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EX-31 - EXHIBIT 31 SUNVESTA - SUNVESTA, INC. | exhibit31.htm |
EX-32 - EXHIBIT 32 SUNVESTA - SUNVESTA, INC. | exhibit32.htm |
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, 2010.
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 (State or other jurisdiction of incorporation or organization) |
98-0211356 (I.R.S. Employer Identification No.) |
Seestrasse 97, Oberrieden, Switzerland CH-8942
(Address of principal executive offices) (Zip Code)
011 41 43 388 40 60
(Registrants 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 þ No o
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 o No 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 issuers classes of common stock, as of the latest practicable date. The number of shares outstanding of the issuers common stock, $0.01 par value (the only class of voting stock), at November 18, 2010, was 54,092,186.
TABLE OF CONTENTS | |||
PART I FINANCIAL INFORMATION | |||
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Item 1. |
3 | ||
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Consolidated Balance Sheets as of September 30, 2010 (unaudited) and |
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December 31, 2009 (audited) |
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Unaudited Consolidated Statements of Operations and Comprehensive Income (Loss) |
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for the three and nine months ended September 30, 2010 and September 30, 2009 and cumulative amounts |
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Unaudited Consolidated Statements of Cash Flow for the nine months ended |
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September 30, 2010 and September 30, 2009 and cumulative amounts |
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Notes to Consolidated Financial Statements |
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Item 2. |
Management's Discussion and Analysis of Financial Condition and Results of Operations |
12 | |
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Item 3. |
16 | ||
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Item 4. |
17 | ||
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PART II OTHER INFORMATION | |||
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Item 1. |
17 | ||
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Item 1A. |
17 | ||
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Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds |
21 | |
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Item 3. |
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Item 4. |
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Item 5. |
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Item 6. |
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PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
As used herein, the terms Company, 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, |
December 31, | |||
2010 |
2009 | |||
ASSETS |
(Unaudited) |
(Audited) | ||
Current assets: |
||||
Cash and cash equivalents |
$ |
12,958 |
73,945 | |
Other assets |
15,893 |
8,391 | ||
Total current assets |
28,851 |
82,336 | ||
Property and equipment, net |
9,322,463 |
9,309,184 | ||
Deposits |
- |
1,863 | ||
Total assets |
$ |
9,351,314 |
9,393,383 | |
LIABILITIES AND STOCKHOLDERS' EQUITY |
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Current liabilities: |
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Accounts payable |
$ |
831,925 |
757,681 | |
Accrued expenses |
185,199 |
122,392 | ||
Note payable |
602,912 |
564,305 | ||
Advances from related parties |
603,580 |
739,422 | ||
Total current liabilities |
2,223,616 |
2,183,800 | ||
Commitments and contingencies |
||||
Stockholders' equity: |
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Preferred stock, $.01 par value; 50,000,000 shares |
||||
authorized, no shares issued and outstanding |
- |
- | ||
Common stock, $.01 par value; 200,000,000 shares |
||||
authorized, 54,092,186 and 39,476,956 shares issued |
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and outstanding, respectively |
540,922 |
394,770 | ||
Additional paid-in capital |
18,728,391 |
17,851,477 | ||
Accumulated other comprehensive loss |
(157,054) |
(70,435) | ||
Retained earnings prior to development stage |
1,602 |
1,602 | ||
Deficit accumulated during the development stage |
(11,962,408) |
(10,955,631) | ||
7,151,453 |
7,221,783 | |||
Treasury stock, 157,220 and 111,000 shares at cost, respectively |
(23,755) |
(12,200) | ||
Total stockholders' equity |
7,127,698 |
7,209,583 | ||
Total liabilities and stockholders' equity |
$ |
9,351,314 |
9,393,383 |
The accompanying notes are an integral part of these financial statements.
