed above, the Company used
the following methods and assumptions to estimate the fair value of our financial instruments:
|
—
|
|
Cash
and cash equivalents: Carrying amount approximated fair value.
|
|
—
|
|
Restricted
cash: Carrying amount approximated fair value.
|
|
—
|
|
Receivables
from related parties (current): Carrying amount approximated fair value due to the short
term nature of the receivables.
|
|
—
|
|
Accounts
payable: Carrying amount approximated fair value.
|
|
—
|
|
Note
payable: Carrying amount approximated fair value due to the short term nature of the
note payable.
|
|
—
|
|
Notes
receivable: Carrying amount approximated fair value.
|
|
—
|
|
Notes
payable to related parties (current): Carrying amount approximated fair value due to
the short term nature of the notes payable.
|
|
—
|
|
EUR-bond
(old): Carrying amount approximated fair value due to its short term nature
|
|
—
|
|
EUR-bonds:
The fair values of the bonds payable are classified as Level 3 fair values. The fair
values of the bonds have been determined by discounting cash flow projections discounted
at the respective interest rates of 7.25% for EUR bonds, which represents the current
market rate based on the creditworthiness of the Company. Hence, the carrying values
approximate fair value.
|
|
—
|
|
CHF-bonds:
The fair values of the bonds payable are classified as Level 3 fair values. The fair
values of the bonds have been determined by discounting cash flow projections discounted
at the respective interest rate of 6.5% respectively for CHF bonds, which represented
the current market rate based on the creditworthiness of the Company at issuance. Hence,
the carrying values approximate fair value.
|
|
—
|
|
Notes
payable to related parties Aires and Global Care (non-current): The fair values of the
notes payable to Aires International Investments Inc. and Global Care AG are classified
as Level 3. The fair values of the notes were determined by discounting cash flow projections
discounted at the respective interest rates of 7.25%, which represents the current market
rate based on the creditworthiness of the Company. Hence, the carrying value approximates
fair value.
|
|
—
|
|
Convertible
CHF-bonds: The fair values of the convertible bonds payable are classified as Level 3
fair values. The fair values of the convertible bonds have been determined by discounting
cash flow projections discounted at the respective interest rates of 6.00% for convertible
CHF bonds, which represents the current market rate based on the creditworthiness of
the Company. Hence, the carrying values approximate fair value.
|
|
—
|
|
Liability
related to conversion feature: The fair value of the liability related to conversion
feature is classified as Level 3 in the fair value hierarchy. The fair value of the liability
is determined using a Black-Scholes model to calculate the option value at each reporting
date and multiplied by the number of potentially convertible shares.
|
SUNVESTA, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2017 and 2016
8.
FAIR VALUE MEASUREMENT - CONTINUED
The
fair value of our financial instruments is presented in the table below:
|
|
|
December
31, 2017
|
|
December
31, 2016
|
|
|
|
|
|
|
|
Carrying
Amount $
|
|
Fair
Value $
|
|
Carrying
Amount $
|
|
Fair
Value $
|
|
Fair
Value Levels
|
|
Reference
|
|
Cash
and cash equivalents
|
|
|
4,058,982
|
|
|
|
4,058,982
|
|
|
|
806,440
|
|
|
|
806,440
|
|
|
|
1
|
|
|
|
Note
4
|
|
|
Restricted
cash
|
|
|
1,669,917
|
|
|
|
1,669,917
|
|
|
|
1,667,052
|
|
|
|
1,667,052
|
|
|
|
1
|
|
|
|
Note
5
|
|
|
Receivables
from related parties – other (current)
|
|
|
—
|
|
|
|
—
|
|
|
|
49,292
|
|
|
|
49,292
|
|
|
|
3
|
|
|
|
Note
9
|
|
|
Accounts
Payable
|
|
|
1,796,917
|
|
|
|
1,796,917
|
|
|
|
3,311,512
|
|
|
|
3,311,512
|
|
|
|
1
|
|
|
|
—
|
|
|
Note
payable
|
|
|
—
|
|
|
|
—
|
|
|
|
1,500,000
|
|
|
|
1,500,000
|
|
|
|
1
|
|
|
|
Note
16
|
|
|
Notes
payable to related parties – other (current)
|
|
|
—
|
|
|
|
—
|
|
|
|
307,088
|
|
|
|
307,088
|
|
|
|
3
|
|
|
|
Note
9
|
|
|
Notes
receivable
|
|
|
—
|
|
|
|
—
|
|
|
|
280,242
|
|
|
|
280,242
|
|
|
|
3
|
|
|
|
Note
6
|
|
|
EUR-bonds
|
|
|
—
|
|
|
|
—
|
|
|
|
484,463
|
|
|
|
484,463
|
|
|
|
3
|
|
|
|
Note
10
|
|
|
Convertible
CHF-bonds
|
|
|
11,032,145
|
|
|
|
11,032,145
|
|
|
|
38,095,533
|
|
|
|
38,095,533
|
|
|
|
3
|
|
|
|
Note
10
|
|
|
CHF-bonds
|
|
|
31,853,298
|
|
|
|
31,853,298
|
|
|
|
16,384,893
|
|
|
|
16,384,893
|
|
|
|
3
|
|
|
|
Note
10
|
|
|
Notes
payable to related parties (non-current)
|
|
|
99,829,827
|
|
|
|
99,829,827
|
|
|
|
51,473,793
|
|
|
|
51,473,793
|
|
|
|
3
|
|
|
|
Note
9
|
|
|
Liability
related to conversion feature
|
|
|
922,087
|
|
|
|
922,087
|
|
|
|
5,936,378
|
|
|
|
5,936,378
|
|
|
|
3
|
|
|
|
Note
10
|
|
The
Company's financial liabilities measured at fair value on a recurring basis consisted of liabilities related to conversion features
as of the following date:
|
Balance
at January 1, 2016
|
|
|
6,976,322
|
|
|
Additions/(Decrease)
|
|
|
449,283
|
|
|
Change
in Fair Value of Conversion Feature
|
|
|
(2,500,486
|
)
|
|
(Gain)/loss
on extinguishment of debt (in addition to any recognized gain/loss on extinguishment of the underlying financial instrument)
|
|
|
1,165,268
|
|
|
FX
Revaluation
|
|
|
(154,010
|
)
|
|
Balance at December
31, 2016
|
|
|
5,936,378
|
|
|
Additions/(Decrease)
|
|
|
(111,113
|
)
|
|
Change
in Fair Value of Conversion Feature
|
|
|
(1,631,708
|
)
|
|
(Gain)/loss
on extinguishment of debt (in addition to any recognized gain/loss on extinguishment of the underlying financial instrument)
|
|
|
(3,466,897
|
)
|
|
FX
Revaluation
|
|
|
195,427
|
|
|
Balance at December
31, 2017
|
|
|
922,087
|
|
SUNVESTA, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2017 and 2016
8.
