UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2011.
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
to
.
Commission file number: 000-28731
SUNVESTA, INC.
(Exact name of registrant as specified in its charter)
Florida
98-0211356
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)
Seestrasse 97, Oberrieden, Switzerland CH-8942
(Address of principal executive offices) (Zip Code)
011 41 43 388 40 60
(Registrant’s telephone number, including area code)
n/a
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes o No þ
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web
site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files). Yes þNo o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and
“smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o Accelerated filer o Non-accelerated filer o Smaller reporting company þ
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes o No þ
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest
practicable date. The number of shares outstanding of the issuer’s common stock, $0.01 par value (the only
class of voting stock), at January 10, 2013, was 54,092,186.
1
TABLE OF CONTENTS
PART 1- FINANCIAL INFORMATION
Item1.
3
Consolidated Balance Sheets as of September 30, 2011 (Unaudited) and December
4
31, 2010 (audited)
Unaudited Consolidated Statements of Operations and Comprehensive Loss for the
5
three and nine months ended September 30, 2011 and September 30, 2010 and
cumulative amounts
Unaudited Consolidated Statements of Cash Flows for the nine months ended
6
September 30, 2011 and September 30, 2010 and cumulative amounts
Notes to Unaudited Consolidated Financial Statements
7
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of
23
Operations
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
31
Item 4.
32
PART II-OTHER INFORMATION
Item 1.
33
Item 1A.
33
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
33
Item 3.
Defaults Upon Senior Securities
33
Item 4.
33
Item 5.
33
Item 6.
33
34
35
2
PART I – FINANCIAL INFORMATION
ITEM 1.
FINANCIAL STATEMENTS
As used herein, the terms “SunVesta,” “we,” “our,” and “us” refer to SunVesta, Inc., a Florida
corporation, and its predecessors and subsidiaries, unless otherwise indicated. In the opinion of
management, the accompanying unaudited, consolidated financial statements included in this Form 10-Q
reflect all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of
the results of operations for the periods presented. The results of operations for the periods presented are
not necessarily indicative of the results to be expected for the full year.
3
SUNVESTA, INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
September 30, 2011
December 31, 2010
Assets
_
(Unaudited)_ _
Current assets
Cash and cash equivalents
$
513,841
44,018
Other assets
8,019
9,421
Receivables from related parties
1,232,233
-
Total current assets
1,754,093
53,439
Non-current assets
Property and equipment - net
10,905,000
9,321,976
Debt issuance cost - net
1,096,587
291,288
Down payment for property & equipment
735,032
-
Total non-current assets
12,736,619
9,613,264
Total assets
$
14,490,712
9,666,703
Liabilities and stockholders' equity
Current liabilities
Accounts payable
$
710,339
914,420
Accrued expenses
795,534
65,824
Notes payable to third parties
-
551,155
Notes payable to related parties
308,031
811,246
Total current liabilities
1,813,904
2,342,645
Non-current liabilities
EUR-Bond
8,638,615
265,273
CHF-Bond
101,394
-
Notes payable to related parties
1,099,969
-
Pension liabilities
40,755
-
Total non-current liabilities
9,880,733
265,273
Total liabilities
$
11,694,637
2,607,918
Stockholders' equity
Preferred stock, $0.01 par value;
50,000,000 share authorized
no shares issued and outstanding
-
-
Common stock, $0.01 par value;
200,000,000 shares authorized;
54,092,186 shares issued and outstanding
540,922
540,922
Additional paid-in capital
18,728,391
18,728,391
Accumulated other comprehensive loss
(285,534)
(59,452)
Retained earnings prior to development stage
1,602
1,602
Deficit accumulated during the development stage
(16,165,551)
(12,128,923)
Treasury stock, 157,220 and 157,220 shares
(23,755)
(23,755)
Total stockholders' equity
2,796,075
7,058,785
Total liabilities and stockholders' equity
$
14,490,712
9,666,703
The accompanying notes are an integral part of these consolidated financial statements.
4
SUNVESTA, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
Three months
Three months
Nine months
Nine months
Cumulative*
ended
ended
ended
ended
Amounts
September 30,
September 30,
September 30, September 30,
2011
2010
2011
2010
(Unaudited)
(Unaudited)
(Unaudited)
(Unaudited)
(Unaudited)
Revenues
Revenues, net
$
-
-
-
-
-
Cost of revenues
-
-
-
-
-
Gross profit
-
-
-
-
-
Operating expenses
General and administrative
expenses
1,063,241
307,650
3,424,541
705,510
11,904,243
Marketing
16,148
1,405
133,602
14,660
465,812
Total operating expenses
1,079,389
309,055
3,558,143
720,170
12,370,055
Loss from operations
(1,079,389)
(309,055)
(3,558,143)
(720,170)
(12,370,055)
Other income / - expenses
Loss on disposals of assets
-
-
-
-
(3,258)
Loss on sale of investments
-
-
-
-
(1,137,158)
Loss on extinguishment of debt
-
-
-
(258,882)
(1,806,758)
Interest income
1,326
-
1,326
-
68,207
Interest expense
(115,677)
(8,406)
(200,243)
(27,725)
(716,495)
Amortization of debt issuance
cost and commissions
(94,402)
-
(214,974)
-
(214,974)
Exchange differences
200,477
-
(64,594)
-
(64,594)
Other income / - expenses
-
-
-
-
79,534
Total other income / - expenses
(8,276)
(8,406)
(478,485)
(286,607)
(3,795,496)
Loss before income taxes
(1,087,665)
(317,461)
(4,036,628)
(1,006,777)
(16,165,551)
Income taxes
-
-
-
-
-
Net loss
$
(1,087,665)
(317,461)
(4,036,628)
(1,006,777)
(16,165,551)
Comprehensive loss:
Foreign currency translation
(455,282)
(128,267)
(226,082)
(56,619)
(264,534)
Comprehensive loss
$
(1,542,947)
(445,728)
(4,262,710)
(1,063,396)
(16,430,085)
Loss per common share
Basic and diluted
$
(0.02)
(0.01)
(0.07)
(0.02)
Weighted average common
shares
Basic and diluted
54,092,186
54,092,186
54,092,186
54,092,186
* Cumulative: January 1, 2005 (date of inception) to September 30, 2011
The accompanying notes are an integral part of these consolidated financial statements.
5
SUNVESTA, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
January 1 to
January 1 to
September 30,
September 30,
Cumulative *
2011
2010
Amounts
(Unaudited)
(Unaudited)
(Unaudited)
Cash flows from operating activities
Net loss
$
(4,036,628)
(1,006,777)
(16,165,551)
Adjustments to reconcile net loss to net cash
Depreciation and amortization
16,749
753
289,494
Amortization of debt issuance cost and commissions
214,974
-
222,673
Unrealized exchange differences
64,594
-
64,594
Stock compensation expense
-
-
107,269
Loss on securities acquired as deposit on stock
-
-
1,008,324
Loss on disposal of assets
-
-
3,258
Loss on extinguishment of debt
-
258,882
1,806,758
Increase in pension fund commitments
40,755
-
40,755
- Increase / decrease in:
Other current assets
1,402
(7,502)
(8,848)
Accounts payable
(204,081)
74,244
1,246,155
Accrued expenses
729,710
85,183
1,115,264
Net cash used in operating activities
(3,172,525)
(595,217)
(10,269,855)
Cash flows from investing activities
Proceeds from securities available-for-sale
-
-
1,740,381
Increase in receivables from related parties
(1,232,233)
(1,232,233)
Purchase of property and equipment
(1,657,319)
(14,032)
(11,462,805)
Down payments on purchase of investment
(684,118)
-
(684,118)
Other non-current assets
(50,914)
1,863
(50,914 )
Net cash used in investing activities
(3,624,584)
(12,169)
(11,689,689)
Cash flows from financing activities
Net proceeds from deposit on stock
-
-
3,664,417
Proceeds from stock issuance
-
-
300,000
Proceeds from notes payable related parties
1,374,997
651,927
12,353,129
Repayment of notes payable related parties
(778,243)
(778,243)
Advances from third parties
-
-
700,000
Decrease in note payable
(551,155)
-
(714,819)
Proceeds from bond issuance, net of commissions
8,458,959
-
8,724,232
Payment for debt issuance costs
(1,019,273)
-
(1,040,943)
Purchase of treasury stock
-
(11,555)
(23,755)
Net cash provided by financing activities
7,485,285
640,372
23,184,018
Effect of exchange rate changes
(218,353)
(93,973)
(711,188)
Net increase / - decrease in cash
469,823
(60,987)
513,286
Cash, beginning of period
44,018
73,945
555
Cash, end of period
$
513,841
12,958
513,841
Additional information
Interest paid
84,000
-
Income taxes paid
-
-
*Cumulative amounts: From January 1, 2005 (inception date) to September 30, 2011
The accompanying notes are an integral part of these consolidated financial statements.