4 |
SUNVESTA, INC. | ||||||||||
(A Development Stage Company) | ||||||||||
CONSOLIDATED STATEMENTS OF OPERATIONS AND | ||||||||||
COMPREHENSIVE LOSS | ||||||||||
Three Months Ended |
Nine Months Ended |
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September 30, |
September 30, |
Cumulative | ||||||||
2010 |
2009 |
2010 |
2009 |
Amounts | ||||||
Revenues, net |
$ |
- |
- |
- |
- |
- | ||||
Cost of revenues |
- |
- |
- |
- |
- | |||||
Gross profit |
- |
- |
- |
- |
- | |||||
Operating expenses: |
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General and administrative expenses |
307,650 |
137,320 |
705,510 |
456,437 |
8,334,715 | |||||
Sales and marketing |
1,405 |
51,284 |
14,660 |
54,565 |
331,318 | |||||
309,055 |
188,604 |
720,170 |
511,002 |
8,666,033 | ||||||
Loss from operations |
(309,055) |
(188,604) |
(720,170) |
(511,002) |
(8,666,033) | |||||
Other income (expense): |
||||||||||
Loss on disposal of assets |
- |
- |
- |
(635) |
(3,258) | |||||
Loss on sale of investments |
- |
- |
- |
- |
(1,137,158) | |||||
Miscellaneous income |
- |
- |
- |
- |
79,534 | |||||
Interest income |
- |
- |
- |
- |
66,881 | |||||
Interest expense |
(8,406) |
(8,778) |
(27,725) |
(62,742) |
(495,616) | |||||
Loss on extinguishment of debt |
- |
- |
(258,882) |
- |
(1,806,758) | |||||
(8,406) |
(8,778) |
(286,607) |
(63,377) |
(3,296,375) | ||||||
Loss before provision for income taxes |
(317,461) |
(197,382) |
(1,006,777) |
(574,379) |
(11,962,408) | |||||
Provision for income taxes |
- |
- |
- |
- |
- | |||||
Net loss |
$ |
(317,461) |
(197,382) |
(1,006,777) |
(574,379) |
(11,962,408) | ||||
Comprehensive loss: |
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Foreign currency translation net of taxes |
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of $(69,000), $(21,000), and $(30,000), |
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$85,000, and $(55,000) |
(128,267) |
(40,013) |
(56,619) |
157,476 |
(102,054) | |||||
Comprehensive loss |
$ |
(445,728) |
(237,395) |
(1,063,396) |
(416,903) |
(12,064,462) | ||||
Loss per common share - |
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basic and diluted |
$ |
(0.01) |
(0.01) |
(0.02) |
(0.02) |
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Weighted average common shares - |
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basic and diluted |
54,092,186 |
39,476,956 |
50,880,048 |
35,859,338 |
The accompanying notes are an integral part of these financial statements.
5
SUNVESTA, INC. | ||||||
(A Development Stage Company) | ||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||
Nine Months Ended September 30, 2010 and 2009 and Cumulative Amounts | ||||||
Cumulative | ||||||
2010 |
2009 |
Amounts | ||||
Cash flows from operating activities: |
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Net loss |
$ |
(1,006,777) |
(574,379) |
(11,962,408) | ||
Adjustments to reconcile net loss to net cash |
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used in operating activities: |
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Depreciation |
753 |
24,212 |
272,258 | |||
Stock compensation expense |
- |
33,750 |
107,269 | |||
Related party accrued interest |
4,844 |
39,154 |
298,292 | |||
Note payable accrued interest |
17,532 |
19,832 |
25,673 | |||
Loss on securities acquired as a deposit |
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on stock |
- |
- |
1,008,324 | |||
Loss on disposal of assets |
- |
635 |
3,258 | |||
Loss on extinguishment of debt |
258,882 |
- |
1,806,758 | |||
(Increase) decrease in: |
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Prepaid expenses |
- |
3,154 |
- | |||
Other assets |
(7,502) |
(172) |
(16,722) | |||
Increase (decrease) in: |
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Accounts payable |
74,244 |
(171,213) |
1,623,233 | |||
Accrued expenses |
62,807 |
1,841 |
163,890 | |||
Net cash used in operating activities |
(595,217) |
(623,186) |
(6,670,175) | |||
Cash flows from investing activities: |
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Proceeds from securities available-for-sale |
- |
- |
1,740,381 | |||
Purchase of property and equipment |
(14,032) |
(58,419) |
(9,805,486) | |||
Deposits |
1,863 |
(53) |
- | |||
Net cash used in investing activities |
(12,169) |
(58,472) |
(8,065,105) | |||
Cash flows from financing activities: |
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Net proceeds from deposit on stock |
- |
- |
3,664,417 | |||
Proceeds from stock issuance |
- |
300,000 |
300,000 | |||
Advances from related parties |
651,927 |
628,610 |
10,700,286 | |||
Increase in note payable |
- |
- |
700,000 | |||
Decrease in note payable |
- |
- |
(163,664) | |||
Purchase of treasury stock |
(11,555) |
- |
(23,755) | |||
Net cash provided by financing activities |
640,372 |
928,610 |
15,177,284 | |||
Effect of exchange rate changes |
(93,973) |
(52,914) |
(429,601) | |||
Net increase (decrease) in cash |
(60,987) |
194,038 |
12,403 | |||
Cash, beginning of period |
73,945 |
39,434 |
555 | |||
Cash, end of period |
$ |
12,958 |
233,472 |
12,958 |
The accompanying notes are an integral part of these financial statements.