FAIR VALUE MEASUREMENT - CONTINUED
The
Company used a Black-Scholes model to value the liabilities related to conversion features as of December 31, 2017 and December
31, 2016.
The
assumptions as of December 31, 2017, are as follows:
|
Stock Price
|
CHF 5.08
|
Annualized Risk Free Rate:
|
.0001:
|
|
Exercise Price:
|
CHF 8
|
Annualized Volatility:
|
80%
|
|
Time to Maturity:
|
0.75 years
|
|
|
The
assumptions as of December 31, 2016, were as follows:
|
Stock Price
|
CHF 5.08
|
Annualized Risk Free Rate:
|
.0001:
|
|
Exercise Price:
|
CHF 8
|
Annualized Volatility:
|
80%
|
|
Time to Maturity:
|
1.75 years
|
|
|
The
annualized risk free rate was changed from a US treasury rate to a Swiss treasury rate, as the underlying basis value are shares
in a Swiss company denominated in Swiss Francs.
9.
RELATED PARTY TRANSACTIONS
The
advances from (to) related parties are composed as follows:
|
|
|
December
31, 2017
|
|
December
31, 2016
|
|
December
31, 2017
|
|
December
31, 2016
|
|
Aires
International
|
|
|
—
|
|
|
|
—
|
|
|
|
57,613,418
|
|
|
|
51,473,793
|
|
|
Global
Care AG
|
|
|
—
|
|
|
|
—
|
|
|
|
42,216,409
|
|
|
|
—
|
|
|
Turan
Tokay
|
|
|
—
|
|
|
|
49,292
|
|
|
|
—
|
|
|
|
—
|
|
|
Total
|
|
|
—
|
|
|
|
49,292
|
|
|
|
99,829,827
|
|
|
|
51,473,793
|
|
|
of
which non-current
|
|
|
—
|
|
|
|
—
|
|
|
|
99,829,827
|
|
|
|
51,473,793
|
|
As
of December 31, 2016, a payable of $290,000 was presented as a liability to a related party Akyinyi Interior and Exterior Decoration
and $17,088 to the late Josef Mettler, each of which were no longer related parties at that time.
The
receivable due from Turan Tokay of $49,292 was fully impaired in 2017.
SUNVESTA, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2017 and 2016
9.
RELATED PARTY TRANSACTIONS - CONTINUED
Loan
agreement Aires International Investment Inc.
As
of December 31, 2017, the Company owes Aires International Inc. (a related party controlled by Dr. Max Rössler, a Director
and related party) the following:
|
Borrower
|
|
Debt
instrument denominated in CHF
|
|
Amount
in CHF
|
|
Amount
in USD
|
|
Annual
interest rate
|
|
SunVesta
Inc.
|
|
Promissory
note
|
|
|
10,044,371
|
|
|
|
10,290,860
|
|
|
|
7.25
|
%
|
|
SunVesta
Inc.
|
|
Promissory
note
|
|
|
10,000,000
|
|
|
|
10,245,400
|
|
|
|
7.25
|
%
|
|
SunVesta
Inc.
|
|
Promissory
note
|
|
|
10,000,000
|
|
|
|
10,245,400
|
|
|
|
7.25
|
%
|
|
SunVesta
Inc.
|
|
Loan
agreement
|
|
|
12,636,126
|
|
|
|
12,933,155
|
|
|
|
7.25
|
%
|
|
SunVesta
Holding
|
|
Loan
agreement
|
|
|
13,565,690
|
|
|
|
13,898,603
|
|
|
|
7.25
|
%
|
|
Total
|
|
|
|
|
56,246,187
|
|
|
|
57,613,418
|
|
|
|
|
|
As
of December 31, 2017, the notes and loans to Aires International, Inc. (“Aires”) are fully subordinated on the terms
and conditions of a subordination agreement. Claims of Aires are subordinated to all other existing and future claims against
the Company. In the event of insolvency proceedings and the execution of a composition agreement with an assignment of assets,
Aires would waive its claims to the extent necessary that the claims of all other creditors, and the costs of the liquidation,
debt moratorium or insolvency proceedings, are covered in full by the proceeds of the liquidation of the Company. Further, the
claims and interests of Aires are deferred for the duration of the subordination agreement. None of the claims covered by the
subordination agreement may be paid, settled by offsetting or replacement/novation, or newly secured, either in full or in part.
The subordination agreement can only be terminated under restrictive preconditions.
Loan
due to Global Care AG
In
April 2016, Global Care AG (“Global Care”) (a related party controlled by Dr. Max Rössler, a Director and related
party) assumed a liability of CHF 4.5 million from Aires, (also a related party controlled by Dr. Max Rössler), which amount
was subsequently subscribed into bonds of the CHF-Convertible Bond issue. As this conversion includes a significant conversion
option, the subscription was treated as an extinguishment of debt and an amount of $1,071,317 has been reclassified in the statement
of profit or loss from revaluation of the conversion feature to extinguishment of debt. In June 2016, there were the following
changes to the debt structure:
|
-
|
|
A
liability of CHF 2,656,083 to Dr. Max Rössler was transferred to Global Care
|
|
-
|
|
A
liability of CHF 1.5 million to Sportiva was transferred to Global Care
|
|
-
|
|
A
liability of CHF 1.4 million to Global Care was transferred to Dr. Max Rössler.
|
In
December 2016, Dr. Max Rössler converted a loan in the amount of CHF 15.2 million into bonds of the new CHF-Bond issue 2016-2020.
As this conversion did not represent a significant change of the conditions between the old debt and the new debt, the subscription
was not treated as an extinguishment of debt.
SUNVESTA, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2017 and 2016
9.
RELATED PARTY TRANSACTIONS - CONTINUED
Loan
due to Global Care AG - continued
As
of December 31, 2017, the loan due to Global Care AG amounts to $42,216,409 at 7.25%. Thereof $1,564,444 was converted from convertible
bonds and $15,375,505 from straight bonds to the loan in 2017. $21,725,592 of the total amount of $42,216,409 has the same subordination
clauses as the borrowings due from Aires mentioned above. The remaining capital is due not before December 31, 2020, and latest
by December 31, 2022.
Receivable
from and loans to Josef Mettler
During
2016, the payable to the late Josef Mettler in the amount of $70,135 was repaid and $17,775 was advanced to Josef Mettler for
private expenses.
During
the third quarter of 2016 Josef Mettler passed away, therefore companies formerly owned by him are no longer related parties to
the Company.
