Southern States sign
Company (“SOST”) is a corporation incorporated in the state of Nevada. SOST operates through its wholly owned subsidiary,
Conte Rosso & Partners S.r.l. (“CR&P,” and together with SOST, the “Company”), which is a company
incorporated in Italy. Operations are carried out through its subsidiary, CR&P, and mainly consists of investment in the hospitality
industry.
On November 1, 2012,
the Company entered into the Exchange Agreement with CR&P, pursuant to which the CR&P Shareholders transferred all of the
issued and outstanding capital stock of CR&P to the Company in exchange for 21,250,000 newly issued shares of our common stock,
resulting in CR&P becoming a wholly owned subsidiary of the Company. For information regarding the Exchange Agreement, see
Item 1. – “Business” of this annual report. The transaction was accounted for as a reverse acquisition into a
publicly traded shell corporation, and accordingly, no goodwill was recorded. As a result of the reverse acquisition, the historical
financial statements of Southern State Sign Company for the periods prior to the date of the transaction are not presented.
As of December 31,
2013 the consolidated operating subsidiaries are the following (those entities which are indented represent subsidiaries of the
entity under which they are indented):
Subsidiaries
Name of Company
|
|
%
Ownership
|
|
|
Location
|
|
Principal
activity
|
Southern States Sign Company
|
|
|
|
|
|
|
|
|
A. Conte Rosso & Partners S.r.l.
|
|
|
100.00
|
|
|
Italy
|
|
Hospitality Business
|
|
|
|
|
|
|
|
|
|
1. Aral Immobiliare S.r.l.
|
|
|
100.00
|
|
|
Italy
|
|
Hospitality business
|
|
|
|
|
|
|
|
|
|
2. C.R.&P. Service S.c.a.r.l.
|
|
|
100.00
|
|
|
Italy
|
|
Group’s Exclusive financial services
|
|
|
|
|
|
|
|
|
|
3. Galzignano Terme Golf & Resort S.p.A.
|
|
|
100.00
|
|
|
Italy
|
|
Hospitality business
|
|
|
|
|
|
|
|
|
|
4. Masseria Santo Scalone Hotel & Resort S.r.l.
|
|
|
100.00
|
|
|
Italy
|
|
Hospitality business
|
|
|
|
|
|
|
|
|
|
5. Primesint S.r.l.
|
|
|
100.00
|
|
|
Italy
|
|
Investment Company
|
|
|
|
|
|
|
|
|
|
6. IBH Management Company S.r.l.
|
|
|
100.00
|
|
|
Italy
|
|
Hospitality business
|
|
|
|
|
|
|
|
|
|
7. IBH Ripa S.r.l
|
|
|
100.00
|
|
|
Italy
|
|
Hospitality business
|
|
|
|
|
|
|
|
|
|
8. GHG Resorts S.r.l.
|
|
|
100.00
|
|
|
Italy
|
|
Hospitality business
|
On March 26, 2013,
I.B.H. Management Company S.r.l. (“I.B.H. Management”) was incorporated. I.B.H. Management is 95% owned by C.R.&P.
Service S.c.a.r.l. and 5% owned by Mr. Antonio Conte.
On April 3, 2013,
GHG Resorts S.r.l. (“GHG Resorts”) was incorporated. GHG Resorts is 95% owned by I.B.H. Management and 5% owned by
Mr. Antonio Conte.
On October 10, 2013,
I.B.H. Ripa S.r.l. (“I.B.H. Ripa”) was incorporated. I.B.H. Ripa is 90% owned by I.B.H. Management and 10% owned by
Aral Immobiliare S.r.l.
NOTE
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of consolidation
All majority-owned
subsidiaries in which CR&P has both voting share and management control are consolidated. All significant intercompany accounts
and transactions are eliminated. Subsidiaries over which control is achieved through other means, such as stockholders agreement,
are also consolidated even if less than 51% of voting capital is held. The equity attributable to non-controlling interests in
subsidiaries is shown separately in the consolidated financial statements.
Basis of presentation
The consolidated
financial statements for the fiscal year ended December 31, 2013 and December 31, 2012 are prepared in accordance with
generally accepted accounting principles generally accepted in the United States of America (“US GAAP”).
The Euro is the functional
currency of all companies included in these consolidated financial statements.
The amounts presented
have been rounded to the nearest thousand.