6
SUNVESTA, INC.
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2010
Note 1 Organization and Summary of Significant Accounting Policies
Organization
On August 27, 2007, SunVesta, Inc. (formerly OpenLimit, Inc.) (SunVesta) acquired SunVesta Holding AG (SunVesta AG) (collectively the Company). SunVesta AG has four wholly-owned subsidiaries: Sunvesta Projects and Management AG, a Swiss Company; Rich Land Investments Limitada, a Costa Rican Company; Sunvesta Turistik Yatririm VE, a Turkish Company; and Sunvesta Costa Rica Marketing & Sales Ltda., a Costa Rican Company.
Basis of Presentation
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 Companys Form 10-K, for the year ended December 31, 2009, 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, 2010.
Additional Footnotes Included By Reference
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 Companys Form 10-K for the year ended December 31, 2009, filed with the Securities and Exchange Commission. Therefore, those footnotes are included herein by reference.
Reclassifications
Certain prior year information has been reclassified to conform with the current year presentation.
7
SUNVESTA, INC.
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2010
Note 2 - Going Concern
As shown in the accompanying financial statements, the Company has negative working capital, and has incurred net losses since inception. Management intends to seek additional capital from new debt and/or equity securities offerings that will provide funds needed to increase liquidity, fund internal growth, and fully implement its business plan. Managements plan also includes negotiations to convert significant portions of existing debt into equity.
The Company currently has plans for a hotel in the Papagayo Gulf Tourism Project area of Costa Rica. An estimated $24 million is believed necessary to continue this plan and increase development. The timing and amount of capital requirements will depend on a number of factors, including demand for products and services and the availability of opportunities for international expansion through affiliations and other business relationships.
The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event the Company cannot continue in existence.
Note 3 Advances and Accrued Interest from Related Parties
Advances from related parties consists of unsecured due on demand advances as follows:
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September 30, |
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December 31, |
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2010 |
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2009 |
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(Unaudited) |
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(Audited) |
Advance from H. Rigendinger, a shareholder |
$ |
- |
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48,180 |
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Advance from A. Oehler, a shareholder of the |
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30,735 |
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28,908 |
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Advances from Zypam Ltd., a shareholder |
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567,612 |
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601,504 |
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598,347 |
|
678,592 |
Accrued interest on advances |
|
5,233 |
|
60,830 |
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$ |
603,580 |
|
739,422 |
The agreement with Zypam Ltd. also contains a subordination clause wherein all other Company creditors are entitled to a priority security interest over the Companys assets.
8 |
SUNVESTA, INC.
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2010
Note 4 Construction Related Agreement
The Company executed an agreement with Bruesa Construccion S.A. (Bruesa), a construction contractor based in Madrid, Spain. Terms of the agreement stated that Bruesa and the Company will negotiate in good faith but on a non-binding basis the appointment of Bruesa as general contractor for constructing a hotel on the land lot in the Papagayo Gulf Tourism Project area of Costa Rica.
On May 4, 2010, the Company reached an agreement with Bruesa to repurchase shares of Rich Land Investments Limitada by June 30, 2010 for 371,425 or approximately $454,000, plus interest accrued at 6% per annum since January 1, 2009, with the understanding that the Company will then be free to negotiate a construction contract with another entity. The repurchase has not occurred and the Company and Bruesa have verbally agreed to extend the agreement.
Note 5 Supplemental Cash Flow Information
Actual cash paid for interest and income taxes for the nine months ended September 30, 2010 and 2009, was approximately as follows:
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2010 |
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2009 |
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Interest |
$ |
- |
|
- |
Income taxes |
$ |
- |
|
- |
During the nine months ended September 30, 2010, the Company issued 14,615,230 shares of its common stock to Zypam Ltd. and H. Rigendinger in settlement of amounts owed (see Note 3) of approximately $776,000, and recognized a loss on debt extinguishment of $258,882.
During the nine months ended September 30, 2009 the Company issued 60,000 shares of its common stock in connection with deferred compensation valued at $45,000.
Note 6 Litigation
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 is 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 seeks 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 has agreed to settle the outstanding amount, without interest or legal fees, in equal installments due on April 30, May 31, June 30, and July 31, 2010. This agreement was then extended to August 31, 2010. As of September 30, 2010, the Company has paid approximately $148,000, leaving a remaining balance due of approximately $107,000.
9
SUNVESTA, INC.
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2010
Note 7 Commitments
On March 22, 2010, the Company entered into a non-binding agreement with Grupo Costarricense of San Jose, Costa Rica to acquire property including its related development and water rights for $12,500,000. This property is contiguous to the property already owned by the Company in Costa Rica. The agreement will become effective at such time as specific organizational requirements are completed.