Current
account Sportiva Participations AG
In
2016, up until the death of Josef Mettler, there were the following changes to the current account of Sportiva Participations
AG. Thereafter, Sportiva Participations AG was no longer a related party.
|
|
|
CHF
|
|
USD
|
|
Balance
January 1, 2016
|
|
|
524,695
|
|
|
|
528,660
|
|
|
Cash
paid to SunVesta
|
|
|
870,000
|
|
|
|
875,780
|
|
|
Cash
received from SunVesta
|
|
|
(2,812,911
|
)
|
|
|
(2,867,777
|
)
|
|
Transfers
from/(to) other related parties
|
|
|
1,502,026
|
|
|
|
1,545,020
|
|
|
Interest
credited to the account
|
|
|
4,801
|
|
|
|
4,852
|
|
|
Changes
in forreign currency
|
|
|
—
|
|
|
|
1,976
|
|
|
Transfer
to third party upon death of the late Josef Mettler
|
|
|
(88,611
|
)
|
|
|
(88,511
|
)
|
|
Balance
September 12, 2016
|
|
|
—
|
|
|
|
—
|
|
Commissions
paid or payable to related parties
In
2016, the Company paid commissions to 4f Capital AG in the amount of $253,945 (up to the death of the late Josef Mettler) for
services related to financing of the Company. These costs were capitalized as debt issuance costs. 4f Capital AG was a company
owned and directed by the late Josef Mettler that received a commission of 1.5% on new funds that the Company received based on
consulting services rendered by 4f Capital AG.
SUNVESTA, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2017 and 2016
10.
BONDS
|
Description
|
|
EUR (€)
bond new I
|
|
EUR (€)
bond new II
|
|
Issuer:
|
|
SunVesta Holding AG
|
|
SunVesta Holding AG
|
|
Type of securities:
|
|
Bond in accordance
with
Swiss Law
|
|
Bond in accordance
with
Swiss Law
|
|
Approval by SunVesta
AG
|
|
October 31, 2013
|
|
May 19, 2014
|
|
Volume:
|
|
Up to EUR 15,000,000
|
|
Up to EUR 15,000,000
|
|
Units:
|
|
EUR10,000
|
|
EUR 10,000
|
|
Offering period:
|
|
11/07/2013 – 03/31/2014
|
|
05/01/14 – 06/30/14
|
|
Due date:
|
|
December 2, 2016
|
|
December 2, 2016
|
|
Issuance price:
|
|
100%
|
|
100%
|
|
Issuance day:
|
|
December 2, 2013
|
|
December 2, 2013
|
|
Interest rate:
|
|
7.25% p.a.
|
|
7.25 % p.a.
|
|
Interest due dates:
|
|
December 2, 2013
|
|
December 2, 2013
|
|
Applicable law:
|
|
Swiss
|
|
Swiss
|
|
EURO (€) Bond
new I
|
|
2017
|
|
2016
|
|
|
|
$
|
|
$
|
|
Balances
January 1
|
|
|
31,541
|
|
|
|
6,871,630
|
|
|
Cash
inflows
|
|
|
—
|
|
|
|
—
|
|
|
Cash
outflows
|
|
|
—
|
|
|
|
(6,736,255
|
)
|
|
Reclassification
from/to Bond (net)
|
|
|
(32,271
|
)
|
|
|
—
|
|
|
Foreign
currency adjustments
|
|
|
730
|
|
|
|
(103,834
|
)
|
|
Sub-total
|
|
|
—
|
|
|
|
31,541
|
|
Discounts
(commissions paid to bondholders) and
debt
issuance costs
|
|
|
(588,613
|
)
|
|
|
(588,613
|
)
|
Accumulated
amortization of discounts and
debt
issuance costs
|
|
|
588,613
|
|
|
|
563,636
|
|
Total
accumulated unamortized discounts and
debt
issuance costs
|
|
|
—
|
|
|
|
(24,977
|
)
|
|
Balances
December 31 (Carrying value)
|
|
|
—
|
|
|
|
6,564
|
|
SUNVESTA, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2017 and 2016
10.
BONDS - CONTINUED
|
EURO (€) Bond
new II
|
|
2017
|
|
2016
|
|
|
|
$
|
|
$
|
|
Balances
January 1
|
|
|
511,805
|
|
|
|
1,658,300
|
|
|
Cash
inflows
|
|
|
—
|
|
|
|
—
|
|
|
Cash
outflows
|
|
|
(510,120
|
)
|
|
|
(159,950
|
)
|
|
Reclassification
from/to Bond (net)
|
|
|
(9,761
|
)
|
|
|
(953,683
|
)
|
|
Foreign
currency adjustments
|
|
|
8,075
|
|
|
|
(32,862
|
)
|
|
Sub-total
|
|
|
—
|
|
|
|
511,805
|
|
Discounts
(commissions paid to bondholders) and
debt
issuance costs
|
|
|
(174,660
|
)
|
|
|
(174,660
|
)
|
Accumulated
amortization of discounts and
debt
issuance costs
|
|
|
174,660
|
|
|
|
140,754
|
|
|
Reclassification
from/to Bond (net)
|
|
|
—
|
|
|
|
—
|
|
Total
accumulated unamortized discounts and
debt
issuance costs
|
|
|
—
|
|
|
|
(33,906
|
)
|
|
Balances
December 31 (Carrying value)
|
|
|
—
|
|
|
|
477,899
|
|
During
the year ended December 31, 2016, an amount of $953,683 was reclassified to the new parallel CHF-Bond III. Since the new debt
was not significantly different from the old debt, the exchange was not treated as an extinguishment of debt.
On
September 30, 2015, the Company approved the issuance of two convertible CHF-bonds. The major terms and conditions are the following:
|
Description
|
|
Convertible
CHF Bond I
|
|
Convertible
CHF Bond II
|
|
Issuer:
|
|
SunVesta
Holding AG
|
|
SunVesta
Holding AG
|
|
Type
of securities:
|
|
Senior
convertible bonds,
convertible
into shares of the issuer at the discretion of the bondholder, in accordance with Swiss law
|
|
Senior
convertible bonds,
convertible
into shares of the issuer at the discretion of the bondholder, in accordance with Swiss law
|
|
Approval
by SunVesta AG BOD:
|
|
September
30, 2015
|
|
September
30, 2015
|
|
Volume:
|
|
Up
to CHF 45,000,000
|
|
Up
to CHF 15,000,000
|
|
Denomination:
|
|
CHF
5,000
|
|
CHF
5,000
|
|
Offering
period:
|
|
October
01, 2015
|
|
October
01, 2015
|
|
Maturity
date:
|
|
September
30, 2018
|
|
September
30, 2018
|
|
Issue
price:
|
|
100%
|
|
100%
|
|
Redemption
price:
|
|
100%
|
|
100%
|
|
Issuance
date:
|
|
October
01, 2015
|
|
October
01, 2015
|
|
Coupon:
|
|
6.00
% p.a.
|
|
6.00
% p.a.