Fair value
We disclose the fair
value of our financial assets and liabilities based on observable market information where available, or on market participant
assumptions. These assumptions which are subjective in nature involve matters of judgment, and, therefore, fair values cannot always
be determined with precision. Fair value is defined as the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date (an exit price). “US GAAP”
establishes a valuation hierarchy for prioritizing the inputs and the hierarchy places greater emphasis on the use of observable
market inputs and less emphasis on unobservable inputs. When determining fair value, an entity is required to maximize the use
of observable inputs and minimize the use of unobservable inputs. The three levels of the hierarchy are as follows:
Level
One—Fair values based on unadjusted quoted prices in active markets for identical assets and liabilities;
Level Two—Fair values
based on quoted market prices for similar assets and liabilities in active markets, quoted prices in inactive markets for identical
assets and liabilities, and inputs other than quoted market prices that are observable for the asset or liability;
Level Three—Fair values
based on inputs that cannot be corroborated by observable market data and reflect the use of significant management judgment. Valuation
techniques could include the use of discounted cash flow models and similar techniques.
We utilize the market
approach and income approach for valuing our financial instruments. The market approach utilizes prices and information generated
by market transactions involving identical or similar assets and liabilities and the income approach uses valuation techniques
to convert future amounts (for example, cash flows or earnings) to a single present amount (discounted). For instances in which
the inputs used to measure fair value fall into different levels of the fair value hierarchy, the fair value measurement has been
determined based on the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of
the significance of a particular input to the fair value measurement requires judgment and may affect the classification of fair
value assets and liabilities within the fair value hierarchy.
The carrying values
of cash equivalents, accounts receivable, financing receivable – current, accounts payable and current maturities of long-term
debt approximate fair value due to the short-term nature of these items and their close proximity to maturity
Acquisitions
Assets acquired and
liabilities assumed in business combinations are recorded on our consolidated balance sheets as of the respective acquisition dates
based upon their estimated fair values at such dates.
The results of operations
of businesses acquired by us have been included in the consolidated statements of income (loss) since their respective dates of
acquisition. In certain circumstances, the purchase price allocations are based upon preliminary estimates and assumptions. Accordingly,
the allocations are subject to revision when we receive final information, including appraisals and other analyses. There were
no contingent payments, options, or commitments specified in any of our acquisition agreements.
Cash and cash equivalents
Cash and cash equivalents
comprise cash balances, cash on current accounts with banks, bank deposits and other highly liquid short-term investments with
original maturities of less than three months.
Accounts receivable & Allowance
for doubtful accounts
Accounts receivable
represents trade obligations from customers that are subject to normal trade collection terms, without discounts. The Company periodically
evaluates the collectability of its accounts receivable and considers the need to record or adjust an allowance for doubtful accounts
based upon historical collection experience and specific customer information. Actual amounts could vary from the recorded estimates.
The Company has determined that as of December 31, 2013 and 2012, € 0 is the allowance for doubtful accounts that was required.
The Company does not require collateral to support customer receivables.
Investments
Investments in unconsolidated
affiliates over which we exercise significant influence, but do not control, including joint ventures, are accounted for using
the equity method.
Investments in unconsolidated
affiliates over which we are not able to exercise significant influence are accounted for under the cost method.
Property, plant and equipment
Property, plant and
equipment are stated at acquisition cost less accumulated depreciation and adjustments for impairment losses. Property, plant and
equipment also includes assets under construction and plant and equipment awaiting installation.
Subsequent expenditures
are capitalized only when they increase the future economic benefits embodied in an item of property, plant and equipment. All
other expenditures are recognized as expenses in the consolidated statement of income as incurred.
Capitalization ceases
when construction is interrupted for an extended period or when the asset is substantially complete.
Depreciation is charged
on a straight-line basis over the estimated remaining useful lives of the individual assets.
Depreciation commences
from the time an asset is put into operation. Depreciation is not charged on assets to be disposed of or on land. The range of
the estimated useful lives is as follows:
|
-
|
Buildings and constructions: 33 - 66 years
|
|
-
|
Machinery and equipment: 2 – 20 years
|
Long-Lived Assets
We evaluate the carrying
value of our long-lived assets for impairment by comparing the expected undiscounted future cash flows of the assets to the net
book value of the assets when events or circumstances indicate that the carrying amount of a long-lived asset may not be recoverable.
If the expected undiscounted future cash flows are less than the net book value of the assets, the excess of the net book value
over the estimated fair value will be charged to earnings.
Fair value is based
upon discounted cash flows of the assets at a rate deemed reasonable for the type of asset and prevailing market conditions, appraisals,
and, if appropriate, current estimated net sales proceeds from pending offers.
We evaluate the carrying
value of our long-lived assets based on our plans, at the time, for such assets and such qualitative factors as future development
in the surrounding area and status of expected local competition.