Note 8 Subsequent Events
The Company has evaluated subsequent events through the date the financial statements were issued. The Company is not aware of any subsequent events which would require recognition or disclosure in the financial statements.
Note 9 Recent Accounting Pronouncements
In April 2010, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2010-13, Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades (ASU 2010-13). ASU 2010-13 addresses the classification of a share-based payment award with an exercise price denominated in the currency of a market in which the underlying equity security trades. FASB Accounting Standards Codification (ASC) Topic 718 was amended to clarify that a share-based payment award with an exercise price denominated in the currency of a market in which a substantial portion of the entitys equity securities trade shall not be considered to contain a market, performance or service condition. Therefore, such an award is not to be classified as a liability if it otherwise qualifies for equity classification. The amendments in ASU 2010-13 are effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010, with early application permitted. We do not anticipate that the adoption of this guidance will have a material impact on our financial position and results of operations.
In February 2010, the FASB issued ASU No. 2010-09, Amendments to Certain Recognition and Disclosure Requirements (ASU 2010-09), which amends ASC Topic 855, Subsequent Events. The amendments to ASC Topic 855 do not change existing requirements to evaluate subsequent events, but: (i) defines a SEC Filer, which we are; (ii) removes the definition of a Public Entity; and (iii) for SEC Filers, reverses the requirement to disclose the date through which subsequent events have been evaluated. ASU 2010-09 was effective for us upon issuance. This guidance did not have a material impact on our financial position and results of operations.
10
SUNVESTA, INC.
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2010
Note 9 Recent Accounting Pronouncements (continued)
In January 2010, the FASB issued ASU No. 2010-06, Improving Disclosures about Fair Value Measurements (ASU 2010-06). ASU 2010-06 requires new disclosures for (i) transfers of assets and liabilities in and out of levels one and two fair value measurements, including a description of the reasons for such transfers and (ii) additional information in the reconciliation for fair value measurements using significant unobservable inputs (level three). This guidance also clarifies existing disclosure requirements including (i) the level of disaggregation used when providing fair value measurement disclosures for each class of assets and liabilities and (ii) the requirement to provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements for level two and three assets and liabilities. ASU 2010-06 is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about activity in the roll forward for level three fair value measurements, which is effective for fiscal years beginning after December 15, 2010. The adoption of this guidance has not had a material impact on our financial position and results of operations.
Management believes the impact of other recently issued standards and updates, which are not yet effective, will not have a material impact on the Companys consolidated financial position, results of operations or cash flows upon adoption.
11 |
Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Managements 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, 2010. Our fiscal year end is December 31.
Discussion and Analysis
The Companys plan for the coming year is the continuation of the Companys business model of developing high-end luxury hotels and resorts in emerging tourist destinations. We intend to combine traditional hotel operations with villas that will be sold within the framework of a fractional private residence club program.
Our business plan will require a minimum of $23,631,250 in new funding over the next twelve months for the El Cielo Hideaway Eco Resort and Spa, Private Residences (El Cielo Hideaway Eco Resort), our initial real estate development. The El Cielo Hideaway Eco Resort is to be constructed on 20.5 hectares of prime land located in the thriving tourist area of Papagayo Bay in Guanacaste Province, Costa Rica. We will require up to $155,000,000 in funding by the time the development is completed.
Our subsidiary SunVesta Holding AG has obtained permission from CSSF (Luxemburg Financial Markets Authorities) to issue fixed-income bonds in the aggregate amount of 25,000,000,000 (approximately $33,750,000) to fund the first phase of development of the El Cielo Hideaway Eco Resort. The bonds will have a term of 3-years and bear an interest rate of 8.25% per annum with an issue date of December 1, 2010. Funding for the second phase is intended to be a mix of equity raised by the pre-sale of fractional ownership interests of villas and suites and a construction mortgage. Once pre-sale of fractional interests has reached 25% of the overall project we will begin construction of the second phase. Although we are yet to secure sufficient financing we are confident the required amounts will be available on a timely basis.
Our expected timeline to build and open the El Cielo Hideaway Eco Resort is as follows:
· Receive construction permits in the fourth quarter of 2010;
· Receive a mortgage loan in the first quarter of 2011;
· Begin construction of the first phase in the first quarter of 2011;
· Start selling fractional ownership in the second quarter of 2011;
· Start construction of the second phase in the first quarter of 2012; and
· Complete construction work the third quarter of 2013 and host a grand opening.