6
SUNVESTA, INC.
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2011
1.
CORPORATE INFORMATION
On August 27, 2007, SunVesta, Inc. (SunVesta) acquired SunVesta Holding AG (SunVesta AG)
(collectively the Company). SunVesta AG has three wholly-owned subsidiaries: SunVesta
Projects and Management AG, a Swiss company; Rich Land Investments Limitada, a Costa Rican
company (Rich Land); and SunVesta Costa Rica Limitada, a Costa Rican company.
In January 2005 (date of inception of development stage), the Company changed its business
focus to the development of private equity financial products, whose funds will be invested
primarily in the hospitality and related industry. The Company has not materialized any revenues
yet and is therefore a “development stage company”.
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).
The accompanying unaudited consolidated financial statements have been prepared by
management in accordance with the instructions in Form 10-Q and, therefore, do not include all
information and footnotes required by generally accepted accounting principles and should,
therefore, be read in conjunction with the Company’s Form 10-K, for the year ended December
31, 2010, filed with the Securities and Exchange Commission. These statements do include all
normal recurring adjustments which the Company believes necessary for a fair presentation of the
statements. The interim results of operations are not necessarily indicative of the results to be
expected for the full year ended December 31, 2011.
Except as indicated in the notes below, there have been no other material changes in the
information disclosed in the notes to the financial statements included in the Company’s Form
10-K for the year ended December 31, 2010, filed with the Securities and Exchange
Commission. Therefore, those footnotes are included herein by reference.
7
SUNVESTA, INC.
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2011
2.
SIGNIFICANT ACCOUNTING POLICIES
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 and interest"). With respect
to the construction in progress the Company capitalized $51,000 and $0 of interest expense
during the nine months period ended September 30, 2011 and September 30, 2010.
EUR and CHF bonds
Non-current liabilities comprise of bonds payable in EUR (€) and CHF, which bear fixed interest
rates. The EUR bonds and CHF bonds are carried at nominal value.
Issuance costs and placement provisions are capitalized 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
Pension Plan
The Company maintains a pension plan covering all employees in Switzerland; it is considered a
defined benefit plan and accounted 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 rateably 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 to accumulate other comprehensive income. 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 operations. 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.
8
SUNVESTA, INC.
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2011
2.
SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Fair Value of Financial Instruments
The Company’s financial instruments consist of cash and cash equivalents, receivables from
related parties, accounts payable, note payables and bonds. The fair value of these financial
instruments approximate their carrying value due to the short maturities of these instruments,
unless otherwise 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.
New accounting standards
In May 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards
Update ("ASU") 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve
Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs,
which results in a consistent definition of fair value and common requirements for measurement
of and disclosure about fair value between accounting principles generally accepted in the United
States and IFRS. ASU 2011-04 is effective for interim and annual periods beginning after
December 15, 2011. The Company expects the adoption of this standard will have no significant
impact on the Company's consolidated financial statements and related disclosures.
In June 2011, the FASB issued amendments to Topic 220, Comprehensive Income, in this
Update, an entity has the option to present the total of comprehensive income, the components of
net income, and the components of other comprehensive income either in a single continuous
statement of comprehensive income or in two separate but consecutive statements. In both
choices, an entity is required to present each component of net income along with total net
income, each component of other comprehensive income along with a total for other
comprehensive income, and a total amount for comprehensive income. This Update eliminates
the option to present the components of other comprehensive income as part of the statement of
changes in stockholders' equity. The amendments in this Update do not change the items that
must be reported in other comprehensive income or when an item of other comprehensive income
must be reclassified to net income. Effective for annual periods beginning after December 15,
2011. The Company expects the adoption of this standard will have no significant impact on the
Company's consolidated financial statements and related disclosures.
9
SUNVESTA, INC.
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2011
3.
GOING CONCERN
The Company is currently working on building a hotel in the Papagayo Gulf Tourism Project area
of Guanacaste, Costa Rica.
The project is expected to open in the fourth quarter of 2014. Until the completion of the project,
the following expenditures are estimated to be incurred:
$1,000
a. Gross project cost
195,000
b. Less: Proceeds from sale of villas
-24,000
c. Net project cost
171,000
d. Overhead expenses
21,000
e. Less: Recuperated in gross project cost
-12,000
f Total, excluding other potential projects
180,000
Sixty percent (60%) of “Net project cost” is expected to be financed by traditional mortgage
loans, for which negotiations have been initiated. The remaining forty percent (40%) of “Net
project cost”, as well as “non-recuperated overhead expenses” and the cost of prospective “other
projects” are expected to be financed by four of the Company’s principal shareholders or
principal lenders to the project, i.e.:
a.
Zypam Ltd., shareholder
b.
Mr. Hans Rigendinger, shareholder and board member of SunVesta AG
c.
Mr. Max Rössler, majority shareholder of Aires International Investment, Inc.
(also refer to Note 16)
d.
Mr. Josef Mettler, shareholder, director and chief executive officer
Subsequent to September 30, 2011, those individuals detailed above signed a Guaranty
Agreement. (Refer to Note 16.) Management therefore believes that available funds are sufficient
to finance cash flows for the twelve months subsequent to September 30, 2011 and the filing date
though future anticipated cash outflows for investing activities will continue to depend on the
availability of financing and can be adjusted as necessary.
10
SUNVESTA, INC.
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2011
4.
PROPERTY & EQUIPMENT
September 30, 2011
December 31, 2010
Unaudited
Audited
Land
7,000,000
7,000,000
IT equipment
185,846
185,846
Other equipment and furniture
29,979
29,979
Leasehold improvements
66,617
66,617
Construction in progress
3,905,000
2,311,276
Gross
11,187,442
9,593,718
Less: Accumulated depreciation
(282,442)
(271,742)
Net
10,905,000
9,321,976
5.
CONSTRUCTION IN PROCESS
The Company possesses a concession for a piece of land (~84’000 m2), i.e. a right to build a
hotel and apartments in the “Papagayo Gulf Tourism Project”, Guanacaste, Costa Rica, which
was acquired for $7 million and recorded as land in property and equipment.
The concession is a right to use the property for a specific purpose over a term of 20 years, which
term thereafter can be renewed at no further cost, if the Company is up to date with its obligations
as stipulated by the Cota Rican government and if no significant change in government policies
takes place. The current concession expires in June 2022.
The construction in process amount that was spent as of September 30, 2011 is attributed
primarily to architectural work related to the hotel and apartments.
6.