Discontinued operations
In connection with
the strategy of focusing on hotel ownership, at the end of September, 2012 we divested all of our non-hotel assets to a related
party at cost.
The realized value
of these assets is higher than the net asset carrying value.
In 2013 we continued
to divest some non hospitality assets, by realizing following divestment:
|
−
|
We sold the property located in Via Benaco, Milan (Italy), owned by Primesint, S.r.l. The property has been owned under a capital lease contract, which has been transferred to the acquirer.
|
|
−
|
We sold the property located in Via Buozzi, Rome (Italy) owned by Conte Rosso & Partners, S.r.l. to a related party (Valma Immobiliare, S.r.l., owned by Mr.Conte’s family). The property has been owned under a capital lease contract, which has been transferred to the acquirer.
|
|
−
|
In 2013 we also resolved the Masseria Santo Scalone purchase contract, due to non fulfillment of some conditions precedent, by returning the real estate property and the related debt to the seller.
|
Goodwill and Other Intangible Assets
We evaluate goodwill
for impairment on an annual basis, and do so during the last month of each year using balances as of the end of September and at
an interim date if indications of impairment exist. Goodwill impairment is determined by comparing the fair value of a reporting
unit to its carrying amount in a two-step process with an impairment being recognized only where the fair value is less than carrying
value. We define a reporting unit at the individual property level.
When determining fair
value in step one, we utilize internally developed discounted future cash flow models, third party appraisals and, if appropriate,
current estimated net sales proceeds from pending offers. Under the discounted cash flow approach we utilize various assumptions,
including projections of revenues based on assumed long-term growth rates, estimated costs and appropriate discount rates based
on the weighted-average cost of capital. The principal factors used in the discounted cash flow analysis requiring judgment are
the projected future operating cash flow, the weighted-average cost of capital and the terminal value growth rate assumptions.
The weighted-average cost of capital takes into account the relative weights of each component of our capital structure (equity
and long-term debt) and is determined at the reporting unit level. Our estimates of long-term growth and costs are based on historical
data, various internal estimates and a variety of external sources, and are developed as part of our routine, long-term planning
process. We then compare the estimated fair value to our carrying value.
If the carrying value
is in excess of the fair value, we must determine our implied fair value of goodwill to measure if any impairment charge is necessary.
The determination of our implied fair value of goodwill requires the allocation of the reporting unit’s estimated fair value
to the individual assets and liabilities of the reporting unit as if we had completed a business combination.
We perform the allocation
based on our knowledge of the reporting unit, the market in which they operate, and our overall knowledge of the hospitality industry.
Leasing
All lease agreements
of the Company and its subsidiaries as Lessees are accounted for as capital. The Company recognizes the asset and associated liability
on its balance sheet. Capital are capitalized at the beginning of the lease at the lower of the fair value of the leased property
and the present value of minimum lease payments. Each installment of the lease is apportioned between the liability and finance
charges so as to achieve an equal reduction in capital due for each payment made at constant rate on the remaining financial balances.
Derivative financial instruments
The Company uses derivative
financial instruments principally for the management of exposure to variable interest rates on long-term financing. All derivative
financial instruments are classified as assets or liabilities and are accounted for at trade date. The Company measures all derivative
financial instruments based on fair values derived from market prices of the instruments. Changes in the fair value of a derivative
that is significant and that is designated and qualifies as a fair value hedge, along with the loss or gain on the hedged asset
or liability, are recorded in the income statement.
As of December
31, 2013 and December 31, 2012, there are no derivative instruments. During 2012, there was only one derivative instrument hedging
the risk of variable interest rates (an “interest rate cap”), the notional amount of which was € 4 million. This
derivative instrument hedges the risk from change of interest rate on a mortgage loan facility with “bullet” repayments
originally of € 8 million of which € 6.6 million is outstanding. This derivative was divested as part of our plan to
focus on hotels only as of September 30, 2012.
Shareholders loans
Shareholders loans
to the Group are all non-interest bearing. Italian law provides that the shareholders loans to a corporation ("S.r.l.")
are not preferred and their repayment is subordinated to other categories of debt. As a result all shareholder loans are classified
as non-current liabilities.
Severance indemnity fund
According to Italian
accounting principles reflecting local law and applicable employment contracts, certain post-employment benefits accrue during
the period of employment. Under U.S. GAAP, post-employment benefits are defined either as de fined contribution plans or defined
benefit plans.
In defined contribution
plans, the Company's obligation is limited to the payment of contributions to the Government or to a fund. Defined benefit plans
are pension, insurance and healthcare programs which cover the Company's obligation, even implicitly, to provide the benefits due
to former employees. The liabilities associated with defined benefit plans are determined on the basis of actuarial assumption
(discounting) and accrued in the financial statements over the employment period required to obtain the benefits.