We intend to conclude an agreement with an international luxury hotel management company in the near term and anticipate outsourcing many of our project development activities. We have begun discussions with several such companies and have entered into a letter of understanding with Wingfield Corporation, an experienced project development company based in Brussels, Belgium and the Jumeirah Group, an international hotel management company based in Dubai, United Arab Emirates.
12
Results of Operations
During the nine months ended September 30, 2010, our operations were focused on (i) developing our business model; (ii) negotiating the purchase of additional hectares to expand our project in Costa Rica; (iii) deliberations with local authorities to obtain building permits for the El Cielo Hideaway Eco Resort; (iv) discussions with prospective project development partners; (v) pursuing additional debt or equity financing arrangements; (vi) improving operating efficiencies and (vii) satisfying continuous public disclosure requirements.
The Company has been funded since inception from equity placements and by shareholders or partners in the form of loans. All of the capital raised to date has been allocated to the development of the El Cielo Hideaway Eco 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, 2010, the Company had incurred comprehensive losses of $12,064,462. Comprehensive losses for the three months ended September 30, 2010 were $445,728 as compared to comprehensive losses of $237,395 for the three months ended September 30, 2009. Comprehensive losses for the nine months ended September 30, 2010 were $1,063,396 as compared to comprehensive losses of $416,903 for the nine months ended September 30, 2009. The increase in comprehensive losses over the comparative three and nine month periods can primarily be attributed to increases in general and administrative expenses, increases in losses associated with the translation of foreign currency account and loss on the extinguishment of debt. We did not generate revenue during this period and the Company expects to continue to incur losses through the year ended December 31, 2010.
Income Tax Expense (Benefit)
The Company has a prospective income tax benefit resulting from a net operating loss carry-forward and start up costs that will offset future operating profit.
Impact of Inflation
The Company believes that inflation has had a negligible effect on its operations over the past three years.
Capital Expenditures
The Company expended a significant amount on capital expenditures for the period from January 1, 2005 to September 30, 2010, in connection with the purchase of land that includes a concession to build a hotel and private residence club in Costa Rica.
Liquidity and Capital Resources
The Company has been in the development stage since inception and has experienced significant changes in liquidity, capital resources, and stockholders equity.
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As of September 30, 2010, we had a working capital deficit of $2,194,765. We had current assets of $28,851 and total assets of $9,351,314. Our current assets consisted of $12,958 in cash and cash equivalents and $15,893 in other assets. Our total assets consisted of current assets of $28,851 and property and equipment of $9,322,463. We had current and total liabilities of $2,223,616 which consisted of advances from related parties, accounts payable, notes payable and accrued expenses. Total stockholders equity in the Company was $7,127,698 at September 30, 2010.
Cash flow used in operating activities was $6,670,175 for the period from January 1, 2005, to September 30, 2010. Cash flow used in operating activities for the nine months ended September 30, 2010, was $595,217 as compared to $623,186 for the nine months ended September 30, 2009. The Company used less cash flow in operating activities within the current period due primarily to an increase in accounts payable, accrued expenses and the loss on extinguishment of debt in the current period. We expect to continue to use cash flow in operating activities in future periods as we develop our business plan.
Cash flows used in investing activities was $8,065,105 for the period from January 1, 2005 to September 30, 2010. Cash flows used in investing activities for the nine months ended September 30, 2010, was $12,169 as compared to $58,472 for the nine months ended September 30, 2009. We expect to continue to use cash flows in investing activities as funding becomes available for the construction of the El Cielo Hideaway Eco Resort.
Cash flow provided by financing activities was $15,177,284 for the period from January 1, 2005 to September 30, 2010. Cash flow provided by financing activities the nine months ended September 30, 2010, was $640,372 as compared to $928,610 for the nine months ended September 30, 2009. Cash flow provided by financing activities in the current period can be attributed primarily to advances from related parties. We expect to continue to realize cash flow provided by financing activities as our business development plan requires additional funding.
The Companys current assets are insufficient to conduct its plan of operation over the next twelve months. We will have to seek at least $23,631,250 in debt or equity financing over the next twelve months to fund the development of our business plan. SunVesta Holding AG is preparing an offering memorandum for a fixed-income bond in the amount of 25,000,000,000 (approximately $33,750,000). Despite our efforts, no assurances can be given that any additional funding will be available. Our shareholders continue to be the most likely source of immediate funding in the form of loans or equity placements though none have made any commitment for future investment and we have no agreement formal or otherwise to procure immediate funding. Our inability to obtain funding will have a material adverse affect in the near term on our business plan.
The Company does not intend to pay cash dividends in the foreseeable future.
The Company had no lines of credit or other bank financing arrangements as of September 30, 2010.