NOTE PAYABLE TO THIRD PARTIES
The Company’s note payable was to Bruesa Construccione S.A. (Bruesa), a Spanish construction
contractor. The note was repayable in Euros and was collateralized by a 10% interest in Rich
Land and bore interest at 6%. The note payable balance sheet amounts of $551,155 for December
31, 2010 included related accrued interest of approximately $59,000. As of June 17, 2011 the
amount due was paid in full and Bruesa’s interest in Rich Land was returned to the Company.
11
SUNVESTA, INC.
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2011
7.
RECEIVABLES FROM AND NOTES PAYABLE TO RELATED PARTIES
Receivables
Payables
September 30,
December 31,
September 30,
December 31
2011
2010
2011
2010
01 Hans Rigendinger
-
-
275,028
-
02 Adrian Oehler
-
-
39,409
31,887
03 Zypam Ltd
1,232,233
-
-
685,621
04 Sportiva
-
-
-
83,000
05 Aires International
-
-
1,099,969
0
Total excluding
interest
1,232,233
-
1,408,000
800,508
Accrued interest
-
-
-
10,738
Total
1,232,233
-
1,408,000
811,246
of which non-current
-
-
1,099,969
-
Related party
Capacity
Interest
Repayment
Security
Rate
Terms
01 Hans Rigendinger
Shareholder
NA
Dec 30, 2011
None
02 Adrian Oehler
Shareholder
3.00%
None
None
03 Zypam Ltd
Shareholder
None
N/A
None
04 Sportiva
An entity owned by a
3.00%
None
None
Company board member
05 Aires International
See below
12
SUNVESTA, INC.
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2011
7.
RECEIVABLES FROM AND NOTES PAYABLE TO RELATED PARTIES - CONTINUED
Line of Credit agreement with Aires International Investments, Inc.
On July 27, 2011, SunVesta signed a loan agreement with Aires International Investments Inc., a
company owned by a board member of SunVesta AG, which includes the following major
conditions:
The lender grants SunVesta a terminable, interest bearing and non-secured loan in
the maximum amount of CHF 6 million.
The loan is to be paid out in various portions between September 23, 2011, and
December 9, 2011, optionally not later than February 29, 2012 with the option to
exercise a conversion option.
In principle, the loan will become due on September 30, 2015. This is also the
latest point in time, when the lender can exercise his conversion option.
The interest rate is 7.25 % and interest is due on September 30 each year.
Provided that the entire amount of CHF 6 Million is paid in, the lender has the right to convert
this amount into 10% of the shares of Rich Land Investments Ltda. This conversion option is
valid until 30 September 2015.
As the conversion option is contingent upon payment of the entire amount of CHF 6 million and
this contingency was not resolved as of September 30, 2011, the loan was valued at fair value,
which equals face value.
The loan agreement was amended subsequent to year end. Refer to Note 16.
The fair values of the notes payable to Aires International Investments, Inc. is classified as level 3
fair value. The fair values of the note were determined by discounting cash flow projections
discounted at the respective interest rates of 7.25%. Hence, the carrying value approximates fair
value.
13
SUNVESTA, INC.
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2011
8.
RELATED PARTY TRANSACTIONS
Debt Settlement Agreements
During the year ending December 31, 2010 the Company concluded certain debt settlement
agreements. The issuances of shares of the Company were recorded at fair value in the year ended
December 31, 2010 and the difference between the carrying value of the payables and the fair
value was recorded as loss on extinguishment of debt in the statement of operations for the year
ended December 31, 2010.The details are as follows:
a. A “Debt Settlement Agreement”, whereby a payable by SunVesta AG to Zypam Ltd. in the
amount of $900,000 has been settled by the issuance of 13,846,154 shares of the Company.
b. A “Debt Settlement Agreement”, whereby a payable by SunVesta AG to H. Rigendinger in
the amount of $49,990 has been settled by the issuance of 769,076 shares of the Company.
9.
NON-CURRENT LIABILITIES
SunVesta AG has a bond outstanding with the following major conditions.
Description
EUR (€) bond
CHF bond
![[sunvesta10qfinal002.gif]](sunvesta10qfinal002.gif)
Issuer:
SunVesta AG
SunVesta AG
![[sunvesta10qfinal004.gif]](sunvesta10qfinal004.gif)
Type of securities:
Bond in accordance with Swiss law Bond in accordance with Swiss law
Approval by SunVesta AG BOD May 12, 2010
June 3, 2011
Volume:
Up to € 25,000,000
Up to CHF 15,000,000
Units:
€1‘000
CHF 50,000
Offering period:
11/10/2010 – 04/30/2011
09/01/2011 – 02/28/2012
Due date:
November 30, 2013
August 31, 2015
Issuance price:
100 %
100%
Issuance day::
December 1, 2010
September 1, 2011
Interest rate:
8.25% p.a.
7.25% p.a.
Interest due dates:
November 30 of each year,
August 31 of each year,
the first time 30 November 2011
the first time August 31, 2012
Applicable law:
Swiss
Swiss
![[sunvesta10qfinal006.gif]](sunvesta10qfinal006.gif)
![[sunvesta10qfinal008.gif]](sunvesta10qfinal008.gif)
![[sunvesta10qfinal010.gif]](sunvesta10qfinal010.gif)
14
SUNVESTA, INC.
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2011
9.
NON-CURRENT LIABILITIES - CONTINUED
The nominal amounts have changed as follows:
EUR-
CHF
EUR-
CHF
Bond
Bond
Bond
Bond
2011
2011
2010
2010
$
$
$
$
Balances January 1
265,273
-
-
-
Cash inflows
8,606,797
108,870
265,273
-
Foreign currency adjustments
(18,813)
1,030
-
-
Sub-total (Fair value)
8,853,257
109,900
265,273
-
Commissions paid to bondholders
(248,196)
(8,512)
-
-
Amortization of such commissions
33,554
6
-
-
Balance September 30, 2011 (Carrying value) 8,638,615
101,394
265,273
-
The fair values of the bonds payable are classified as level 3 fair value. The fair values of the
bonds have been determined by discounting cash flow projections discounted at the respective
interest rates of 8.25% for EUR bonds and 7.25% for CHF bonds. Hence, the carrying values
approximate fair value.
10.
PENSION PLAN
The Company maintains a pension plan covering all employees in Switzerland; it is considered a
defined benefit plan and accounted 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 rateably 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 to accumulated other comprehensive income. 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 operations. The liabilities
and annual income or expense of the pension plan is determined using methodologies that involve
several actuarial assumptions, the most significant of which are the discount rate and the long-
term rate of asset return (based on the market-related value of assets). The fair values of plan
assets are determined based on prevailing market prices.
Actuarial valuation
The actuarial valuation was carried out the first time as of December 31, 2011 and simultaneously
as of September 30, 2011. No previous valuations were done because management concluded that
the failure did not materially impact the financial statements as of December 31, 2010.
15
SUNVESTA, INC.
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2011
10.
PENSION PLAN - CONTINUED
Net periodic pension cost has been included in the Company’s results as follows:
Nine months ended
Nine months ended
September 30, 2011
September 30, 2010
$
$
(unaudited)
(unaudited)
Pension Expense
Current service cost
76,150
-
Past service cost
-
-
Interest cost
(2,315)
-
Expected return on assets
(2,075)
-
Employee contributions
(30,492)
-
Net periodic pension cost
41,268
During the periods ended September 30, 2011 and September 30, 2010 the Company made cash
contributions of $30,000 and $0, respectively, to its defined benefit pension plan.
The expected future cash flows to be paid by the Company in respect of employer contributions
to the pension plan for the year ended December 31, 2011 are $0.
11.
AGREEMENT TO PURCHASE NEIGHBORING PIECE OF LAND
In 2010 SunVesta AG concluded a sale and purchase agreement with a company called DIA S.A.