|
|
Interest
due dates:
|
|
September
30 of each year, the first time September 30, 2016
|
|
September
30 of each year, the first time September 30, 2016
|
|
Reference
price:
|
|
CHF
6.50
|
|
CHF
6.50
|
|
Initial
conversion price:
|
|
CHF
8.00
|
|
CHF
8.00
|
|
Applicable
law:
|
|
Swiss
|
|
Swiss
|
SUNVESTA, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2017 and 2016
10. BONDS
- CONTINUED
|
Convertible CHF BOND
I
|
|
2017
|
|
2016
|
|
|
|
$
|
|
$
|
|
Balances
January 1
|
|
|
3,648,383
|
|
|
|
2,250,048
|
|
|
Cash
inflows
|
|
|
—
|
|
|
|
1,640,887
|
|
|
Cash
outflows
|
|
|
—
|
|
|
|
(103,008
|
)
|
|
Foreign
currency adjustments
|
|
|
145,296
|
|
|
|
(105,058
|
)
|
|
Reclassification
from/to bond (net)
|
|
|
(1,467,971
|
)
|
|
|
(34,486
|
)
|
|
Sub-total
|
|
|
2,325,707
|
|
|
|
3,648,383
|
|
|
Discounts
(commissions paid to bondholders) and debt issuance costs
|
|
|
(240,760
|
)
|
|
|
(136,722
|
)
|
|
Accumulated
amortization of discounts and debt issuance costs, including expenses for extinguishment of debt
|
|
|
185,671
|
|
|
|
117,652
|
|
|
Reclassification
from/to bond (net)
|
|
|
—
|
|
|
|
(104,038
|
)
|
|
Total
accumulated unamortized discounts and debt issuance costs
|
|
|
(55,089
|
)
|
|
|
(123,108
|
)
|
|
Balances
December 31 (Carrying value)
|
|
|
2,270,618
|
|
|
|
3,525,275
|
|
As
per date of this report, the Company has realized a cumulative amount of $2.3 million (CHF 2.3 million) related to the
Convertible Bond I.
In
2017, $1,216,372 was transferred to CHF Bond III original and $251,599 to CHF Bond IV.
|
Convertible CHF BOND
II
|
|
2017
|
|
2016
|
|
|
|
$
|
|
$
|
|
|
|
|
|
|
|
Balances
January 1
|
|
|
36,770,369
|
|
|
|
26,470,395
|
|
|
Cash
inflows
|
|
|
20,079
|
|
|
|
7,142,850
|
|
|
Cash
outflows
|
|
|
(1,795,594
|
)
|
|
|
(787,371
|
)
|
|
Foreign
currency adjustments
|
|
|
1,213,824
|
|
|
|
(1,187,441
|
)
|
|
Reclassification
from/to bond (net)
|
|
|
(27,195,887
|
)
|
|
|
5,131,937
|
|
|
Sub-total
|
|
|
9,012,791
|
|
|
|
36,770,369
|
|
|
Discounts
(commissions paid to bondholders) and debt issuance costs
|
|
|
(4,895,604
|
)
|
|
|
(4,890,690
|
)
|
|
Accumulated
amortization of discounts and debt issuance costs
|
|
|
4,644,340
|
|
|
|
2,690,579
|
|
|
Total
Accumulated Unamortized discounts and debt issuance costs
|
|
|
(251,264
|
)
|
|
|
(2,200,111
|
)
|
|
Balances
December 31 (Carrying value)
|
|
|
8,761,527
|
|
|
|
34,570,259
|
|
As
per date of this report the Company has realized a cumulative amount of $9.0 million (CHF 8.8 million) related to the
Convertible Bond II.
In
2016, the Company reclassified $634,186 (CHF 630,000) from convertible CHF Bond I to convertible CHF Bond II, together with a
corresponding amount of $104,038 in capitalized debt issuance costs.
SUNVESTA, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2017 and 2016
10.
BONDS - CONTINUED
In
April 2016, Global Care AG (“Global Care”) (a related party controlled by Dr. Rössler, a Company Director) assumed
a liability of CHF 4.5 million due to Aires International Investment Inc., (also a related party controlled by Dr. Rössler).
This CHF 4.5 million was subsequently subscribed into bonds of the Convertible Bond II issue. As the conversion includes a significant
conversion option, the exchange is treated as an extinguishment of debt and an amount of $1,071,317 has been reclassified in the
comprehensive statements of loss from revaluation of conversion feature to extinguishment of debt.
In
2017, $25,638,012 of Convertible CHF Bond II were exchanged for the new CHF-Bond IV and $1,564,444 for a note payable due to Global
Care AG. As the terms of the new bond are significantly different to the convertible bond, an unamortized transaction cost of
$1,221,277 was recognized as a loss on extinguishment of debt in the statement of comprehensive income. Additionally, $6,569 was
reclassified to debt issuance cost.
The
Company initiated a new offering of senior unsecured CHF bonds on September 21, 2016, of up to CHF 20,000,000 in units of CHF
5,000 that bear interest at 6.50% per annum payable each August 15, over a four-year term that matures on August 15, 2020, with
the following conditions:
|
Description
|
|
CHF
Bond III
|
|
Issuer:
|
|
SunVesta
Holding AG
|
|
Type
of securities:
|
|
Senior
bonds
|
|
Approval
by SunVesta AG BOD:
|
|
July
7, 2016
|
|
Volume:
|
|
Up
to CHF 20,000,000
|
|
Denomination:
|
|
CHF
5,000
|
|
Offering
period:
|
|
November
30, 2016
|
|
Maturity
date:
|
|
August
15, 2020
|
|
Issue
price:
|
|
100%
|
|
Redemption
price:
|
|
100%
|
|
Issuance
date:
|
|
September
21, 2016
|
|
Coupon:
|
|
6.50
% p.a.
|
|
Interest
due dates:
|
|
August
15 of each year, the first time August 15, 2017
|
|
Applicable
law:
|
|
Swiss
|
SUNVESTA, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2017 and 2016
10.
BONDS - CONTINUED
|
CHF BOND III original
|
|
2017
|
|
2016
|
|
|
|
$
|
|
$
|
|
Balances
January 1
|
|
|
15,601,389
|
|
|
|
—
|
|
|
Cash
inflows
|
|
|
1,374,842
|
|
|
|
699,650
|
|
|
Cash
outflows
|
|
|
—
|
|
|
|
—
|
|
|
Foreign
currency adjustments
|
|
|
927,598
|
|
|
|
(290,665
|
)
|
|
Reclassification
from/to bond (net)
|
|
|
(14,159,133
|
)
|
|
|
15,192,404
|
|
|
Sub-total
|
|
|
3,744,697
|
|
|
|
15,601,389
|
|
|
Discounts
(commissions paid to bondholders) and debt issuance costs
|
|
|
(248,819
|
)
|
|
|
(56,643
|
)
|
|
Accumulated
amortization of discounts and debt issuance costs, including expenses for extinguishment of debt
|
|
|
167,335
|
|
|
|
(46,161
|
)
|
|
Total
accumulated unamortized discounts and debt issuance costs
|
|
|
(81,484
|
)
|
|
|
(102,804
|
)
|
|
Balances
December 31 (Carrying value)
|
|
|
3,663,213
|
|
|
|
15,498,586
|
|
As
per date of this report, the Company has realized a cumulative amount of $10.9 million (CHF 10.7 million) related to
the
CHF Bond III original.