The Company had no commitments for future capital expenditures that were material at September 30, 2010 except those tied, subject to financing, to the construction of the El Cielo Hideaway Eco Resort and the purchase of additional acreage that includes waterfront property.
The Company has no defined benefit plan or contractual commitment with any of its officers or directors.
The Company has no current plans for the purchase or sale of any plant or equipment.
The Company has no current plans to make any additional changes in the number of its employees.
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Off-Balance Sheet Arrangements
As of September 30, 2010, the Company has no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that are material to stockholders.
Going Concern
The Companys auditors in their audit report for the period ended December 31, 2009 included with the Companys Form 10-K filed with the Securities and Exchange Commission note a substantial doubt as to our ability to continue as a going concern as a result of accumulated losses since inception and our failure to establish profitable operations. Our ability to continue as a going concern requires that we either realize net income from operations or obtain funding from outside sources. Since our business plan does not anticipate revenue within the next twelve months, managements plan to ensure our ability to continue as a going concern includes: (i) private placements of debt or equity, including a bond issuance; (ii) pre-selling fractional ownership interests in the El Cielo Hideaway Eco Resort; (iii) obtaining shareholder loans and (iv) converting existing debt to equity. Although management believes that the Company will be able to continue as a going concern there can be no assurances that the anticipated means for maintaining this objective will prove successful.
Critical Accounting Policies
In Note 2 to the audited financial statements for the years ended December 31, 2009 and 2008 filed on Form 10-K with the Securities and Exchange Commission the Company discusses those accounting policies that are considered to be significant in determining the results of operations and our financial position. The Company believes that the accounting principles utilized by us conform to accounting principles generally accepted in the United States of America.
The preparation of financial statements requires management to make significant estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. By their nature, these judgments are subject to an inherent degree of uncertainty. On an on-going basis, the Company evaluates our estimates, including those related to bad debts, inventories, intangible assets, warranty obligations, product liability, revenue, and income taxes. We base our estimates on historical experience and other facts and circumstances that are believed to be reasonable, and the results form the basis for making judgments about the carrying value of assets and liabilities. The actual results may differ from these estimates under different assumptions or conditions.
Forward-Looking Statements and Factors That May Affect Future Results and Financial Condition
The statements contained in the section titled Managements Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this current report, with the exception of historical facts, are forward-looking statements. Forward-looking statements reflect our current expectations and beliefs regarding our future results of operations, performance, and achievements. These statements are subject to risks and uncertainties and are based upon assumptions and beliefs that may or may not materialize. These statements include, but are not limited to, statements concerning:
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· 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 the Companys future business prospects;
· the ability of the Company 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.
Stock-Based Compensation
We have adopted Accounting Standards Codification Topic (ASC) 718, formerly SFAS No. 123 (revised 2004) (SFAS No. 123R), Share-Based Payment, which addresses the accounting for stock-based payment transactions in which an enterprise receives employee services in exchange for (a) equity instruments of the enterprise or (b) liabilities that are based on the fair value of the enterprises equity instruments or that may be settled by the issuance of such equity instruments.
We account for equity instruments issued in exchange for the receipt of goods or services from other than employees in accordance with ASC 505. Costs are measured at the estimated fair market value of the consideration received or the estimated fair value of the equity instruments issued, whichever is more reliably measurable. The value of equity instruments issued for consideration other than employee services is determined on the earliest of a performance commitment or completion of performance by the provider of goods or services.
Recent Accounting Pronouncements
Please see Note 9 to the accompanying consolidated financial statements for recent accounting pronouncements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not required.
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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 the Companys management, with the participation of the chief executive officer and chief financial officer, of the effectiveness of the Companys disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-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 Commissions rules and forms, and that such information is accumulated and communicated to management, including the chief executive officer and chief financial officer, to allow timely decisions regarding required disclosures.
Based on that evaluation, the Companys management concluded, as of the end of the period covered by this report, that the Companys disclosure controls and procedures were effective in recording, processing, summarizing, and reporting information required to be disclosed, within the time periods specified in the Commissions rules and forms, and such information was 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, 2010, 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.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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. 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 WATG 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 has agreed to settle the outstanding amount, without interest or legal fees, in equal installments due on April 30, May 31, June 30, and July 31, 2010. The Company paid the April 30 installment on schedule after which the payment schedule was modified with $40,000 due July 30, 2010. On August 5, 2010 the Company paid the $40,000 payment. The remaining balance of approximately $107,000 was due on August 31, 2010 and remains unsatisfied.
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ITEM 1A. RISK FACTORS
The Companys operations and securities are subject to a number of risks. Below we have identified and discussed the material risks that we are likely to face. Should any of the following risks occur, they will adversely affect our operations, business, financial condition and/or operating results as well as the future trading price and/or the value of our securities.