(“DIA”), being domiciled in San José, Costa Rica. The purpose of the agreement is to acquire a
contigious parcel of land consisting of approximately 120,000 square meters with direct
beachaccess by purchasing 100% of the shares of Altos del Risco S.A. from DIA. The total
purchase consideration is $12.5 million. Upon payment of the entire amount, ownership of Altos
del Risco S.A. will be transferred to SunVesta AG. As at September 30, 2011 and December 31,
2010, $0.735 million and $0 has been paid, respectively.
The sixth addendum dated November 12, 2012, stipulates that:
$8.5 million has already been paid
$4.0 million has still to be paid
The current contractual situation does not call for any penalties. The purchase of the neighbouring
piece of land is expected to be completed during the 1st quarter of 2013.
16
SUNVESTA, INC.
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2011
12.
FUTURE LEASE COMMITMENTS
Since January 1, 2010 the Company has had a sub-rental agreement for its Swiss office with a
related party called “Sportiva”. The annual sub-rental expense is approx. $80,000. The sub-rental
agreement is concluded for an undetermined period of time, however, there is a verbal agreement
to maintain the agreement at least until December 31, 2013.
13.
RELATIONSHIP WITH WIMBERLY ALLISON TONG & GOO (“WTAG”)
Legal proceedings were initiated by Wimberley Allison Tong & Goo (WATG) against SunVesta
Projects and Management AG on November 6, 2008 in the Superior Court of the State of
California, County of Orange. The claim was based on an alleged failure to satisfy the terms of a
promissory note executed in exchange for certain design services rendered in connection with the
El Cielo Hideaway Eco Resort and Spa. The claim sought approximately $355,000 plus accrued
interest in addition to legal fees incurred in prosecuting the suit. The Company engaged legal
counsel and paid $100,000 in 2009 to Wimberley Allison Tong & Goo against the amount due.
In 2010, WATG engaged a debt collector for the remaining amount of approximately $255,000
plus accrued interest and legal fees. The Company returned to settlement negotiations and agreed
to settle the outstanding amount, without interest or legal fees, in equal instalments due on April
30, May 31, June 30, and July 31, 2010. This agreement was then extended to August 31, 2010.
As of March 31, 2011, the Company has paid approximately $195,000, leaving a remaining
balance due of approximately $60,000 as of that date. As of May 26, 2011, the Company
finalized the settlement and paid the remaining balance due.
14.
WING FIELD CORPORATION INC.
On August 31, 2009 the Company concluded a development agreement with WingField
Corporation Inc. (“WingField”), which included various services to be provided by WingField. A
major item was the procurement of a management contract for the management of the planned
resort in Guanacaste, Costa Rica. (Refer to Note 16.)
15.
MANGEMENT AGREEMENT WITH MELIÁ HOTELS & RESORTS
In March 2011 the Company concluded a management agreement with Sol Meliá, S.A. for the
management of the planned resort in Guanacaste, Costa Rica. This agreement includes clause that
provides that if the Company is unable to conclude the purchase of the property described in Note
11 by November 30, 2011, a penalty of $1,000,000 would become due to Sol Meliá, S.A. In
2012, the maturity date of this penalty has been extended to June 30, 2012.
The Company is yet to conclude the purchase of the property described in Note 11 and is
presently negotiating with Sol Meliá, S.A. to include an addendum to the management agreement
that would circumvent this penalty.
17
SUNVESTA, INC.
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2011
16.
SUBSEQUENT EVENTS
Management has evaluated subsequent events after the balance sheet date, through the issuance of
the financial statements, for appropriate accounting and disclosure. The Company has determined
that there were no such events that warrant disclosure or recognition in the financial statements,
except for the below:
EUR Bond Offering
The Company initiated a EUR bond offering on December 1, 2010 of up to € 25,000,000 in units
of € 1,000 that bear 8.25 % interest per annum payable each November 30 over the term of the
bonds due November 30, 2013.
A cumulative amount of € 10.9 million ($13,900,000) has been realized by the Company from the
initial date up to the date of this filing.
CHF Bond Offering
The Company initiated a CHF bond offering on September 1, 2011 of up to CHF 15,000,000 in
units of CHF 50,000 that bear 7.25 % interest per annum payable each August 31 over the term of
the bonds due August 31, 2015.
A cumulative amount of CHF 5.5 million ($5,800,000) has been realized by the Company from
the initial date up to the date of this filing.
WingField Corporation
The development agreement with WingField included a detail of certain services to be provided
by WingField one of which was to procure a management contract for the operation of the
planned resort. The management agreement with Sol Meliá, S.A. in the first quarter of 2011
satisfied this item. The Company has since decided to build up its own internal project
organisation and consequently reached an agreement with Wingfield in October 2011 to terminate
the development agreement by paying a flat remuneration of $2,500,000, including a “finders
fee”.
18
SUNVESTA, INC.
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2011
16.
SUBSEQUENT EVENTS - CONTINUED
Intention to purchase two additional concession properties in Polo Papagayo, Guanacaste
On April 20, 2012, the Company entered into an agreement to purchase two additional concession
properties located at Polo Papagayo, Guanacaste, with a total surface of approximately 230,000
square meters for a price of $22,895,806, whereof fifty percent is to be paid in cash and the other
fifty percent in ten percent equity of La Punta (the concession properties in Polo Papagayo) and
five percent in equity of Paradisus (the hotel currently under construction), both located in Costa
Rica. The payment schedule is as follows:
$0.5 million is required as a cash payment by May 16, 2012
$5.0 million is required as a cash payment by August 31, 2012
$5.698 million is required as a cash payment by January 31, 2013
Equity is required to be transferred upon final payment
If the Company elects not to proceed with the purchase, the purchaser is in default and will lose
its funds on deposit.
On November 13, 2012 the above agreement was amended as follows:
The total purchase price was changed to $17.2 million with no equity payment. The terms and
conditions of the cash payment are yet to be defined. Furthermore, all payments by the Company
to date and in the future are refundable.
Subsequent to signing the agreements, the Company paid down-payments on the purchase of the
properties of approximately $1,400,000.
19
SUNVESTA, INC.
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2011
16.
SUBSEQUENT EVENTS – CONTINUED
Advisory Services Agreements
In order to raise the necessary funds for the completion of the project, various advisory service
agreements have been concluded, both in Europe as well as Central America. In addition, a
European rating agency has been engaged in order to receive a rating. While the basic cost for the
advisory services are not significant, the actual funding will be accompanied by costs (finders’
fees), which are in the area of 3% in the best case and 12% in the worst case.
Amendments to Line of Credit Agreement with Aires International Investment, Inc.
An addendum to the existing line of credit agreement with Aires as described in note 7 was
signed on May 11, 2012 that includes the following clauses:
The line of credit amount was increased by CHF 4,000,000 to a total amount of CHF
10,000,000. The additional CHF 4,000,000 to be paid in installments through the end of
July 2012.
Should the entire amount of CHF 10,000,000 be drawn down, Aires will have the right
to convert the entire line of credit of CHF 10,000,000 into a 20% holding of the capital of
the Company.
The conversion right granted in the original contract to convert the balance of the line of
credit into a 10% ownership interest in Rich Land was cancelled.
The entire amount of CHF 10,000,000 is subordinated in favor of other creditors.
A letter agreement signed by Aires on June 21, 2012, agreed to increase the line of credit by
CHF 2,000,000 to a total amount of CHF 12,000,000.
The Company and Aires are currently negotiating a revised conversion option to replace the one
stated above. The major contemplated change is that Aires International will convert its
receivable at the time of conversion of into 20% of the preferred shares of shares of the Company,
at a price and with preferential rights yet to be determined.