The severance indemnity
fund required by Italian law is a liability similar to a defined benefit plan, which, however, according to Italian accounting
principles, is not subject to discounting. Given the small number of Company employee any difference between the present provisions
in the financial statements prepared in accordance with Italian GAAP and discounted value of these benefits is considered to be
immaterial.
Revenue Recognition
Our revenues are derived
from rent we receive according to rental agreements we have in place with a Hotel Management Company. The majority of our rent
is fixed and payable monthly. The fixed agreements with set increasing rental rates is recognized on a straight line-basis. We recognize
additional revenue that is variable based on a percentage of the operating profit of our rented hotels only when contingency of
the baseline target has been met.
Taxes
Income taxes
We account for income
taxes to recognize the amount of taxes payable or refundable for the current year and the amount of deferred tax assets and liabilities
resulting from the future tax consequences of differences between the financial statements and tax basis of the respective assets
and liabilities. We recognize the financial statement effect of a tax position when, based on the technical merits of the uncertain
tax position, it is more likely than not to be sustained on a review by taxing authorities. These estimates are based on judgments
made with currently available information. We review these estimates and make changes to recorded amounts of uncertain tax positions
as facts and circumstances warrant.
We are subject to income
taxes under the tax laws of Italy. The Company accounts for uncertainty in income taxes in accordance with Topic 740, “Income
Taxes,” of the Accounting Standards Codification (“ASC 740”). ASC 740 clarifies the accounting for uncertainty
in income taxes recognized in an enterprise’s financial statements in accordance with generally accepted accounting principles
and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax
position taken or expected to be taken in an income tax return. ASC 740 also provides guidance on recognition, classification,
interest and penalties, accounting in interim periods, disclosure and transition. During the years ended December 31, 2013 and
2012, the Company recognized no adjustments for uncertain tax positions.
The Company recognizes
interest and penalties relating to uncertain tax positions in income tax expense. There is no interest or penalties relating to
tax positions during the years ended December 31, 2013 and 2012.
The Company is also
subject to examination in Italy where it has filed tax returns for the years 2009 through 2011. On April 11, 2014, Aral Srl. entered
into a settlement agreement with the Italian Revenue Agency in relation to a tax assessment concerning certain asserted outstanding
taxes (VAT, income taxes etc.), as mentioned below (see Note n. 13 – Subsequent events).
Stockholder’s equity
As of December 31,
2013, the share capital of CR&P is represented by 40,151,261 outstanding shares. Mr. Antonio Conte and his wife Maddalena Olivieri
contributed 82.44% of the share capital of CR&P.
As of December 31,
2012, after the Share Exchange was consummated on November 1, 2012, the share capital of CR&P is represented by 39,526,261
outstanding shares. Mr. Antonio Conte and his family contributed 87.14% of the share capital of CR&P.
NOTE 3. RELATED PARTIES RECEIVABLES
AND PAYABLES
Related parties current
receivables and payables relate to the former CEO and shareholder, Mr. Antonio Conte, both directly and indirectly. As of December
31, 2013 the amounts of related parties current receivables of € 16,293 thousand and payables of € 6,213 thousand refers
to CR&P Service, S.r.l., a subsidiary incorporated in 2012 that manages the Company’s cash facilities and cash pooling
and also for other companies owned by Mr. Conte but not consolidated in CR&P (related parties). During the fiscal years 2012
and 2013, the operations of CR&P Service, S.r.l. did not generate any material impact on the consolidated equity and statement
of operations of CR&P. The amounts shown as non-current receivables as of December 31, 2013 and December 31, 2012 relate to
a receivable from Masoledo, S.r.l., owned by Mr. Conte in connection with the sale of the non-hotel business which occurred in
September, 2012.
The amount of related
parties current receivables of € 1,561 thousand refers to a sale of two non-hotel assets (buildings of Porto Rotondo e Porto
Cervo, OT, Italy), previously owned by Ripa Hotel & Resorts, S.r.l. (a wholly-owned subsidiary merged with Aral S.r.l. on March,
2013), to Valma Immobiliare, S.r.l., a related party owned by Mr. Conte’s family.
