Notes
to Financial Statements
September
30, 2021
NOTE
1 – NATURE OF OPERATIONS AND GOING CONCERN
Nature
of Operations
International
Land Alliance, Inc. (the “Company”) was incorporated under the laws of the State of Wyoming on September 26, 2013 (inception).
The Company is a residential land development company with target properties located in the Baja California, Norte region of Mexico and
Southern California. The Company’s principal activities are purchasing properties, obtaining zoning and other entitlements required
to subdivide the properties into residential and commercial building plots, securing financing for the purchase of the plots, improving
the properties infrastructure and amenities, and selling the plots to homebuyers, retirees, investors, and commercial developers.
On
June 30, 2011, International Land Alliance, SA De CV (“ILA Mexico”) was formed as a Mexican corporation to acquire from Baja
Residents Club, S.A. de CV (“BRC”), a related party with common ownership and control by the Company’s CEO, Robert
Valdes, 497 acres south of San Felipe, Baja California, known as the Oasis Park project and 20 acres in Ensenada, Baja California, known
as the Valle Divino project.
On
June 18, 2019, BRC transferred title to the Company for the Oasis Park property. It was previously subject to approval by the Mexican
government in Baja, California which was finalized in June 2019. As consideration for the promise to transfer title, the Company previously
issued 7,500,000 shares of founder’s common stock that was valued at $750,000 or $0.10 per common share.
On
March 18, 2019, the Company acquired real property located in Hemet, California, which included approximately 80 acres of land and two
structures for $1.1 million. The property includes the main parcel of land with existing structures along with three additional parcels
of land which are vacant plots to be used for the purpose of development. The Company is currently generating lease income from this
property.
In
October 2019, the Company entered into an agreement with Valdeland, S.A. de C.V.(“Valdeland”), a Mexican corporation controlled
by our CEO, Robert Valdes, to acquire 1 acre of land at the Bajamar Ocean Front Golf Resort in Ensenada, Baja California, known as the
Plaza Bajamar project.
The
transfer of title for Valle Divino and Plaza Bajamar projects is subject to approval from the Mexican government in Baja California.
Although management believes that the transfer of title to the land will be approved and transferred by the end of our fourth fiscal
quarter of 2021, there is no assurance that such transfer of title will be approved in that time frame or at all.
On
October 25, 2020, the Company entered into a business agreement with A&F Agriculture LLC (“A&F”), in which the parties
agreed to operate a business for the purpose of commercial agriculture at the Company’s property in Southern California. A&F
will be the managing party of the business agreement. The Company will provide A&F with the land and water supply for the purpose
of the cultivation. All revenue and expenses associated with the cultivation will be split equally among parties. Franck Ingrande is
the Manager of A&F and is also the President of the Company.
On
March 29, 2021, the Company executed a Letter of Intent (the “LOI”) to acquire two parcels of land in Rosarito Beach, Baja
California, Mexico, with total surface area of roughly 32 acres valued at approximately $6 million. The all-stock transaction includes
plans and permits for an existing 450-homesite project situated near the Pacific Ocean, with existing sales averaging $50,000 per residential
plot. The LOI includes the accounts receivable for plots sold and the remaining unsold plots. The closing is subject to standard conditions
including, completion of due diligence by both parties and the negotiation and execution of mutually acceptable definitive documents.
The Agreement merely represents the present understanding with respect to the intended acquisition transaction and is not binding upon
the parties. Due to continuing impact of Covid-19, the Seller’s ability to subdivide the master parcel has been delayed. Upon subdivision,
the Company will finalize the purchase agreement.
The
unaudited financial statements herein have been prepared by the Company pursuant to the rules and regulations of the United States Securities
and Exchange Commission (“SEC”). The accompanying interim unaudited financial statements have been prepared under the presumption
that users of the interim financial information have either read or have access to the audited financial statements for the latest year
ended December 31, 2020. Accordingly, note disclosures which would substantially duplicate the disclosures contained in the December
31, 2020, audited financial statements have been omitted from these interim unaudited financial statements.
Certain
information and note disclosures included in the financial statements prepared in accordance with United States generally accepted accounting
principles (“U.S. GAAP” or “GAAP”) have been condensed or omitted pursuant to such rules and regulations. In
the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the
nine months ended September 30, 2021, are not necessarily indicative of the results that may be expected for the year ending December
31, 2021.