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Risks Related to the Companys Business
The Companys limited operating history; anticipated losses; uncertainly of future results.
The Company has no operating history upon which an evaluation of our business prospects can be based. Rather, our prospects must be evaluated with a view to the risks encountered by a company in an early stage of development, particularly in light of the uncertainties relating to the acceptance of its business model. We are incurring costs to develop our luxury real estate and hospitality business. There can be no assurance that we will be profitable on a quarterly or annual basis. In addition, as we expand our business operations we will likely need to increase our operating expenses and increase our administrative resources. To the extent that such expenses are not subsequently followed by commensurate revenues, our results of operations and financial condition would be materially adversely affected.
The Company has a historical record of losses which may continue.
The Company reported cumulative, comprehensive losses from January 1, 2005 (date of inception of development stage) until September 30, 2010, of $12,064,462. The historical record indicates that we have not realized revenue from our efforts and cannot provide us with any certainty that revenue is forthcoming or that revenue would be sufficient to support operations. The sum of these indicators creates uncertainty as to whether we will ever transition from losses to profits. Should we continue to incur losses we would be unable to meet our working capital requirements which inability would stifle operations.
Need for additional financing.
The Company has no revenue from operations and therefore is not able to meet operating costs. As such, we will need to raise substantial capital within the next twelve months to develop our operations. However, there can be no assurance that we will be able to raise the required capital. Failure to obtain adequate capital would significantly curtail our business.
Unpredictability of future revenues; potential fluctuations in the Companys operating results.
Since we have no history of generating revenues within the niche luxury real estate market in which we intend to compete, we are unable to forecast revenues accurately. Our current and future expense levels are based largely on our own investment/operating plans and estimates of future revenue. The Company may be unable to adjust spending to compensate for any unexpected revenue shortfall or delay. Accordingly, any significant shortfall or delay in revenue in relation to our planned expenditures would have an immediate adverse affect on our business, financial condition, and results of operations.
We are dependent on key personnel.
Our performance and operating results are substantially dependent on the continued service and performance of our managers, officer, and directors. We intend to hire additional management personnel as we move forward with our business model. Competition for such personnel is intense, and there can be no assurance that we will be able to retain our key management employees, or that we will be able to attract or retain highly qualified technical personnel in the future. The loss of the services of any of our key employees or the inability to attract and retain the necessary management personnel could have a material adverse effect upon the Companys business.
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The results of our operations depend on the efforts of third parties.
Almost all of our operations depend on the efforts of third parties. Despite being leaders in their respective fields, our dependence on third parties to initiate, determine and conduct operations could impede the Companys prospects for success.
Our unproven approach to fractional ownership of luxury real estate includes unproven concepts.
Although fractional ownership of luxury real estate is not new to the hospitality industry, our business plan combines proven concepts of fractional ownership with unproven concepts that are yet to be offered. As a result, we do not know with any certainty whether our services and/or products will be accepted within the hospitality marketplace. If our services and/or products prove to be unsuccessful, such failure could materially adversely affect our financial condition, operating results, and cash flows.
Risks Related to the Companys Stock
The market for the Companys common stock is limited.
The market for our common stock has been limited due to low trading volume and the small number of brokerage firms acting as market makers. Due to the limitations of our market and volatility in the market price of our stock, investors may face difficulties in selling shares at attractive prices when they want to. The average daily trading volume for our stock has varied significantly from week to week and from month to month, and the trading volume often varies widely from day to day.
The market price for our common stock is volatile.
The market price for our common stock is volatile and can fluctuate widely in response to various factors, many of which are beyond the Companys control, including the following:
· the acceptance of services offered by the Company or its competitors;
· additions or departures of key personnel;
· the Companys ability to execute its business plan;
· operating results that fall below expectations;
· loss of strategic relationships;
· industry developments;
· economic and other external factors; and
· period-to-period fluctuations in the Companys financial results.
Furthermore, the securities markets in general have from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of any particular company. These overall market fluctuations could also adversely affect the market price for our common stock.
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FINRA sales practice requirements may limit a stockholders ability to buy and sell our stock.
The Financial Industry Regulatory Authority (FINRA) has adopted rules that relate to the application of the Commissions penny stock rules in trading our securities and require that a broker/dealer have reasonable grounds for believing that the investment is suitable for that customer, prior to recommending the investment. Prior to recommending speculative, low priced securities to their non-institutional customers, broker/dealers must make reasonable efforts to obtain information about the customers financial status, tax status, investment objectives and other information. Under interpretations of these rules, the FINRA believes that there is a high probability that speculative, low priced securities will not be suitable for at least some customers. The FINRA requirements make it more difficult for broker/dealers to recommend that their customers buy our common stock, which may have the effect of reducing the level of trading activity and liquidity of our common stock. Further, many brokers charge higher transactional fees for penny stock transactions. As a result, fewer broker/dealers may be willing to make a market in our common stock, reducing a shareholders ability to resell shares of our common stock.