NOTE 4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, included
in continuing operations, comprises:
€’000
Property, plant and equipment
|
|
December 31, 2013
|
|
|
December 31, 2012
|
|
|
|
|
|
|
|
|
Hotel Ripa building, plant and equipment
|
|
€
|
42,594
|
|
|
€
|
42,654
|
|
Terme di Galzignano golf, building, plant and equipment
|
|
|
39,129
|
|
|
|
39,229
|
|
Less accumulated depreciation
|
|
|
(23,348
|
)
|
|
|
(21,271
|
)
|
Total, net
|
|
€
|
58,375
|
|
|
€
|
60,612
|
|
The properties owned
by the Company as of March 18, 2014 has been recently tested for impairment, by committing a specialized appraisal firm, which
provided updated appraisals of their fair value. The methodologies applied in those appraisals mainly consists in the market value
method and the discounted future cash flows method. The appraisals show fair value amount of the properties significantly higher
than the relevant carrying amount, as can be seen from the following table.
€’000
Property, plant and equipment
|
|
Balance Sheet as of December 31,
2013 (net of accumulated
depreciation)
|
|
|
Appraisal values as
of March 18, 2014
|
|
|
Differential
|
|
|
|
|
|
|
|
|
|
|
|
Hotel Ripa building, plant and equipment
|
|
€
|
34,952
|
|
|
€
|
39,900
|
|
|
€
|
4,948
|
|
Terme di Galzignano golf, building, plant and equipment
|
|
|
23,423
|
|
|
|
56,393
|
|
|
|
32,970
|
|
Total
|
|
€
|
58,375
|
|
|
€
|
96,293
|
|
|
€
|
37,918
|
|
NOTE 5. MAJOR ACQUISITIONS AND DIVESTMENTS
Masseria Santo Scalone Hotel & Resort
S.r.l.
In line with the strategy
to expand operations in the hospitality area, on September 29, 2012, the Company acquired 100.00% of Masseria Santo Scalone Hotel
& Resort Srl (“Masseria”) from a related party (Masoledo Srl, owned by Mr. Conte’s family), which had previously
purchased, in June 2012, an ancient real estate property located in Ostuni, Pulia, in the south of Italy, from Peretola Srl. The
cost of acquisition of Masseria was €3.2 million.
The balance sheet effects
of the acquisition are summarized below:
The purchase price allocation for the
acquisition of Masseria Santo Scalone Hotel & Resort S.r.l. is as follows;
€’000
|
|
May 29, 2012
|
|
Current maturity of long-term debt
|
|
€
|
2,898
|
|
Related parties payable
|
|
|
300
|
|
Cash payments
|
|
|
10
|
|
Total purchase price
|
|
€
|
3,208
|
|
Allocated to:
|
|
|
|
|
Property, plant and equipment
|
|
€
|
4,903
|
|
Net working capital
|
|
|
(1.705
|
)
|
Cash
|
|
|
10
|
|
Total
|
|
€
|
3,208
|
|
There is no goodwill
recognized on the acquisition of Masseria.
On November 27, 2013,
Masseria resolved the contract entered with Peretola Srl in June 2012. This was
mainly due to the impossibility for the seller to fulfill certain conditions precedent (among which to provide the registration
of the property as “hotel” instead of as “residential” in the land public registry). Accordingly the property
(together with the relative mortgage loans) was returned to the seller, which in turn will have to reimburse Masseria of the down
payments made so far (€ 442,188).
Change in percentage of interests in
Primesint, S.r.l.
At the beginning of 2013, the shareholders
of the Company entered into an agreement of exchange of interests in Primesint Srl. After this investment, Primesint is a wholly-owned
subsidiary. The transaction has been realized with no gain or loss for controlling interests.
Change in percentage of interests in
Galzignano Terme Golf & Resorts, S.p.A.
At the beginning of 2013, the shareholders
of the Company entered into an agreement of exchange of interests in Galzignano Terme Golf & Resorts, S.p.A.. After this transaction,
Galzignano is a wholly-owned subsidiary. The transaction has been realized with no gain or loss for controlling interests.
Divestment of all non-hospitality businesses
In September 2012,
the Company divested all of it non-hotel assets to a related party company controlled by the shareholders. The total assets and
liabilities divested was € 52.9 million and € 44.7 million, respectively.
Divestment of the property in Via Benaco,
Milan, Italy
In order to focus on
the hospitality business, in April, 2013 the wholly-owned subsidiary Primesint, S.r.l. sold the property located in Via Benaco,
Milan (Italy). The property has been owned under a capital lease contract, which has been transferred to the acquirer with no-cash
inflow paid.
The balance sheet effects
of this disposal are summarized in the table below:
Balance sheets effects of the divestment
of the property in Via Benaco, Milan (Italy)
€’000
|
|
April 1, 2013
|
|
Inflow of cash and other assets
|
|
€
|
0
|
|
Total assets divested, less accumulated depreciation
|
|
|
(438
|
)
|
Total liabilities divested
|
|
|
407
|
|
Recognized loss
|
|
|
(31
|
)
|
The loss resulting
from this divestment has been recognized in the consolidated statement of operations as a loss on disposal of discontinued operations.