Liquidity
and Going Concern
The
accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the
United States of America on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities and
commitments in the normal course of business.
Management
evaluated all relevant conditions and events that are reasonably known or reasonably knowable, in the aggregate, as of the date the consolidated
financial statements were available to be issued and determined that substantial doubt exists about the Company’s ability to continue
as a going concern. During the nine months ended September 30, 2021, the Company entered into securities purchase agreements with institutional
and accredited investors for the issuance of an aggregate of 3,000,000 shares of common stock with an equivalent number of warrants for
net proceeds of approximately $1.7 million. As of September 30, 2021, the Company used portion of the net proceeds to repay its promissory
notes for approximately $0.8 million and used approximately $0.3 million in operations. Management anticipates using the remaining net
proceeds for construction at its current projects, sales and marketing, and general working capital purposes
The
Company has faced significant liquidity shortages as shown in the accompanying consolidated financial statements. As of September 30,
2021, the Company’s current liabilities exceeded its current assets by $1.4 million. The Company has recorded a net loss of approximately
$3.6 million for the nine months ended September 30, 2021 and has an accumulated deficit of $13.2 million as of September 30, 2021. Net
cash used in operating activities for the nine months ended September 30, 2021, was approximately $0.7 million. These factors raise substantial
doubt about the Company’s ability to continue as a going concern. Management anticipates that the Company’s capital resources
will significantly improve if its projects gain wider market recognition and acceptance resulting in increased revenue from sales. The
Company’s ability to continue as a going concern is dependent on the Company’s ability to generate revenues and raise further
capital.
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
Company maintains its accounting records on an accrual basis in accordance with GAAP. These consolidated financial statements are presented
in United States dollars. The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions
to Form 10-Q. All adjustments which are, in the opinion of management, necessary for a fair presentation of the results of operations
for the interim periods have been made and are of a recurring nature unless otherwise disclosed herein.
Principles
of Consolidation
The
accompanying consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries, ILA Fund I, LLC (the
“ILA Fund”), a company incorporated in the State of Wyoming and International Land Alliance, S.A. de C.V., a company incorporated
in Mexico (“ILA Mexico”), Emerald Grove Estates LLC (“Emerald Estates”), incorporated in the State of California;
the Company has a 100% equity interest in ILA Mexico and in Emerald Estates. ILA Fund includes cash as its only assets with minimal expenses
as of September 30, 2021. The sole purpose of ILA Fund is strategic funding for the operations of the Company. ILA Mexico has plots held
for sale for the Oasis Park Resort, no liabilities, and minimal expenses as of September 30, 2021. The Company granted deed of the property
in Sycamore Road, Hemet, California to Emerald Estates. All intercompany balances and transactions are eliminated in consolidation.
Use
of Estimates
The
preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Management regularly evaluates estimates and assumptions related
to the valuation of assets and liabilities. Management bases its estimates and assumptions on current facts, historical experience and
various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments
about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources.
The actual results experienced by the Company may differ materially and adversely from management’s estimates. To the extent there
are material differences between the estimates and the actual results, future results of operations will be affected. Significant estimates
include:
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Liability
for legal contingencies.
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Useful
life of buildings.
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Assumptions
used in valuing equity instruments.
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Deferred
income taxes and related valuation allowances.
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Assessment
of long-lived asset for impairment.
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Significant
influence or control over the Company’s investee.
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Segment
Reporting
The
Company operates as one reportable segment under ASC 280, Segment Reporting. The Chief Operating Decision Maker (“CODM”)
regularly reviews the financial information of the Company at a consolidated level in deciding how to allocate resources and in assessing
performances.
Cash
and Cash Equivalents
The
Company considers all highly liquid instruments with maturity of three months or less at the time of issuance to be cash equivalents.
The Company did not have any cash equivalents as of September 30, 2021, and December 31, 2020, respectively.