During
the year 2016 an amount of $15,192,404 (CHF 15.2 million) was subscribed into this CHF Bond III in satisfaction of loans
from related parties. Since the new debt was not significantly different from the old debt and did not include a conversion feature
deemed substantive, the exchange was not treated as an extinguishment of debt.
In
2017, $1,216,372 was transferred from Convertible CHF Bond I to CHF Bond III. Additionally, $15,375,505 of CHF Bond III was converted
in notes payable to Global Care AG. The exchange was treated as an extinguishment of debt with a corresponding expense of $106,762.
Within
the abovementioned facility, the Company initiated a new parallel offering of senior unsecured CHF bonds on September 21, 2016.
An amount of $979,510 of which was reclassified from EUR Bond II in 2016.
SUNVESTA, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2017 and 2016
10.
BONDS - CONTINUED
|
CHF BOND III parallel
|
|
2017
|
|
2016
|
|
|
|
$
|
|
$
|
|
Balances
January 1
|
|
|
961,595
|
|
|
|
—
|
|
|
Cash
inflows
|
|
|
—
|
|
|
|
—
|
|
|
Cash
outflows
|
|
|
—
|
|
|
|
—
|
|
|
Foreign
currency adjustments
|
|
|
41,861
|
|
|
|
(17,915
|
)
|
|
Reclassification
from/to bond (net)
|
|
|
43,015
|
|
|
|
979,510
|
|
|
Sub-total
|
|
|
1,046,471
|
|
|
|
961,595
|
|
|
Discounts
(commissions paid to bondholders) and debt issuance costs
|
|
|
(84,021
|
)
|
|
|
(79,289
|
)
|
|
Accumulated
amortization of discounts and debt issuance costs
|
|
|
26,743
|
|
|
|
4,001
|
|
|
Reclassification
from/to bond (net)
|
|
|
—
|
|
|
|
—
|
|
|
Total
accumulated unamortized discounts and debt issuance costs
|
|
|
(57,278
|
)
|
|
|
(75,288
|
)
|
|
Balances
December 31 (Carrying value)
|
|
|
989,193
|
|
|
|
886,307
|
|
In
2016, an amount of $979,510 of which was reclassified from EUR Bond II.
As
per date of this report the Company has realized a cumulative amount of $1.0 million (CHF 1.0 million) related to the
CHF Bond III parallel.
On
March 6, 2017, the Company approved the issuance of a new bond with the following conditions.
|
Description
|
|
CHF
Bond IV
|
|
Issuer:
|
|
SunVesta
Holding AG
|
|
Type
of securities:
|
|
Senior
bonds
|
|
Approval
by SunVesta AG BOD:
|
|
March
6, 2017
|
|
Volume:
|
|
Up
to CHF 50,000,000
|
|
Denomination:
|
|
CHF
1,000
|
|
Offering
period:
|
|
May
1
st
– November 1
st
, 2017
|
|
Maturity
date:
|
|
May
1, 2022
|
|
Issue
price:
|
|
100%
|
|
Redemption
price:
|
|
100%
|
|
Issuance
date:
|
|
May
1, 2017
|
|
Coupon:
|
|
6.50
% p.a.
|
|
Interest
due dates:
|
|
May
1
st
of each year, the first
time May 1
st
, 2018
|
|
Applicable
law:
|
|
Swiss
|
SUNVESTA, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2017 and 2016
10.
BONDS - CONTINUED
|
CHF BOND IV
|
|
2017
|
|
2016
|
|
|
|
$
|
|
$
|
|
Balances
January 1
|
|
|
—
|
|
|
|
—
|
|
|
Cash
inflows
|
|
|
1,678,336
|
|
|
|
—
|
|
|
Foreign
currency adjustments
|
|
|
372,407
|
|
|
|
—
|
|
|
Reclassification
from/to bond (net)
|
|
|
26,418,161
|
|
|
|
|
|
|
Sub-total
|
|
|
28,468,904
|
|
|
|
—
|
|
|
Discounts
(commissions paid to bondholders) and debt issuance costs
|
|
|
(1,453,839
|
)
|
|
|
—
|
|
|
Accumulated
Amortization of discounts and debt issuance costs
|
|
|
185,828
|
|
|
|
—
|
|
|
Total
accumulated unamortized discounts and debt issuance costs
|
|
|
(1,268,011
|
)
|
|
|
—
|
|
|
Balances
December 31 (Carrying value)
|
|
|
27,200,893
|
|
|
|
—
|
|
As
per date of this report, the Company has realized a cumulative amount of $28.5 million (CHF 27.8 million) related to the
CHF Bond IV.
In
2017, $25,638,012 was transferred from Convertible CHF Bond II, $251,599 from Convertible CHF Bond I and $528,550 from other debt
to CHF Bond IV.
SUNVESTA, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2017 and 2016
11.
INCOME TAXES
The
components of loss before income taxes are as follows:
|
|
|
2017
|
|
2016
|
|
Domestic
|
|
|
(5,331,597
|
)
|
|
|
(1,411,971
|
)
|
|
Foreign
|
|
|
(10,082,600
|
)
|
|
|
(9,549,369
|
)
|
|
Loss
before income tax
|
|
|
(10,961,340
|
)
|
|
|
(10,961,340
|
)
|
Income
taxes relating to the Company’s operations are as follows:
|
|
|
|
2017
|
|
|
|
2016
|
|
|
Current
income taxes
|
|
|
|
|
|
|
|
|
|
US
Federal, state and local
|
|
|
—
|
|
|
|
—
|
|
|
Foreign
|
|
|
—
|
|
|
|
—
|
|
|
Deferred
income taxes
|
|
|
—
|
|
|
|
—
|
|
|
US
Federal, state and local
|
|
|
—
|
|
|
|
—
|
|
|
Foreign
|
|
|
—
|
|
|
|
—
|
|
|
Income
tax expense/recovery
|
|
|
—
|
|
|
|
—
|
|
Income
taxes at the United States federal statutory rate compared to the Company’s income tax expenses as reported are as follows:
|
|
|
2017
|
|
2016
|
|
Net
loss before income tax
|
|
|
(15,414,197
|
)
|
|
|
(10,961,340
|
)
|
|
Statutory
rate
|
|
|
35
|
%
|
|
|
35
|
%
|
|
Expected
income tax recovery
|
|
|
(5,394,969
|
)
|
|
|
(3,836,469
|
)
|
|
Impact
on income tax expense/recovery from
|
|
|
|
|
|
|
|
|
|
Change
in valuation allowance
|
|
|
4,534,893
|
|
|
|
3,518,283
|
|
|
Different
tax rates in foreign jurisdictions
|
|
|
737,692
|
|
|
|
921,953
|
|
|
Expiration
of unused tax loss carry forwards
|
|
|
1,148,939
|
|
|
|
502,483
|
|
|
Permanent
differences
|
|
|
1,214,999
|
|
|
|
(645,752
|
)
|
|
Difference
due to tax review / previous year adjustments
|
|
|
(2,270,718
|
)
|
|
|
(317,710
|
)
|
|
Others
|
|
|
29,164
|
|
|
|
(142,789
|
)
|
|
Income
tax expense
|
|
|
—
|
|
|
|
—
|
|
SUNVESTA, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2017 and 2016
11.