Divestment of the property in Via Buozzi,
Rome (Italy)
In order to focus on
the hospitality business, in December, 2013, the wholly-owned subsidiary Conte Rosso & Partners, S.r.l. sold the property located
in Via Buozzi, Rome (Italy) to a related party (Valma Immobiliare, S.r.l., owned by Mr.Conte’s family). The property has
been owned under a capital lease contract, which has been transferred to the acquirer with no-cash inflow paid.
The balance sheet effects
of this disposal are summarized in the table below:
Balance sheets effects of the divestment
of the property in Via Buozzi, Rome (Italy)
€’000
|
|
December 18, 2013
|
|
Inflow of cash and other assets
|
|
€
|
0
|
|
Total assets divested, less accumulated depreciation
|
|
|
(3,137
|
)
|
Total liabilities divested
|
|
|
2,566
|
|
Recognized loss
|
|
|
(571
|
)
|
The loss resulting
from this divestment has been recognized in the consolidated statement of operations as a loss on disposal of discontinued operations.
NOTE 6. GOODWILL
The table below shown
the breakdown of goodwill related to continuing operations
:
€’000
|
|
Owned and leased
hotel
|
|
|
Others owned
properties
|
|
|
Total
|
|
Balance as of January 1, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill, net
|
|
|
1,149
|
|
|
|
392
|
|
|
|
1,541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No Activity during the period
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill, net
|
|
|
1,149
|
|
|
|
392
|
|
|
|
1,541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of January 1, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill, net
|
|
|
1,149
|
|
|
|
392
|
|
|
|
1,541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of the Ripa Hotel’s hotel management activity
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill, net
|
|
|
1,149
|
|
|
|
392
|
|
|
|
1,541
|
|
In the fiscal years ended December 31, 2013
and 2012, the company did not have any new goodwill or any impairment on existing goodwill.
NOTE 7. OTHER NON-CURRENT ASSETS
The table below shown
the breakdown of other non-current assets, related to continuing operations:
€’000
|
|
December 31, 2013
|
|
|
December 31, 2012
|
|
Related parties non-current receivables
|
|
€
|
8,890
|
|
|
€
|
8,890
|
|
Investment in other companies
|
|
|
4
|
|
|
|
13
|
|
Accruals and deferred costs
|
|
|
259
|
|
|
|
375
|
|
Other intangible assets
|
|
|
1,339
|
|
|
|
1,257
|
|
Total Other non-current assets
|
|
€
|
10,492
|
|
|
€
|
10,535
|
|
NOTE 8. BANK OVERDRAFTS AND LONG-TERM
DEBT
Amounts of financial
debt (related to continuing operations) due to non-related parties are:
€’000
Mortgage & Capital Leases
|
|
December 31,
2013
|
|
|
December 31,
2012
|
|
Mortgage loan on property
|
|
€
|
21,084
|
|
|
€
|
20,791
|
|
Leases
|
|
|
26,412
|
|
|
|
26,712
|
|
Total
|
|
€
|
47,496
|
|
|
€
|
47,503
|
|
|
|
December 31, 2013
|
|
|
December 31, 2012
|
|
Current portion of debt
|
|
€
|
10,915
|
|
|
€
|
9,798
|
|
Long term debt
|
|
|
36,581
|
|
|
|
37,706
|
|
Total
|
|
€
|
47,496
|
|
|
€
|
47,503
|
|
BANK OVERDRAFT
The following tables
sets out the main terms and conditions and the outstanding overdraft balances as of December 31, 2013 and 2012 of the financial
debts referred to continuing operations:
€’000
Company
|
|
Type of debt
|
|
Object
|
|
Collateral
|
|
|
Outstanding
balance as of
December
31, 2013
|
|
|
Outstanding
balance as
of Dec. 31,
2012
|
|
CONTE ROSSO & PARTNERS, S.R.L.
|
|
BANK OVERDRAFT
|
|
Cash facility
|
|
|
-
|
|
|
|
-
|
|
|
|
2,051
|
|
TERME DI GALZIGNANO, S.r.l.
|
|
BANK OVERDRAFT
|
|
Cash facility
|
|
|
-
|
|
|
|
963
|
|
|
|
919
|
|
|
|
|
|
|
|
|
TOTAL
|
|
|
|
963
|
|
|
|
2,970
|
|
Outstanding non-current loans
related to continuing operations
as of December 31, 2013 and 2012
€’000
Company
|
|
Type
of debt
|
|
Object
|
|
Collateral
|
|
Outstanding.
balance as of Dec.