As of November 15, 2012 the Company has borrowed CHF11.8 million ($12,500,000) from the
Aires line of credit.
Tax Liability Contingency
During April 2012, the Company was advised by the Internal Revenue Service (IRS) of aggregate
penalties amounting to $140,000 in connection with its failure to file certain tax returns for the
years ended 2008, 2009 and 2010. The Company is in correspondence with the IRS in order to
seek an abatement of the penalties.
20
SUNVESTA, INC.
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2011
16.
SUBSEQUENT EVENTS – CONTINUED
Guaranty Agreement
On July 16, 2012, certain principal shareholders of the Company or principal lenders to the
project entered into a guaranty agreement in favour of SunVesta AG. The purpose of the
guarantee is to ensure that until such time as financing is secured for the entire project that they
will act as a guarantor to creditors to the extent of the project’s ongoing capital requirements. The
guaranty agreement requires that within 30 days of receiving a demand notice, the guarantors are
required to pay to SunVesta AG that amount required for ongoing capital requirements, until such
time as financing of the project is secured. The guaranty may not be terminated until such time as
SunVesta AG has secured financing for the completion of the project.
Hotel Project Atlanta
During the third quarter 2012 the Company entered into an agreement to purchase a hotel and
entertainment complex in Atlanta, Georgia (United States of America).
The entire purchase amount of $26 million for the assets has no firm financing commitment.
Additionally, approximately an additional $18 million for renovations would need to be invested
in the hotel and entertainment complex. The Company is in negotiations with various parties to
finalize a financing package for this project and is confident that it will be able to procure such
financing.
Nonwithstanding all other factors, the Company may terminate this agreement, within a due
dilligence period, if it is not satisfied with the property after an examination of the assets.
The agreement includes a non-refundable deposit of $250,000.
21
SUNVESTA, INC.
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2011
17.
RESTATEMENT
During the three month period ended September 30, 2011 the Company reversed previous interest
expense of $217,750 relating to the fact that the Company initially intended to pay interest
starting from the EUR bond offering date (Dec 1, 2010) as opposed to the bond issuance dates.
However, during the three month period ended September 30, 2011, the Company's board of
directors changed the policy and hence reversed the interest accrued for the period from bond
offering date to the respective bond issuance dates.
The Company decided to record for this retrospectively an error since there was no contractual
obligation to pay interest from the bond issuance date to begin with. There is no effect on the nine
month period ended September 30, 2011. However, the individual three months period ended
June 30, 2011 is impacted as follows:
Three months period
Three months period
Three months period
ended June 30, 2011
ended June 30, 2011
ended June 30, 2011
As previously
Adjustment
As restated
reported
Interest expense
$ (268,690)
$ 217,750
$ (50,940)
Net loss
$ (2,689,085)
$ 217,750
$ (2,471,335)
Basic and diluted loss
$ (0.05)
$ (0.01)
$ (0.04)
per share
The Company determined that the effect is immaterial to the three months period ended June 30,
2011 and hence decided not to file an amendment of the form 10-Q for the respective period as
filed on December 18, 2012.
22
ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This Management’s Discussion and Analysis of Financial Condition and Results of Operations and other
parts of this quarterly report contain forward-looking statements that involve risks and uncertainties.
Forward-looking statements can be identified by words such as “anticipates,” “expects,” “believes,”
“plans,” “predicts,” and similar terms. Forward-looking statements are not guarantees of future
performance and our actual results may differ significantly from the results discussed in the forward-
looking statements. Factors that might cause such differences include but are not limited to those
discussed in the subsection entitled Forward-Looking Statements and Factors That May Affect Future
Results and Financial Condition below. The following discussion should be read in conjunction with our
financial statements and notes hereto included in this report. All information presented herein is based on
our three and nine month periods ended September 30, 2011. Our fiscal year end is December 31.
Discussion and Analysis
Business Overview
SunVesta is in the process of developing high-end luxury hotels and resorts in emerging tourist
destinations. We are initially concentrating on offering luxury hotel products located in attractive, top-
class coastal vacation destinations in countries such as Costa Rica, Vietnam, and Turkey that are fast
emerging as popular tourist destinations. Our initial real estate development, to be constructed on 20.5
hectares of prime land located in Guanacaste Province, Costa Rica is the Paradisus Papagayo Bay, a five
star luxury hotel scheduled to open in November 2014 subject to requisite financing.
We have entered into a management agreement, through our wholly owned subsidiary Rich Land
Investments, Limitada (“Rich Land”) with Sol Meliá, S.A. (“Sol Meliá”) to assist us in the planning,
design, construction, furnishing and management of the Paradisus Papagayo Bay. “Paradisus” is Sol
Meliá’s five star all-inclusive luxury hotel brand represented in the Dominican Republic and Mexico.
Paradisus Papagayo Bay’s initial specifications are to be as follows:
Eco-luxury all-inclusive resort;
381-keys;
Direct beach access;
Five restaurants and five bars;
Yhi Spa and Health Club;
Paradisus’ adults-only “Royal Service” level of accommodations;
Paradisus’ “Family Concierge” program; and
19,000 square feet of meeting facilities with the business traveler in mind.
Our Paradisus Papagayo Bay development is intended to replace Paradisus Resorts’ former Paradisus
Playa Conchal in Guanacaste, Costa Rica which property was operated by Sol Meliá until April 30, 2011.
Our project is part of Sol Meliá master expansion plan, which includes the opening of two resorts in Playa
del Carmen, Mexico in November of 2011. Sol Meliá aims to solidify Paradisus Resorts as a leader in the
luxury all-inclusive market segment with the new properties in Playa del Carman and our own Paradisus
Papagayo Bay project.
23
Our plan of operation over the next thirty three months is to complete the Paradisus Payagyo Bay project
which will require a total investment of approximately $180 million. We expect to realize a minimum of
$20,000,000 in new funding over the next twelve months, though our actual financing requirements may
be adjusted to suit that amount realized, and an additional $140,000,000 in funding by the time the
development is completed. New funding over the next twelve months is expected to be raised from debt
financing through bonds and a fixed line of credit.
SunVesta Holding AG (“SunVesta AG”), our wholly owned subsidiary, is in the process of issuing fixed-
income Euro denominated bonds up to an aggregate amount of € 25,000,000 and fixed income CHF
denominated bonds up to an aggregate amount of CHF 15,000,000 to fund the initial development of the
Paradisus Payagyo Bay project. The Euro bonds are unsecured, have a three year term, bear interest at
8.25% per annum payable each November 30 over the term due November 30, 2013. SunVesta AG
raised, net of commissions paid, $8,358,601 in the nine months ended September 30, 2011, for a total of
approximately $13,900,000 as of the date of this filing, in connection with the Euro bond offering. The
CHF bonds, first offered on September 1, 2011, are unsecured, have a three year term, bear interest at
7.25% per annum payable each August 31 over the term due August 31, 2015. SunVesta AG raised, net of
commissions paid, $100,358 in the nine months ended September 30, 2011, for a total of approximately
$5,800,000 as of the date of this filing in connection with the CHF bond offering.
SunVesta AG entered into a line of credit agreement with Aires International Investment, Inc. (“Aires”)
on July 27, 2011 allowing it to borrow up to CHF 6,000,000 by February 29, 2012. The line of credit
bears interest at 7.25% and was secured by 10% of the stock of Rich Land. Interest payments are due
September 30 of each year with the line of credit maturing on September 30, 2015. Prior to maturity, if
the maximum credit limit was borrowed, Aires had the option to convert the balance of the line of credit
into a 10% ownership interest in Rich Land.
Subsequent to the period of this report, on May 11, 2012, the parties to the Aires line of credit agreement
executed an addendum to the existing line of credit agreement that includes the following clauses:
The line of credit amount was increased by CHF 4,000,000 to a total amount of CHF 10,000,000.