Fair
value of Financial Instruments and Fair Value Measurements
Accounting
Standards Codification (“ASC”) 820 Fair Value Measurements and Disclosures, requires an entity to maximize the use
of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy
based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s
categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
ASC 820 prioritizes the inputs into three levels that may be used to measure fair value:
Level
1
Level
1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level
2
Level
2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability
such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets
with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are
observable or can be derived principally from, or corroborated by, observable market data. If the asset or liability has a specified
(contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability.
Level
3
Level
3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement
of the fair value of the assets or liabilities.
As
defined by ASC 820, the fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction
between willing parties, other than in a forced or liquidation sale, which was further clarified as the price that would be received
to sell an asset or paid to transfer a liability (“an exit price”) in an orderly transaction between market participants
at the measurement date.
The
reported fair values for financial instruments that use Level 2 and Level 3 inputs to determine fair value are based on a variety of
factors and assumptions. Accordingly, certain fair values may not represent actual values of the Company’s financial instruments
that could have been realized as of any balance sheet dates presented or that will be recognized in the future, and do not include expenses
that could be incurred in an actual settlement.
The
carrying amounts of the Company’s financial assets and liabilities, such as cash, accounts receivable, note receivable, prepaid,
accounts payable, accrued liabilities, contract liability, deposits, related party and third-party notes payables approximate fair value
due to their relatively short maturities. Equity-method investment is recorded at cost, which approximates its fair value since the consideration
transferred includes cash and a non-monetary transaction, in the form of the Company’s common stock, which was valued based on
a combination of a market and asset approach.
Cost
Capitalization
The
cost of buildings and improvements includes the purchase price of the property, legal fees, and other acquisition costs. Costs directly
related to planning, developing, initial leasing and constructing a property are capitalized and classified as Buildings in the Consolidated
Balance Sheets. Capitalized development costs include interest, property taxes, insurance, and other direct project costs incurred during
the period of development.
A
variety of costs are incurred in the acquisition, development and leasing of properties. After determination is made to capitalize a
cost, it is allocated to the specific component of a project that is benefited. Determination of when a development project is substantially
complete, and capitalization must cease, involves a degree of judgment. Our capitalization policy on development properties is guided
by ASC 835-20 Interest – Capitalization of Interest and ASC 970 Real Estate - General. The costs of land and buildings
under development include specifically identifiable costs. The capitalized costs include pre-construction costs essential to the development
of the property, development costs, construction costs, interest costs, real estate taxes, salaries and related costs and other costs
incurred during the period of development. We consider a construction project as substantially completed and held available for occupancy
or sale upon the receipt of certificates of occupancy, but no later than one year from cessation of major construction activity. We cease
capitalization on the portion (1) substantially completed and (2) occupied or held available for occupancy, and we capitalize only those
costs associated with the portion under construction.
Land
Held for Sale
The
Company considers properties to be assets held for sale when (1) management commits to a plan to sell the property; (2) the property
is available for immediate sale in its present condition and (3) the property is actively being marketed for sale at a price that is
reasonable given our estimate of current market value. Upon designation of a property as an asset held for sale, we record the property’s
value at the lower of its carrying value or its estimated net realizable value.
Land
and Buildings
Land
and buildings are stated at cost. Depreciation is provided by the use of the straight-line and accelerated methods for financial and
tax reporting purposes, respectively, over the estimated useful lives of the assets. Buildings will have an estimated useful life of
20 years. Land is an indefinite lived asset that is stated at fair value at date of acquisition.
Revenue
Recognition
Under
Topic 606, revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects
the consideration we expect to be entitled to in exchange for those goods or services. The guidance sets forth a five-step revenue recognition
model which replaces the prior revenue recognition guidance in its entirety and is intended to eliminate numerous industry-specific pieces
of revenue recognition guidance that have historically existed in U.S. GAAP. The underlying principle of the standard is that a business
or other organization will recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects
what it expects to receive in exchange for the goods or services. The standard also requires more detailed disclosures and provides additional
guidance for transactions that were not addressed completely in the prior accounting guidance.
The
Company determines revenue recognition through the following steps:
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identification
of the agreement, or agreements, with a buyer and/or investor;
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identification
of the performance obligations in the agreement for the sale of plots including delivering title to the property being acquired from
ILA;
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determination
of the transaction price;
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allocation
of the transaction price to the plots purchased when issued with equity or warrants to purchase equity in the Company; and
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recognition
of revenue when, or as, we satisfy a performance obligation such as delivering title to plots purchased.