31, 2013
|
|
|
Outstanding
balance as of Dec.
31, 2012
|
|
CONTE ROSSO & PARTNERS, S.R.L.
|
|
UNSECURED LOAN
|
|
Cash facility
|
|
-
|
|
|
507
|
|
|
|
688
|
|
ARAL IMMOBILIARE, S.r.l.
|
|
CAPITAL LEASE
|
|
Building purchase
|
|
Hotel property in Rome, Italy
|
|
|
26,279
|
|
|
|
26,712
|
|
ARAL IMMOBILIARE, S.r.l.
|
|
MORTGAGE LOAN
|
|
Building purchase
|
|
Building, Porto Cervo (Olbia), Italy
|
|
|
308
|
|
|
|
438
|
|
TERME DI GALZIGNANO, S.r.l.
|
|
MORTGAGE LOAN
|
|
Building purchase
|
|
Hotel property in Galzignano (Padova), Italy
|
|
|
14,843
|
|
|
|
14,361
|
|
TERME DI GALZIGNANO, S.r.l.
|
|
MORTGAGE LOAN ("bullet" reimbursement plan)
|
|
Cash facility
|
|
Hotel property in Galzignano (Padova), Italy
|
|
|
5,559
|
|
|
|
5,304
|
|
|
|
|
|
|
|
TOTAL
|
|
|
47,496
|
|
|
|
47,503
|
|
The following table sets out the significant
term and future payments of long-term loans related to continuing operations:
|
|
|
|
|
|
|
|
€’000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Installments maturity as of December
31
|
|
Company
|
|
Type of debt
|
|
Object
|
|
Collateral
|
|
2014
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
2018
|
|
CONTE ROSSO & PARTNERS, S.R.L.
|
|
UNSECURED LOAN
|
|
Cash facility
|
|
-
|
|
|
328
|
|
|
|
179
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ARAL IMMOBILIARE, S.r.l.
|
|
MORTGAGE LOAN
|
|
Building purchase
|
|
Building, Porto Cervo (Olbia), Italy
|
|
|
308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ARAL IMMOBILIARE, S.r.l.
|
|
CAPITAL LEASE
|
|
Building purchase
|
|
Hotel property in Rome, Italy
|
|
|
911
|
|
|
|
649
|
|
|
|
678
|
|
|
|
709
|
|
|
|
742
|
|
TERME DI GALZIGNANO, S.r.l.
|
|
MORTGAGE LOAN
|
|
Building purchase
|
|
Hotel property in Galzignano (Padova), Italy
|
|
|
3,809
|
|
|
|
1,379
|
|
|
|
1,379
|
|
|
|
1,379
|
|
|
|
1,379
|
|
TERME DI GALZIGNANO, S.r.l.
|
|
MORTGAGE LOAN ("bullet\" reimbursement plan)
|
|
Cash facility
|
|
Hotel property in Galzignano (Padova), Italy
|
|
|
5,559
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
€
|
10,915
|
|
|
€
|
2,207
|
|
|
€
|
2,057
|
|
|
€
|
2,088
|
|
|
€
|
2,121
|
|
The following table sets out the amounts
of the assets held and used by capital lease:
|
|
Asset Balances at
|
|
|
Asset Balances at
|
|
Class of property
|
|
December 31, 2013
|
|
|
December 31, 2012
|
|
|
|
|
|
|
|
|
Building
|
|
€
|
38,730
|
|
|
€
|
38,730
|
|
|
|
|
|
|
|
|
|
|
Less: accumulated depreciation
|
|
|
(6,633
|
)
|
|
|
(5,471
|
)
|
|
|
|
|
|
|
|
|
|
Net balance
|
|
€
|
32,097
|
|
|
€
|
33,259
|
|
The following table sets out the schedule
of the undiscounted and discounted future minimum lease payments:
Minimum lease payments (future and net present value)
|
|
|
|
|
Year ending December 31:
|
|
|
€’000
|
|
2014
|
|
|
2,053
|
|
2015
|
|
|
1,763
|
|
2016
|
|
|
1,763
|
|
2017
|
|
|
1,763
|
|
2018
|
|
|
1,763
|
|
Later years
|
|
|
18,740
|
|
Purchase option
|
|
|
11,522
|
|
Net minimum lease payments
|
|
|
39,366
|
|
Less: Amount representing interest
|
|
|
(13,087
|
)
|
Present value of net minimum lease payments
|
|
€
|
26,279
|
|
As of December 31, 2013, there are no unused
credit lines.