INCOME TAXES - CONTINUED
The
Company’s deferred tax assets and liabilities consist of the following:
|
|
|
December
31, 2017
|
|
December
31, 2016
|
|
Deferred
tax assets
|
|
|
|
|
|
|
|
|
|
Tax
loss carry forward
|
|
|
25,935,845
|
|
|
|
20,370,022
|
|
|
Valuation
allowance
|
|
|
(25,935,845
|
)
|
|
|
(20,370,022
|
)
|
|
Deferred
tax assets/liabilities
|
|
|
—
|
|
|
|
—
|
|
As
of December 31, 2017 and 2016, there were no known uncertain tax positions. We have not identified any tax positions for which
it is reasonably possible that a significant change will occur during the next 12 months.
Pursuant
to ASC 740-10-25-3
Income Taxes
, an income tax provision has not been made for U.S. or additional foreign taxes since none
of the subsidiaries of the Company are generating income nor are expected to in the foreseeable future. The company expects that
future earnings will be reinvested, but could become subject to additional tax if they were remitted as dividends or were loaned
to the Company, or if the Company should sell or dispose of its stock in the foreign subsidiaries. It is not practical to determine
the deferred tax liability, if any, that might be payable on foreign earnings because if the Company were to repatriate these
earnings, the Company believes there would be various methods available to it, each with different U.S. tax consequences.
The
Company’s operating loss carry forward of all jurisdictions expire according to the following schedule:
|
|
Domestic
|
|
Foreign
|
|
2018
|
|
—
|
|
|
|
8,402,020
|
|
|
2019
|
|
—
|
|
|
|
4,911,524
|
|
|
2020
|
|
—
|
|
|
|
2,725,174
|
|
|
2021
|
|
—
|
|
|
|
8,019,852
|
|
|
2022
|
|
—
|
|
|
|
13,870,585
|
|
|
2023
|
|
392,931
|
|
|
|
14,008,335
|
|
|
2024
|
|
240,753
|
|
|
|
13,011,460
|
|
|
Beyond
2024
|
|
26,268,661
|
|
|
|
0
|
|
|
Total
operating loss carry forwards
|
$
|
26,902,345
|
|
|
|
64,948,950
|
|
SUNVESTA, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2017 and 2016
11.
INCOME TAXES - CONTINUED
The
following tax years remain subject to examination:
|
|
|
United
States of America
|
|
|
Switzerland
|
|
|
Costa
Rica*
|
|
2008
|
|
YES
|
|
|
NO
|
|
|
N/A
|
|
2009
|
|
YES
|
|
|
NO
|
|
|
N/A
|
|
2010
|
|
YES
|
|
|
NO
|
|
|
N/A
|
|
2011
|
|
YES
|
|
|
NO
|
|
|
N/A
|
|
2012
|
|
YES
|
|
|
NO
|
|
|
N/A
|
|
2013
|
|
YES
|
|
|
NO
|
|
|
NO
|
|
2014
|
|
YES
|
|
|
NO
|
|
|
NO
|
|
2015
|
|
YES
|
|
|
YES
|
|
|
NO
|
|
2016
|
|
YES
|
|
|
YES
|
|
|
NO
|
|
2017
|
|
YES
|
|
|
YES
|
|
|
YES
|
*
The Costa Rican companies are taxable since 2013.
SUNVESTA, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2017 and 2016
12.
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.
The
projected benefit obligation and the fair value of plan assets have changed as follows:
|
|
|
2017
|
|
2016
|
|
Projected
Benefit Obligations beginning of year
|
|
$
|
370,901
|
|
|
$
|
463,576
|
|
|
Service
cost - current
|
|
|
56,764
|
|
|
|
60,070
|
|
|
Interest
expense
|
|
|
2,027
|
|
|
|
3,698
|
|
|
Benefit
payments and transfers
|
|
|
(20,273
|
)
|
|
|
(102,949
|
)
|
|
Actuarial
(gains)/losses
|
|
|
(10,136
|
)
|
|
|
(42,879
|
)
|
|
Currency
translation losses
|
|
|
16,682
|
|
|
|
(10,616
|
)
|
|
Projected
Benefit Obligations end of year
|
|
$
|
415,964
|
|
|
$
|
370,901
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
Asset Values beginning of year
|
|
$
|
186,432
|
|
|
$
|
252,896
|
|
|
Expected
returns
|
|
|
6,082
|
|
|
|
7,496
|
|
|
Contributions
paid
|
|
|
30,409
|
|
|
|
39,980
|
|
|
Benefits
paid and transfers
|
|
|
(20,273
|
)
|
|
|
(102,949
|
)
|
|
Actuarial
gains/(losses)
|
|
|
(5,068
|
)
|
|
|
(5,497
|
)
|
|
Currency
translation losses
|
|
|
8,351
|
|
|
|
(5,494
|
)
|
|
Fair
Asset Value of assets end of year
|
|
$
|
205,933
|
|
|
$
|
186,432
|
|
|
Net
liabilities
|
|
$
|
(210,031
|
)
|
|
$
|
(184,469
|
)
|
SUNVESTA, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2017 and 2016
12.
PENSION PLAN - CONTINUED
The
following were the primary assumptions:
Future
benefits, to the extent that they are based on compensation, include salary increases, as presented above, consistent with past
experiences and estimates of future increases in the Swiss labor market.
|
|
|
2017
|
|
2016
|
|
Assumptions
at year end
|
|
|
|
|
|
|
|
|
|
Discount
rate
|
|
|
0.60
|
%
|
|
|
0.60
|
%
|
|
Expected
rate of return on plan assets
|
|
|
3.00
|
%
|
|
|
3.00
|
%
|
|
Future
salary increases
|
|
|
1.50
|
%
|
|
|
1.50
|
%
|
|
Future
pension increases
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
Net
periodic pension costs have been included in the Company’s results as follows:
|
|
|
2017
|
|
2016
|
|
Pension
expense
|
|
|
|
|
|
|
—
|
|
|
Current
service cost
|
|
|
56,764
|
|
|
|
56,927
|
|
|
Net
actuarial (gain)/loss recorded
|
|
|
—
|
|
|
|
—
|
|
|
Interest
cost
|
|
|
2,027
|
|
|
|
5,239
|
|
|
Expected
return on assets
|
|
|
(6,082
|
)
|
|
|
(6,448
|
)
|
|
Employee
contributions
|
|
|
(15,205
|
)
|
|
|
(23,174
|
)
|
|
Net
periodic pension cost
|
|
$
|
37,505
|
|
|
$
|
32,544
|
|
For
the years ended December 31, 2017 and December 31, 2016 the Company made cash contributions of $15,205 and $88,312, respectively,
to its defined benefit pension plan.