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Revenue
is measured based on considerations specified in the agreements with our customers. A contract exists when it becomes a legally enforceable
agreement with a customer. The contract is based on either the acceptance of standard terms and conditions as stated in our agreement
of plot sales or the execution of terms and conditions contracts with third parties and investors. These contracts define each party’s
rights, payment terms and other contractual terms and conditions of the sale. Consideration was historically paid prior to transfer of
title as stated above and in future land sales, the Company plans to transfer title to buyers at the time consideration has been transferred
if the acquisition of the property has been completed by the Company. The Company applies judgment in determining the customer’s
ability and intention to pay; however, collection risk is mitigated through collecting payment in advance or through escrow arrangements.
A performance obligation is a promise in a contract or agreement to transfer a distinct product or item to the customer, which for us
is transfer of title to our buyers. Performance obligations promised in a contract are identified based on the property that will be
transferred to the customer that are both capable of being distinct and are distinct in the context of the contract, whereby the transfer
of the property is separately identifiable from other promises in the contract. We have concluded the sale of property and delivering
title is accounted for as a single performance obligation. Currently, upon execution of each contract, the Company has not developed
sufficient controls and procedures to provide reasonable assurance that collection of the consideration, which the Company is entitled
to, is probable. As such, the Company has not yet recognized any revenue from the seller’s financed contracts for deed in the three
months ended September 30, 2021. The Company currently retains title of the underlying asset under each contract until the customer pays
the consideration in full. Management is currently evaluating the retention of title as merely a protective right, which would potentially
not disallow revenue recognition for the full consideration to which the Company is entitled.
The
transaction price of a contract is allocated to each distinct performance obligation and recognized as revenue when or as the customer
receives the benefit of the performance obligation. The transaction price is determined based on the consideration to which we will expect
to receive in exchange for transferring title to the customer.
The
Company recognizes revenue when it satisfies a performance obligation in a contract by transferring control over property to a customer
when land title is legally transferred by the Company. The Company’s principal activities in the real estate development industry
which it generates its revenues is the sale of developed and undeveloped land.
Advertising
costs
The
Company expenses advertising costs when incurred. Advertising costs incurred amounted to $1,276,200 and $431,682 for the nine months
ended September 30, 2021, and 2020, respectively. Such increase is mainly attributable to advisory services in connection with potential
customer acquisition, product development, marketing and promotion of the Company real estate properties and corporate strategy.
Debt
issuance costs and debt discounts
Debt
issuance costs and debt discounts are being amortized over the lives of the related financings on a basis that approximates the effective
interest method. Costs and discounts are presented as a reduction of the related debt in the accompanying consolidated balance sheets.
Stock-Based
Compensation
The
fair value of stock options is estimated on the grant date using the Black-Scholes option pricing model, based on weighted average assumptions.
Expected volatility is based on historical volatility of our common stock. The Company has elected to use the simplified method described
in the Securities and Exchange Commission Staff Accounting Bulletin Topic 14C to estimate the expected term of employee stock options.
The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant. The value of restricted stock awards is
determined using the fair value of the Company’s common stock on the date of grant. The Company accounts for forfeitures as they
occur. Compensation expense is recognized on a straight-line basis over the requisite service period of the award.
Income
Taxes
The
Company accounts for income taxes using the asset and liability method in accordance with ASC 740, Income Taxes. The asset and
liability method provide that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary
differences between the financial reporting and tax basis of assets and liabilities, and for operating loss and tax credit carry forwards.
Deferred tax assets and liabilities are measured using the currently enacted tax rates and laws. The Company records a valuation allowance
to reduce deferred tax assets to the amount that is believed more likely than not to be realized.