NOTE 9. SHAREHOLDER’S LOANS
In order to strengthen
the Group’s capital position and taking into account future financial commitments to enable the real estate investment and
development projects to be progressed, in the last quarter of 2011, Mr. Conte waived repayment of shareholder’s loans of
€ 25.9 million.
NOTE 10. OTHER NON CURRENT LIABILITIES
The amount of €
4,612 as of December 31, 2013, mainly refers to the following allowances to provisions account:
|
−
|
the amount of € 2,250 is related to the settlement of Aral. with the Italian Revenues Agency, mentioned below in the note
n. 13 – Subsequent events.
|
|
−
|
The amount of € 1,548 refers to a litigation occurred between Galzignano Terme Golf & Resort, S.p.A. and Sercos SpA.
|
The amount of € 590 refers to an allowance about
a dispute with a supplier.
NOTE 11. COMMITMENTS AND CONTINGENCIES
The Company and certain
subsidiaries are defendants in legal actions in the normal course of business. Based on the advice of legal counsel, management
believes that the amounts recognized and recorded as debt provisions or asset negative adjustments are sufficient to cover probable
losses in connection with such actions.
The risk provisions
or negative adjustments are recognized when in accordance with the opinion of legal counsel the liability is probable and measurable.
NOTE 12. INCOME TAXES
Tax losses carryforwards
Under Italian tax law
the operating loss carryforwards available for offset against future profits can be used indefinitely. Operating loss carryforwards
are only available for offset against national income tax, in the limit of 80% of taxable annual income (this restriction does
not apply to the operating loss incurred in the first three years of the Company’s activity, which are therefore available
for 100% offsetting).
Our operating
losses carried forward and available for offset against future profits as of December 31, 2013 and December 31, 2012 is
€ 12,325 and €651, respectively.
Deferred income taxes
reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
Components of the Company’s
deferred tax asset are as follows as of December 31, 2013 and 2012:
€’000
|
|
2013
|
|
|
2012
|
|
Deferred tax asset – net operating loss carryovers
|
|
|
3,389
|
|
|
|
179
|
|
Less Valuation allowance
|
|
|
(3,389
|
)
|
|
|
(179
|
)
|
Net deferred tax asset
|
|
€
|
|
|
|
€
|
-
|
|
The Company periodically
evaluates whether it is more likely than not that it will generate sufficient taxable income to realize the deferred income tax
asset. The ultimate realization of this asset is dependent upon the generation of future taxable income sufficient to offset the
related deductions. At the present time, management cannot presently determine when the Company will be able to generate sufficient
taxable income to realize the deferred tax asset; accordingly, a valuation allowance has been established to offset the asset.
The reconciliation
of income tax benefit attributable to continuing operations computed at the Italian statutory tax rates to the income tax benefit
recorded is as follows:
|
|
Year ended December 31,
|
|
|
|
2013
|
|
|
2012
|
|
Income tax at Italian statutory rate of 27.5%
|
|
€
|
(3,210
|
)
|
|
€
|
2,369
|
|
Increase in valuation allowance
|
|
|
3,210
|
|
|
|
(2,369
|
)
|
Income tax benefit
|
|
€
|
|
|
|
€
|
-
|
|
NOTE 13. SUBSEQUENT EVENTS
On April 11, 2014,
Aral Immobiliare Srl (“Aral”), the owner of the Ripa Hotel under a financial lease agreement with Unicredit Leasing
SpA, entered into a settlement agreement with the Agenzia delle Entrate (the Italian Revenue Agency) in relation to a tax assessment
issued by the latter on January 30, 2014. The tax assessment was concerning certain asserted outstanding taxes (VAT, income taxes
etc.) related to the financial lease contract mentioned above for the years from 2008 onwards, for an overall amount of €
3,877,056.35. The settlement agreement envisages that, in relation to the first year of the financial lease contract (2008), Aral
will pay the overall amount of € 1,234,202,52 plus interest, in twelve quarterly installments. The first installment has already
been paid on April 30, 2014.
For the years from
2009 up to 2013, Aral Srl and the Agenzia delle Entrate entered into a settlement that envisages the following payments:
2009: € 329,278.00
2010: € 189,810.00
2011: € 184,210.00
2012: € 179,710.00
2013 up to 2027: €
151,034.00 (which may be offset by Aral against higher VAT credit, if any)
2028: € 25,172.41
(which may be offset by Aral against higher VAT credit, if any)
On the basis of the
above settlement, Aral already set an allowance for € 2,250,000.00 in its 2013 financial statements which covers all expenses,
penalties and interest costs related to this matter.