All
of the assets are held under the collective contract by the plan’s re-insurance Company and are invested in a mix of Swiss
and international bond and equity securities within the limits prescribed by the Swiss Pension Law.
The
expected future cash flows to be paid by the Company in respect of employer contribution to the pension plan for the year ending
December 31, 2018 are $21,000.
SUNVESTA, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2017 and 2016
13.
STOCK COMPENSATION
The
Company has included share based compensation under the SunVesta Inc. Stock Option Plan 2013 (the “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 shares under the Plan.
The
purpose of the Plan is to advance the interests of the Company by encouraging its employees to remain associated with the Company
and assist the Company in building value. Such share based remuneration includes either shares or options to acquire shares of
the Company’s common stock. For all employees, fair value is estimated at the grant date. Compensation costs for unvested
shares are expensed over the requisite service period on a straight-line basis.
Share
Grants – Mr. Hans Rigendinger
On
January 1, 2013, the Company granted 3,500,000 common shares to Hans Rigendinger, valued at $0.08 an amount equal to the share
price and fair value of the shares on the grant date in connection with his employment agreement with the Company. His employment
agreement obligates the Company to issue 2,500,000 common shares as a retention award on each anniversary of the employment agreement.
The employment agreement had an initial term of three years with the option to extend for an additional two years. Mr Rigendinger’s
employment agreement was renewed for additional two years on January 1, 2016. Therefore, the Company may issue up to 16,000,000
common shares, of which all have been earned as of December 31, 2017, through January 1, 2018. As of the date of this report,
the extension of Mr. Rigendinger’s agreement is being negotiated. The specific terms have not yet been agreed upon.
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
through December 31, 2020, of which 9,000,000 were earned prior to his death.
Josef
Mettler died during the third quarter of 2016. Subsequently, the necessary accrual up until his death was reversed as of December
31, 2016.
SUNVESTA, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2017 and 2016
13.
STOCK COMPENSATION - CONTINUED
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.
Share
Grants – Mr. Howard M. 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 cash compensation of $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)
|
Year
ended
December
31,
2017
|
Year
ended
December
31,
2016
|
|
Shares
granted
|
|
57,200,000
shares
|
|
|
46,800,000
shares
|
|
|
Fair
Value respectively market price on grant date
|
$
|
0.0659
|
|
$
|
0.0746
|
|
|
Total
maximal expenses (2013-2020)
|
$
|
3,770,947
|
|
$
|
3,490,000
|
|
|
Shares
vested
|
|
35,200,000
shares
|
|
|
23,800,000
shares
|
|
|
Shares
forfeited
|
|
22,000,000
shares
|
|
|
12,000,000
shares
|
|
|
Unvested
shares
|
|
0
shares
|
|
|
5,000,000
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 shares granted to a third party were forfeited when replaced by cash compensation.
SUNVESTA, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2017 and 2016
13.
STOCK COMPENSATION - CONTINUED
Share
Grants – Summary - continued
As
of December 31, 2017, the Company expects to record no further compensation expense for granted shares in the future, as the unvested
shares will immediately vest after December 31, 2017.
Stock
Options – 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 options.
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 the date of this report, the estimated opening date has
been postponed to mid-2020, being the required date of the performance condition. The Company has assessed the probability that
this performance condition will be met at 100%. Hence, the remaining fair value of the award has been expensed on a straight-line
basis over the recalculated expected remaining vesting period. The assumption on the probability to meet the performance condition
is currently under review due to the ongoing negotiations with Melía (please refer to Note 16). If the assumption on the
probability to meet the performance condition would be lowered, expenses recognized in the past would be reversed which would
reduce the net loss.
SUNVESTA, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2017 and 2016
13.
STOCK COMPENSATION - CONTINUED
Stock
Options – Dr. Max Rӧssler
The
Company granted 10,000,000 stock options to Dr. Max Rӧssler on July 3, 2013, in connection with his appointment to the Board
of Directors. Each option entitles Dr. Rӧssler to buy one Company share at an exercise price of $0.05. These options vest
in two identical installments (Installment A and Installment B) of 5,000,000 options.
Installment
A vesting is contingent on realizing a financing arrangement to complete the development of the Paradisus Papagayo Bay Resort
& Luxury Villas. As of the grant date, the fair value was $249,835. The Company has expensed the total fair value of the award
on a straight-line basis over the expected vesting period.
Installment
B vesting is contingent on Meliá assuming management responsibilities for the Paradisus Papagayo Bay Resort & Luxury
Villas. As of the grant date the fair value was $258,210 and the Company estimated that Meliá would assume responsibility
as of July 1, 2015. As of the date of this report, the estimated opening date has been postponed to mid-2020, being the required
date of the performance condition. The Company has assessed the probability that this performance condition will be met at 100%.
Hence, the remaining fair value of the award has been expensed on a straight-line basis over the recalculated expected remaining
vesting period. The assumption on the probability to meet the performance condition is currently under review due to the ongoing
negotiations with Melía (please refer to Note16). If the assumption on the probability to meet the performance condition
would be lowered, expenses recognized in the past would be reversed which would reduce the net loss.
Stock
Options – Mr. Josef Mettler
The
Company granted several installments of stock options to Josef Mettler 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 December 31, 2016.
SUNVESTA, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2017 and 2016
13. STOCK
COMPENSATION - CONTINUED
Stock
Options – Summary
A
summary of stock options outstanding as per December 31, 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
December 31, 2017
|
|
|
20,000,000
|
|
|
$
|
0.05
|
|
|
|
5.38
years
|
|
|
Exercisable
December 31, 2017
|
|
|
—
|
|
|
|
|
|
|
|
|
|
The
following table depicts the Company’s non-vested options as of December 31, 2017.
|
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 December 31, 2017
|
|
|
20,000,000
|
|
|
$
|
0.075
|
|
SUNVESTA, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2017 and 2016
13.
STOCK COMPENSATION - CONTINUED
Stock
Options – Summary - CONTINUED
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 December 31, 2017 and December 31, 2016.
|
Assumption
|
|
|
December
31,
2017
|
|
|
|
December
31,
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.
As
of December 31, 2017, the Company had unrecognized compensation expenses related to stock options currently outstanding, to be
recognized in future respectively as follows:
|
Stock-based
compensation (options)
|
|
Year
ending December 31, 2018
|
|
|
|
$
|
|
Unrecognized
compensation expense
|
|
|
30,723
|
|
Summary
of stock and option compensation expense
The
Company recorded the following amounts related to stock based compensation expense during the periods ended December 31, 2017
and December 31, 2016:
|
Summary
of share and option based compensation expense
|
|
December
31,
2017
$
|
|
December
31, 2016
$
|
|
Expense
related to option grants
|
|
|
40,965
|
|
|
|
(509,912
|
)
|
|
Expense
related to share grants
|
|
|
213,318
|
|
|
|
345,000
|
|
|
Total
(recorded under general & administrative expense)
|
|
|
254,283
|
|
|
|
(164,912
|
)
|
SUNVESTA, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2017 and 2016
14.