The additional CHF 4,000,000 to be paid in installments through the end of July 2012.
Should the entire amount of CHF 10,000,000 be drawn down, Aires will have the right to convert
the entire line of credit of CHF 10,000,000 into a 20% holding of the capital of SunVesta.
The conversion right granted in the original contract to convert the balance of the line of credit
into a 10% ownership interest in Rich Land was cancelled.
The entire amount of CHF 10,000,000 is subordinated in favor of other creditors.
Subsequent to the period of this report, on June 21, 2012, pursuant to a letter agreement, Aires agreed to
increase the line of credit by CHF 2,000,000 to a total amount of CHF 12,000,000.
SunVesta AG and Aires are currently in the process of negotiating a revised conversion option to replace
the existing option to convert CHF 10,000,000 into a 20% holding in the capital of SunVesta. The major
contemplated change is that Aires will convert its receivable at the time of conversion into 20% of the
preferred shares of SunVesta, at a price and with preferential rights yet to be determined.
As of the date of this filing SunVesta AG had borrowed CHF11.8 million ($12,500,000) from the Aires
line of credit.
The remaining amounts required to develop the Paradisus Papagayo Bay to completion is anticipated to
be in the form of a traditional construction loan and equity.
24
Subsequent to the period of this report, on April 20, 2012, SunVesta AG entered into an agreement to
purchase two additional concession properties located at Polo Papagayo, Guanacaste, with a total surface
of approximately 230,000 square meters for a price of $22,895,806, whereof fifty percent was to be paid
in cash and the other fifty percent in ten percent equity of La Punta (the concession properties in Polo
Papagayo on which the project will be located) and five percent in equity of Paradisus Payagyo Bay. The
payment schedule was as follows:
$0.5 million is required as a cash payment by May 16, 2012
$5.0 million is required as a cash payment by August 31, 2012
$5.698 million is required as a cash payment by January 31, 2013
Equity is required to be transferred upon final payment
Should SunVesta AG elect not to proceed with the purchases, such election would constitute a default
which would cause it to lose its funds on deposit.
Subsequent to the period of this report, on November 13, 2012, the purchase agreement for additional
concession properties in Polo Papagayo was amended to decrease the total cash purchase price to $17.2
million and delete the equity component for both the concession properties and the hotel and resort
property. The terms and conditions of the cash payment are yet to be defined. Furthermore, all payments
by SunVesta AG to date and in the future are refundable. SunVesta AG has paid down-payments on the
purchase of the properties of approximately $1,400,000 as of the date of this report.
Subsequent to the period of this report, during the third quarter 2012, SunVesta entered into an agreement
to purchase a hotel and entertainment complex in Atlanta, Georgia, U.S.A. The entire purchase amount of
$26 million for the assets has no firm financing commitment. Additionally, approximately an additional
$18 million for renovations would need to be invested in the hotel and entertainment complex. SunVesta
is in negotiations with various parties to finalize a financing package for this project and is confident that
it will be able to procure such financing. Nonwithstanding all other factors, SunVesta may terminate this
agreement, within a due dilligence period, if it is not satisfied with the property after an examination of
the assets. The agreement includes a non-refundable deposit of $250,000.
Timeline
Our expected timeline for developing the Paradisus Papagayo Bay is as follows:
Complete revisions of architectural plans which will incorporate Sol Meliá requirements in the 4th
quarter of 2012;
Receive traditional construction loan in the 1st quarter of 2013;
Receive final building permits in 1st quarter of 2013;
Begin construction in the 1st quarter of 2013; and
Complete construction work in the 4th quarter of 2014.
25
Results of Operations
During the nine month period ended September 30, 2011, our operations were focused on (i) entering into
agreements with Sol Meliá to assist us in the planning, design, construction, furnishing and management
of the Paradisus Papagayo Bay; (ii) revision of architectural plans to incorporate Sol Meliá requirements
for the development; (iii) arranging a line of credit with Aires; and (iv) pursuing SunVesta AG’s bond
offerings in Europe.
SunVesta has been funded since inception from equity placements, debt financing and by shareholders or
partners in the form of loans. Substantially, all of the capital raised to date has been allocated to the
development of our property the Paradisus Papagayo Bay in Costa Rica as a five star destination resort
including the purchase of the land and general and administrative costs.
Comprehensive Losses
For the period from the date of inception of development stage on January 1, 2005, until September 30,
2011, SunVesta has incurred comprehensive losses of $16,430,085.
Comprehensive losses for the three months ended September 30, 2011 were $1,542,947 as compared to
$445,728 for the three months ended September 30, 2010. The increase in comprehensive losses over the
comparative three month periods can be primarily attributed to the increase in general and administration
expenses to $1,063,241 in the three month period ended September 30, 2011, from $307,650 in the three
month period ended September 30, 2010, of which a significant component were finder’s fees associated
with the management contract with Sol Melià. Other contributing factors to the increase in comprehensive
losses include the increase in marketing costs to $16,148 in the three month period ended September 30,
2011, from $1,405 in the three month period ended September 30, 2010, which expense is associated with
the Paradisus Papagayo Bay development, the increase in interest expenses on outstanding debt to
$115,677 in the three month period ended September 30, 2011, from $8,406 in the three month period
ended September 30, 2010, which expense can be primarily attributed to debt associated with the bond
offerings , the non-cash amortization of debt issuance costs to $94,402 in the three months ended
September 30, 2011, from $0 in the three month period ended September 30, 2010, which expense is
connected to the bond offerings, and the increase in loss on foreign currency translation to $455,282 in
the three month period ended September 30, 2011, from $128,267 in the three month period ended
September 30, 2010 relating to the volatility between Swiss Francs and US Dollars The increases in
losses over the comparative nine month periods were offset by the gain on exchange differences of
$200,477 in the three month period ended September 30, 2011, from $0 in the three month period ended
September 30, 2010, which gain can be attributed to volatility in the respective values of Swiss Francs
and Euros and interest income of $1,326 in the three month period ended September 30, 2011, from $0 in
the three month period ended September 30, 2010, which gain is from funds held as deposits.
26
Comprehensive losses for the nine months ended September 30, 2011 were $4,262,710 as compared to
$1,063,396 for the nine months ended September 30, 2010. The increase in comprehensive losses over the
comparative periods can primarily be attributed to the increase in general and administrative expenses to
$3,424,541 in the nine month period ended September 30, 2011, from $705,510 in the nine month period
ended September 30, 2010, of which significant components were finders’ fees and advisory services.
Other contributing factors to the increase in comprehensive losses include the increase in marketing costs
to $133,602 in the nine month period ended September 30, 2011, from $14,660 in the nine month period
ended September 30, 2010, which expense is associated with the Paradisus Papagayo Bay development,
the increase in interest expenses on outstanding debt to $200,243 in the nine month period ended
September 30, 2011 from $27,725 in the nine month period ended September 30, 2010, which expense
can be primarily attributed to debt associated with the bond offerings, the non-cash amortization of debt
to $214,974 in the nine month period ended September 30, 2011, from $0 in the nine month period ended
September 30, 2010, which expense is connected to the bond offerings, the increase in the loss on
exchange differences to $64,594 in the nine month period ended September 30, 2011, from $0 in the nine
month period ended September 30, 2010, which expense can be attributed to volatility in the respective
values of Swiss Francs and Euros, and the increase in loss on foreign currency translation to $226,082 in
the nine month period ended September 30, 2011, from $56,619 in the nine month period ended
September 30, 2010 relating to the volatility between Swiss Francs and US Dollars The increases in
losses over the comparative nine month periods were offset by interest income of $1,326 in the nine
month period ended September 30, 2011, from $0 in the nine month period ended September 30, 2010,
which gain is from funds held as deposits. We did not generate revenue during this period and expect to
continue to incur losses through the year ended December 31, 2011.