We incur significant expenses as a result of the Sarbanes-Oxley Act of 2002, which expenses will continue to negatively impact our financial performance.
We incur significant legal, accounting and other expenses as a result of the Sarbanes-Oxley Act of 2002, as well as related rules implemented by the Commission, which control the corporate governance practices of public companies. Compliance with these laws, rules and regulations, including compliance with Section 404 of the Sarbanes-Oxley Act of 2002, has substantially increased our expenses and made some activities more time-consuming and costly than previously, which expenses continue to negatively impact our financial performance.
Our internal controls over financial reporting may not be considered effective in the future, which could result in a loss of investor confidence in our financial reports and in turn have an adverse effect on our stock price.
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 we are required to furnish a report by our management on our internal controls over financial reporting. Such report must contain, among other matters, an assessment of the effectiveness of our internal controls over financial reporting as of the end of the year, including a statement as to whether or not our internal controls over financial reporting are effective. This assessment must include disclosure of any material weaknesses in our internal controls over financial reporting identified by management. If we are unable to continue to assert that our internal controls are effective, our investors could lose confidence in the accuracy and completeness of our financial reports, which in turn could cause our stock price to decline.
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The Companys common stock is currently deemed to be penny stock, which makes it more difficult for investors to sell their shares.
The Companys common stock is and will be subject to the penny stock rules adopted under section 15(g) of the Exchange Act. The penny stock rules apply to companies whose common stock is not listed on the NASDAQ Stock Market or other national securities exchange and trades at less than $5.00 per share or that have tangible net worth of less than $5,000,000 ($2,000,000 if the company has been operating for three or more years). These rules require, among other things, that brokers who trade penny stock to persons other than established customers complete certain documentation, make suitability inquiries of investors and provide investors with certain information concerning trading in the security, including a risk disclosure document and quote information under certain circumstances. Many brokers have decided not to trade penny stocks because of the requirements of the penny stock rules and, as a result, the number of broker-dealers willing to act as market makers in such securities is limited. If the Company remains subject to the penny stock rules for any significant period, it could have an adverse effect on the market, if any, for the Companys securities. If the Companys securities are subject to the penny stock rules, investors will find it more difficult to dispose of the Companys securities.
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
Exhibits required to be attached by Item 601 of Regulation S-K are listed in the Index to Exhibits on page 23 of this Form 10‑Q, and are incorporated herein by this reference.
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SIGNATURES
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 November 18, 2010
Josef Mettler
Chief Executive Officer, Chief Financial Officer
Principal Accounting Officer and Director
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INDEX TO EXHIBITS
Exhibit Description
3(i)(a)* Articles of Incorporation (incorporated by reference from the Form 10-SB filed with the Commission on December 31, 1999).
3(i)(b)* Amended Articles of Incorporation (incorporated by reference from the Form 10-KSB filed with the Commission on April 9, 2003).
3(i)(c)* Amended Articles of Incorporation (incorporated by reference from the Form 10-QSB filed with the Commission on November 17, 2003).
3(i)(d)* Amended Articles of Incorporation (incorporated by reference from the Form 8-K filed with the Commission on September 27, 2007).
3(ii)(a)* Bylaws (incorporated by reference from the Form 10-SB filed with the Commission on December 31, 1999).
3(ii)(b)* Amended Bylaws (incorporated by reference from the Form 10-QSB filed with the Commission on November 17, 2003).
10(i)* Securities Exchange Agreement and Plan of Exchange dated June 18, 2007 between the Company and SunVesta AG (formerly ZAG Holdings AG) (incorporated by reference from the Form 8-K filed with the Commission on June 21, 2007).
10(ii)* 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(iii)* 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(iv)* Debt Settlement Agreement dated April 21, 2009 between the Company and Zypam, Ltd. (incorporated by reference from the Form 8-K filed with the Commission on April 30, 2009).
10(v)* Debt Settlement Agreement dated March 1, 2010 between the Company and Zypam, Ltd. (incorporated by reference from the Form 8-K filed with the Commission on March 10, 2010).
10(vi)* Debt Settlement Agreement dated March 1, 2010 between the Company 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 the Company (incorporated by reference from the 10-K filed with the Commission on May 12, 2010).
* Incorporated by reference to previous filings of the Company.
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