When
tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities,
while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately
sustained. In accordance with the guidance of ASC 740, the benefit of a tax position is recognized in the financial statements in the
period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained
upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated
with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax
benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the
benefits associated with tax positions taken that exceeds the amount measured as described above should be reflected as a liability for
unrecognized tax benefits in the accompanying balance sheets along with any associated interest and penalties that would be payable to
the taxing authorities upon examination. Management makes estimates and judgments about our future taxable income that are based on assumptions
that are consistent with our plans and estimates. Should the actual amounts differ from our estimates, the amount of our valuation allowance
could be materially impacted. Any adjustment to the deferred tax asset valuation allowance would be recorded in the income statement
for the periods in which the adjustment is determined to be required. Management does not believe that it has taken any positions that
would require the recording of any additional tax liability, nor does it believe that there are any unrealized tax benefits that would
either increase or decrease within the next year.
Loss
Per Share
The
Company computes loss per share in accordance with ASC 260 – Earnings per Share. ASC 260 requires presentation of both basic
and diluted earnings per share (“EPS”) on the face of the consolidated statements of operations. Basic EPS is computed by
dividing net loss available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during
the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method
and convertible notes payable using the if-converted method. Diluted EPS excludes all dilutive potential shares if their effect is antidilutive.
During periods of net loss, all common stock equivalents are excluded from the diluted EPS calculation because they are antidilutive.
A beneficial conversion feature that arises from a contingent conversion feature has no accounting impact until the contingency occurs.
Management evaluated whether it is necessary to recognize a beneficial conversion feature by comparing the adjusted effective conversion
price of the convertible preferred stock with the commitment-date fair value of the entity’s common stock. Management determined
that a beneficial conversion feature existed, and recognized the beneficial conversion feature, creating a discount on the convertible
preferred stock instrument. This discount was amortized in accordance with ASC 470-20-35-7. The amortization of the discount created
by a beneficial conversion feature, which is recognized as a result of the resolution of a contingency, is treated as a dividend that
reduced net income in arriving at income available to common stockholders.
Securities
that are excluded from the calculation of weighted average dilutive common shares because their inclusion would have been antidilutive
are:
SCHEDULE OF POTENTIALLY DILUTIVE SHARES
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For
the nine months
ended
September
30, 2021
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For
the nine months
ended
September
30, 2020
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Options
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2,900,000
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1,200,000
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Warrants
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3,330,000
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340,000
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Total
potentially dilutive shares
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6,230,000
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1,540,000
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Concentration
of Credit Risk
The
Company maintains its cash in bank and financial institution deposits that at times may exceed federally insured limits. The Company
has not experienced any losses in such accounts through September 30, 2021.
Investments
– Equity Method
The
Company accounts for equity method investments at cost, adjusted for the Company’s share of the investee’s earnings or losses,
which are reflected in the consolidated statements of operations. The Company periodically reviews the investments for other than temporary
declines in fair value below cost and more frequently when events or changes in circumstances indicate that the carrying value of an
asset may not be recoverable. As of September 30, 2021, Management believes the carrying value of its equity method investments were
recoverable in all material respects.
Collaborative
Arrangements
The
Company analyzes its collaboration arrangements to assess whether such arrangements involve joint operating activities performed by parties
that are both active participants in the activities and exposed to significant risks and rewards dependent on the commercial success
of such activities and therefore within the scope of ASC Topic 808, Collaborative Arrangements (ASC 808). This assessment is performed
throughout the life of the arrangement based on changes in the responsibilities of all parties in the arrangement. For collaboration
arrangements within the scope of ASC 808 that contain multiple elements, the Company first determines which elements of the collaboration
are deemed to be within the scope of ASC 808 and which elements of the collaboration are more reflective of a vendor-customer relationship
and therefore within the scope of ASC 606. For elements of collaboration arrangements that are accounted for pursuant to ASC 808, an
appropriate recognition method is determined and applied consistently, generally by analogy to ASC 606. Amounts that are owed to collaboration
partners are recognized as an offset to collaboration revenue as such amounts are incurred by the collaboration partner. For those elements
of the arrangement that are accounted for pursuant to ASC 606, the Company applies the five-step model described under ASC 606.
Recent
Accounting Pronouncements
As
an emerging growth company (“EGC”), the Jumpstart Our Business Startups Act (“JOBS Act”) allows the Company to
delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are applicable to
private companies. The Company has elected to use this extended transition period under the JOBS Act until such time, as the Company
is no longer considered to be an EGC, which is expected to be on December 31, 2021.