Income Tax Expense (Benefit)
SunVesta has a prospective income tax benefit resulting from a net operating loss carry-forward and start
up costs that will offset future operating profits.
Capital Expenditures
SunVesta expended a significant amount on capital expenditures for the period from January 1, 2005 to
September 30, 2011, in connection with the purchase of land that includes a hotel concession in Costa
Rica and expects to incur future cash outflows on capital expenditure as discussed in the "Liquidity and
Capital Resources" and the "Going Concern" paragraphs below.
Liquidity and Capital Resources
SunVesta has been in the development stage since inception and has experienced significant changes in
liquidity, capital resources, and stockholders’ equity.
As of September 30, 2011, we had a working capital deficit of $59,811. We had current assets of
$1,754,093 and total assets of $14,490,712. Our current assets consisted of $513,841 in cash, $1,232,233
in receivables from related parties and $8,019 in other assets. Our total assets consisted of current assets,
property and equipment of $10,905,000, net debt issuance costs of $1,096,587, and down payments for
property and equipment of $735,032. We had current liabilities of $1,813,903 and total liabilities of
$11,694,637. Our current liabilities consisted of $710,339 in accounts payable, $795,534 in accrued
expenses, and $308,031 in related party payables. Our total liabilities consisted of current liabilities and
long term debt of $8,740,000 associated with SunVesta AG’s bond offerings, $1,099,969 in notes payable
to related parties and $40,755 in pension liabilities. Total stockholders’ equity in SunVesta was
$2,796,075 at September 30, 2011.
27
For the period from January 1, 2005 to September 30, 2011, our net cash used in development stage
activities was $10,269,855. Net cash used in development stage activities for the nine months ended
September 30, 2011, was $3,172,525 as compared to $595,217 for the nine months ended September 30,
2010. Net cash used in development stage activities in the current nine month period ended September 30,
2011, includes a number of items that are book expense items which do not affect the total amount
relative to actual cash used including pension fund commitments, depreciation, amortization of debt
issuance cost and unrealized exchange difference. Actual cash items used, that are not income statement
related items such as general and administrative expenses, include accrued expenses offset by other
current assets and accounts payable. Net cash used in development stage activities for the prior nine
month period ended September 30, 2010, also includes a number of items that are book expense items
which do not affect the total amount relative to actual cash used including depreciation and loss on
extinguishment of debt. Actual items used that are not income statement related items include accrued
expenses and other assets offset by accounts payable. We expect to continue to generate negative cash
flow in development stage activities until such time as net losses transition to net income which transition
is not anticipated until we complete the Paradisus Papagayo Bay project.
For the period from January 1, 2005 to September 30, 2011, our net cash used in investing activities was
$11,689,689. Net cash used in investing activities for the nine month period ended September 30, 2011,
was $3,624,584as compared to $12,169 for the nine month period ended September 30, 2010. Net cash
used in investing activities in the current nine month period ended September 30, 2011, can be attributed
to the increase in receivables from related parties the purchase of property and equipment, down
payments against the purchase of properties and the procurement of other non-current assets. Net cash
used in investing activities in the prior nine month period ended September 30, 2010, can be attributed to
the purchase of property and equipment offset by net cash provided by the disposition of other non-
current assets. We expect to continue to generate negative cash flow in investing activities in future
periods while we develop the Paradisus Papagayo Bay and look to other investment opportunities.
For the period January 1, 2005 to September 30, 2011 our net cash provided by financing activities was
$23,184,018. Net cash provided by financing activities for the nine month period ended September 30,
2011, was $7,485,285 as compared to $640,372 for the nine month period ended September 30, 2010.
Net cash provided by financing activities in the current period ended September 30, 2011, can be
attributed to proceeds from SunVesta AG’s bond issuance and notes payable related parties, offset by net
cash used in financing activities forproceeds paid on a note payable to both related and third parties and
debt issuance costs. Net cash provided by financing activities in the prior nine month period ended
September 30, 2010, can be attributed to proceeds from notes payable to related parties offset by net cash
used in financing activities for the purchase of treasury stock. We expect to continue to generate net cash
flow provided by financing activities in future periods from SunVesta AG’s bond offering and the credit
line with Aires.
28
Management believes that our current assets in addition to the equity financing efforts and a line of credit
are sufficient for us to conduct operations over the next twelve months. Current debt financing efforts
consist of bond offerings in progress and a credit line commitment agreed with Aires that permits us to
draw capital as necessary to meet ongoing operational requirements. SunVesta has, as of the date of this
filing, realized $19,700,000 through its Euro and CHF bond offerings and drawn down $12,500,000
against the line of credit with Aires. However, such amounts are not sufficient to ensure the completion of
the Paradisus Papagayo Bay project which completion will require a total investment of approximately
$180 million. Net costs associated with completing the project are projected to be approximately
$171,000,000. Management expects that sixty percent (60%) of the net project cost will be financed by
traditional mortgage loans, for which negotiations have been initiated. The remaining forty percent (40%)
of net project costs, as well as non-recuperated overhead expenses are expected to be financed by four of
our principal shareholders or principal lenders to the project. Subsequent to period end, these individuals
entered into a guaranty agreement with SunVesta AG by which they agreed to guarantee the availability
of capital to develop the project until such time as financing for the completion of the Paradisus Papagayo
Bay project is secured, which objective is yet to be accomplished. Management believes that debt or
equity placements, lines of credit, traditional construction loans and the guaranty in place will provide the
financing requisite to completing the project. Despite these measures, no commitments outside of the
guaranty are in place to secure the requisite financing. Should sufficient financing efforts fail to
materialize, SunVesta will be unable to complete the Paradisus Papagayo Bay project.
We have a line of credit in place with Aires against which SunVesta AG has borrowed CHF 1,099,969 as
of September 30, 2011, and CHF 11,000,000 as of the date of this filing and may borrow up to an
additional CHF 200,000. Otherwise, we had no lines of credit or other bank financing arrangements as of
September 30, 2011.
We have commitments to DIA, S.A and other third parties as of September 30, 2011, in connection with
the purchase of property parcels made part of the development amounting to $11.8 million and certain
commitments to the Costa Rican government for water and development rights as well as certain
commitments for the planning and construction of the resort project.
We maintain a defined benefit plan that covers all of our Swiss employees though we have no contractual
commitment with our sole officer and director.
We have no current plans for significant purchases or sales of plant or equipment, except in connection
with the planned construction of the Paradisus Papagayo Bay.
We have no current plans to make any changes in the number of our employees.
Future Financings
We will continue to rely on debt or equity sales of our shares of common stock to fund our business
operations. Unfortunately, there is no assurance that we will be able to secure the financing requisite to
fund our business.
Off-Balance Sheet Arrangements
As of September 30, 2011, we had no significant off-balance sheet arrangements that have or are
reasonably likely to have a current or future effect on our financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources
that are material to stockholders.
29
Going Concern
SunVesta intends to build a hotel in the Papagayo Gulf Tourism Project area of Guanacaste, Costa Rica.
The total net investment is estimated to be approximately $180 million.
The project is expected to open in the fourth quarter of 2014. Until the completion of the project, the
following expenditures are estimated to be incurred:
USD $1,000
a. Gross project cost
195,000
b. Less: Proceeds from sale of villas
-24,000
c. Net project cost
171,000
d. Overhead expenses
21,000
e. Less: Recuperated in gross project cost
-12,000
f Total, excluding other potential projects
180,000
Sixty percent (60%) of net project cost is expected to be financed by traditional mortgage loans, for which
negotiations have been initiated. The remaining forty percent (40%) of net project cost, as well as non-
recuperated overhead expenses and the cost of prospective “other projects” are expected to be financed by
the primary promoters of the project, i.e.:
a.