FUTURE LEASE COMMITMENTS
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
|
|
December
31, 2017
|
|
December
31, 2016
|
|
|
|
$
|
|
$
|
|
payable
in 2017
|
|
|
n/a
|
|
|
|
130,000
|
|
|
payable
in 2018
|
|
|
130,000
|
|
|
|
0
|
|
15.
NOTES PAYABLE
|
|
|
December
31, 2017
|
|
December
31, 2016
|
|
|
|
|
$
|
|
|
|
$
|
|
|
Promissory
note
|
|
|
—
|
|
|
|
1,500,000
|
|
|
Total
|
|
|
—
|
|
|
|
1,500,000
|
|
Promissory
Note
On
the purchase of SunVesta Costa Rica SA (former Altos del Risco) on March 9, 2013, the parties agreed that $2,000,000 of the purchase
price would be converted into a non-interest bearing and uncollateralized loan payable on March 8, 2014. The loan payable date
was then extended to March 8, 2015. On March 16, 2015, the Company agreed with the counterparty to extend the due date through
March 16, 2016.
On
April 21, 2016, the Company signed a new agreement, which stipulated new payment terms. The total amount of $2,000,000 was then
repayable in four quarterly installments of $500,000 each, starting on August 21, 2016.The final installment was paid in 2017.
Loans
Specogna Holding AG
On
December 31, 2015, the Company entered into a short term loan agreement for approximately $607,000 with Specogna Holding AG repayable
on February 29, 2016, with an interest payment of 8 % per annum. The loan was secured personally and jointly by Dr. Max Rössler,
the late Mr. Josef Mettler and Mr. Hans Rigendinger.
During
the year ended December 31, 2016, this loan was converted into convertible bonds. Since the new debt was significantly different
from the old debt, the exchange was treated as an extinguishment of debt and an amount of $93,950 was accounted for as a loss
on extinguishment of debt.
SUNVESTA, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2017 and 2016
16.
OPENING DATE “Paradisus Papagayo Bay Resort & Luxury Villas”
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 Melía.
|
Since
the Company expects the opening of the Paradisus Papagayo Bay Resort & Luxury Villas by mid-2020, and another addendum has
not yet been secured, it has recognized a provision for liquidated damages of $5,120,000 as of December 31, 2017.
17.
SEGMENT INFORMATION
The
chief operating decision maker (“CODM”) is the Company’s CEO. Neither the CODM nor the Company’s directors
receive disaggregated financial information about the locations in which project development is occurring. Therefore, the Company
considers that it has only one reporting segment.
The
following table presents the Company’s tangible fixed assets by geographic region:
|
|
|
December
31, 2017
|
|
December
31, 2016
|
|
Location
of tangible assets
|
|
|
|
|
|
|
|
|
|
Switzerland
|
|
$
|
0
|
|
|
|
37,286
|
|
|
Costa
Rica
|
|
|
76,423,795
|
|
|
|
66,179,372
|
|
|
Total
|
|
$
|
76,423,795
|
|
|
|
66,216,658
|
|
SUNVESTA, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2017 and 2016
18.
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
|
|
Year
Ended December 31, 2017
|
|
Year
Ended December 31, 2016
|
|
Company
posted
|
|
|
Net
loss
|
|
|
|
Net
loss
|
|
|
Basic
weighted average shares outstanding
|
|
|
105,614,728
|
|
|
|
100,245,439
|
|
|
Dilutive
effect of common stock equivalents
|
|
|
None
|
|
|
|
None
|
|
|
Dilutive weighted
average shares outstanding
|
|
|
105,614,728
|
|
|
|
100,245,439
|
|
The
following table shows the number of stock equivalents that were excluded from the computation of diluted earnings per share for
the respective period because the effect would have been anti-dilutive.
|
Earnings
per share
|
|
Year
Ended December 31, 2017
|
|
Year
Ended December 31, 2016
|
|
Options
to Hans Rigendinger
|
|
|
10,000,000
|
|
|
|
10,000,000
|
|
|
Options
to Dr. M. Rössler
|
|
|
10,000,000
|
|
|
|
10,000,000
|
|
|
Total
Options
|
|
|
20,000,000
|
|
|
|
20,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
to Hans Rigendinger (retention bonus – non vested during the reporting period)
|
|
|
2,500,000
|
|
|
|
5,000,000
|
|
|
Shares
to Howard Glicken and José Maria Figueres (retention award – non vested)
|
|
|
400,000
|
|
|
|
400,000
|
|
|
Shares
associated with Convertible CHF Bonds
|
|
|
1,383,363
|
|
|
|
4,358,840
|
|
|
Total
Shares
|
|
|
4,283,363
|
|
|
|
9,758,840
|
|
|
Total
Options and Shares
|
|
|
24,283,363
|
|
|
|
29,758,840
|
|
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.
SUNVESTA, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2017 and 2016
19.
GENERAL AND ADMINISTRATIVE EXPENSES
General
and administrative expenses according consolidated statement of comprehensive loss include:
|
|
|
Year
ended December 31, 2017
|
|
Year
ended December 31, 2016
|
|
|
|
|
$
|
|
|
|
$
|
|
|
Rental
& related expenses
|
|
|
143,663
|
|
|
|
188,093
|
|
|
Audit
|
|
|
337,057
|
|
|
|
291,218
|
|
|
Consulting
|
|
|
2,775,399
|
|
|
|
2,519,305
|
|
|
Marketing,
Investor & public relations
|
|
|
50,404
|
|
|
|
92,362
|
|
|
Travel
expenses
|
|
|
460,971
|
|
|
|
332,781
|
|
|
Personnel
costs including social security’s costs and share based remuneration
|
|
|
1,089,164
|
|
|
|
1,017,705
|
|
|
Office
expenses
|
|
|
1,092
|
|
|
|
—
|
|
|
Provision
for liquidated damages expenses
|
|
|
5,120,000
|
|
|
|
—
|
|
|
Various
other operating expenditures
|
|
|
423,093
|
|
|
|
637,731
|
|
|
Total
according statement of comprehensive loss
|
|
|
10,400,844
|
|
|
|
5,079,198
|
|
Regarding
the provision for liquidated damages please refer to Note 16.
20.
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 identified the following subsequent events:
|
•
|
|
On
February 15, 2018, CHF 7 million (approximately $7.5 million) in bonds were sold to New
Berlin Limited (a related party controlled by Dr. Max Rössler, a Director and related
party). The respective amount was debited to the non-subordinated loan due to Global
Care AG (a related party controlled by Dr. Max Rössler as well).
|
|
•
|
|
On
February 28, 2018, the Company met with Melía to advise that the amended completion
date for the project could not be met. Discussions are now ongoing as to whether Melía
will extend the agreement again or whether the Company will choose to engage a different
management company for the project.
|
|
•
|
|
The
Paradisus Papagayo Bay Resort was accepted in the association of the “Leading Hotels
of the World.
|