Zypam Ltd.
b.
Mr. Hans Rigendinger
c.
Mr. Max Rössler
d.
Mr. Josef Mettler
Management therefore believes that available funds are sufficient to finance cash flows for the next
twelve months though future anticipated cash outflows for investing activities will continue to depend on
the availability of financing and can be adjusted as necessary.
Subsequent to period end, certain principal shareholders of SunVesta or principal lenders to the project
entered into a guaranty agreement in favour of SunVesta AG. The purpose of the guarantee is to ensure
that until such time as financing is secured for the entire project that they will act as a guarantor to
creditors to the extent of the project’s ongoing capital requirements. The guaranty agreement requires that
within 30 days of receiving a demand notice, the guarantors are required to pay to SunVesta AG that
amount required for ongoing capital requirements, until such time as financing of the project is secured.
The guaranty may not be terminated until such time as SunVesta AG has secured financing for the
completion of the project.
Forward-Looking Statements and Factors That May Affect Future Results and Financial Condition
The statements contained in the section titled Management’s Discussion and Analysis of Financial
Condition and Results of Operations and elsewhere in this current report, with the exception of historical
facts, are forward-looking statements. We are ineligible to rely on the safe-harbor provision of the Private
Litigation Reform Act of 1995 for forward-looking statements made in this current report. Forward-
looking statements reflect our current expectations and beliefs regarding our future results of operations,
performance, and achievements. These statements are subject to risks and uncertainties and are based
upon assumptions and beliefs that may or may not materialize. These statements include, but are not
limited to, statements concerning:
30
our anticipated financial performance and business plan;
the sufficiency of existing capital resources;
our ability to raise additional capital to fund cash requirements for future operations;
uncertainties related to our future business prospects;
our ability to generate revenues to fund future operations;
the volatility of the stock market; and
general economic conditions.
We wish to caution readers that our operating results are subject to various risks and uncertainties that
could cause our actual results to differ materially from those discussed or anticipated including the factors
set forth in the section entitled Risk Factors included elsewhere in this report. We also wish to advise
readers not to place any undue reliance on the forward-looking statements contained in this report, which
reflect our beliefs and expectations only as of the date of this report. We assume no obligation to update
or revise these forward-looking statements to reflect new events or circumstances or any changes in our
beliefs or expectations, other than as required by law.
Recent Accounting Pronouncements
Please see Note 2 to the accompanying consolidated financial statements for recent accounting
pronouncements.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
31
ITEM 4.
CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
In connection with the preparation of this quarterly report, an evaluation was carried out by SunVesta’s
management, with the participation of the chief executive officer and chief financial officer, of the
effectiveness of SunVesta’s disclosure controls and procedures (as defined in Rules 13a-15(e) under the
Securities Exchange Act of 1934 (“Exchange Act”)). Disclosure controls and procedures are designed to
ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is
recorded, processed, summarized, and reported within the time periods specified in the Commission’s
rules and forms, and that such information is accumulated and communicated to management, including
the chief executive officer and chief financial officer, to allow timely decisions regarding required
disclosures.
Based on that evaluation, SunVesta’s management concluded, as of the end of the period covered by this
report, that due to a lack of resources and US GAAP knowledge, SunVesta’s disclosure controls and
procedures were ineffective in recording, processing, summarizing, and reporting information required to
be disclosed, within the time periods specified in the Commission’s rules and forms, and such information
was not accumulated and communicated to management, including the chief executive officer and the
chief financial officer, to allow timely decisions regarding required disclosures.
Changes in Internal Control over Financial Reporting
During the period ended September 30, 2011, there has been no change in internal control over financial
reporting that has materially affected, or is reasonably likely to materially affect our internal control over
financial reporting.
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PART II – OTHER INFORMATION
ITEM 1.
LEGAL PROCEEDINGS
None.
ITEM 1A.
RISK FACTORS
Not required of smaller reporting companies.
ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3.
DEFAULTS ON SENIOR SECURITIES
None.
ITEM 4.
REMOVED AND RESERVED
(Removed and reserved.)
ITEM 5.
OTHER INFORMATION
None.
ITEM 6.
Exhibits required to be attached by Item 601 of Regulation S-K are listed in the Index to Exhibits on page
35 of this Form 10-Q, and are incorporated herein by this reference.
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
SunVesta, Inc.
Date
/s/ Josef Mettler
January 10, 2013
Josef Mettler
Chief Executive Officer, Chief Financial Officer
Principal Accounting Officer and Director
34
INDEX TO EXHIBITS
Exhibit
Description
3.1.1*
Articles of Incorporation (incorporated by reference from the Form 10-SB filed with the
Commission on December 31, 1999).
3.1.2*
Amended Articles of Incorporation (incorporated by reference from the Form 10-KSB filed with
the Commission on April 9, 2003).
3.1.3*
Amended Articles of Incorporation (incorporated by reference from the Form 10-QSB filed with
the Commission on November 17, 2003).
3.1.4*
Amended Articles of Incorporation (incorporated by reference from the Form 8-K filed with the
Commission on September 27, 2007).
3.2.1*
Bylaws (incorporated by reference from the Form 10-SB filed with the Commission on December
31, 1999).
3.2.2*
Amended Bylaws (incorporated by reference from the Form 10-QSB filed with the Commission
on November 17, 2003).
10.1*
Securities Exchange Agreement and Plan of Exchange dated June 18, 2007 between SunVesta and
SunVesta AG (formerly ZAG Holdings AG) (incorporated by reference from the Form 8-K filed
with the Commission on June 21, 2007).
10.2*
Purchase and Sale Agreement between ZAG Holding AG and Trust Rich Land Investments,
Mauricio Rivera Lang dated May 1, 2006 for the acquisition of Rich Land Investments Limitada.
10.3*
Debt Settlement Agreement dated September 29, 2008 with Zypam Ltd. (incorporated by
reference from the Form 10-Q filed with the Commission on November 13, 2008).
10.4*
Debt Settlement Agreement dated April 21, 2009 between SunVesta and Zypam, Ltd.
(incorporated by reference from the Form 8-K filed with the Commission on April 30, 2009).
10.5*
Debt Settlement Agreement dated March 1, 2010 between SunVesta and Zypam, Ltd.
(incorporated by reference from the Form 8-K filed with the Commission on March 10, 2010).
10.6*
Debt Settlement Agreement dated March 1, 2010 between SunVesta and Hans Rigendinger
(incorporated by reference from the Form 8-K filed with the Commission on March 10, 2010).
14*
Code of Ethics adopted March 1, 2004 (incorporated by reference from the 10-KSB filed with the
Commission on April 14, 2004).
21*
Subsidiaries of SunVesta (incorporated by reference from the 10-K filed with the Commission on
May 12, 2010).
Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14
of the Securities and Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C.
Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101. INS
XBRL Instance Document†
101. PRE
XBRL Taxonomy Extension Presentation Linkbase†
101. LAB
XBRL Taxonomy Extension Label Linkbase†
101. DEF
XBRL Taxonomy Extension Label Linkbase†
101. CAL
XBRL Taxonomy Extension Label Linkbase†
101. SCH
XBRL Taxonomy Extension Schema†
*
Incorporated by reference to previous filings of SunVesta.
†
Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed “furnished” and
not “filed” or part of a registration statement or prospectus for purposes of Section 11 or 12 of the
Securities Act of 1933, or deemed “furnished” and not “filed” for purposes of Section 18 of the
Securities and Exchange Act of 1934, and otherwise is not subject to liability under these sections.
35
36