In
February 2016, the FASB issued ASU 2016-02 (Topic 842), Leases, and issued subsequent amendments to the initial guidance or implementation
guidance including ASU 2017-13, 2018-01, 2018-10, 2018-11, 2018-20 and 2019-01 (collectively, including ASU 2016-02, “ASC 842”),
which supersedes the guidance in topic ASC 840, Leases. The new standard requires lessees to classify leases as either finance or operating
based on whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether related
expenses are recognized based on the effective interest method or on a straight-line basis over the term of the lease. For any leases
with a term of greater than 12 months, ASU 2016-02 requires lessees to recognize a lease liability for the obligation to make the lease
payments arising from a lease, and a right-of-use asset for the right to use the underlying asset for the lease term. An election can
be made to account for leases with a term of 12 months or less similar to existing guidance for operating leases under ASC 840.
The
new standard will also require new disclosures, including qualitative and quantitative requirements, providing additional information
about the amounts recorded in the financial statements. For public companies, the new standard is effective for interim and annual reporting
periods beginning after December 15, 2018. The accounting standard is effective for non-public entities for fiscal years beginning after
December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. We have elected this extension and the
effective date for us to adopt this standard will be for fiscal years beginning after December 15, 2021. The Company does not anticipate
the new standard will have an impact since the Company does not currently has leases.
In
June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial
Instruments, which requires the Company to measure and recognize expected credit losses for financial assets held and not accounted for
at fair value through net income. ASU 2016-13 is intended to replace the incurred loss impairment methodology in current US GAAP with
a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information
to inform credit loss estimates to improve the quality of information available to financial statement users about expected credit losses
on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date.
In
April 2019, the FASB issued ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments (“ASU 2019-04”).
This amendment clarifies the guidance in ASU 2016-13. The guidance in ASU 2016-13 was further clarified by ASU No. 2019-11, Codification
Improvements to Topic 326, Financial Instruments (“ASU 2019-11”) issued in November 2019. ASU 2019-11 provides transition
relief such as permitting entities an accounting policy election regarding existing TDRs, among other things. In May 2019, the FASB issued
ASU No. 2019-05, Financial Instruments-Credit Losses (Topic 326): Targeted Transition Relief (“ASU 2019-05”). The purpose
of this amendment is to provide entities that have certain instruments within the scope of Subtopic 326-20, Financial Instruments-Credit
Losses-Measured at Amortized Cost, with an option to irrevocably elect the fair value option in Subtopic 825-10, Financial Instruments-Overall,
on an instrument-by-instrument basis. Election of this option is intended to increase comparability of financial statement information
and reduce costs for certain entities to comply with ASU 2016-13. For public entities, ASU 2016-13 is effective for fiscal years beginning
after December 15, 2019, including interim periods within those fiscal years.
NOTE
3 – ASSET PURCHASE AND TITLE TRANSFER
Emerald
Grove Asset Purchase
On
July 30, 2018, Jason Sunstein, the Chief Financial Officer, entered into a Residential Purchase Agreement (“RPA” or “the
Agreement”) to acquire real property located in Hemet, California, which included approximately 80 acres of land and a structure
for $1.1 million from an unrelated seller. The property includes the main parcel of land with an existing structure along with three
additional parcels of land which are vacant plots to be used for the purpose of development “vacant plots”. The purpose of
the transaction was as an investment in real property to be assigned to the Company subsequent to acquisition. On March 18, 2019, Mr.
Sunstein assigned the deed of the property to the Company. The total of the consideration plus acquisition costs assets of $1,122,050
was allocated to land and building in the following amounts: $271,225 – Land; $850,826 – Building. The land is an indefinite
long-lived asset that was assessed for impairment as a grouped asset with the building on a periodic basis.
On
September 30, 2019, the Company entered into a contract for deed agreement “Agreement” with IntegraGreen whose principal
is also a creditor. Under the agreement the Company agreed to the sale of 20 acres of vacant land and associated improvements located
at the Emerald Grove property in Hemet, California for a total purchase price of $630,000, $63,000 was paid upon execution and the balance
is payable in a balloon payment on October 1, 2026, with interest only payments of $3,780 due on the 1st of each month beginning April
1, 2020. During the duration of the Agreement the Company retains title and is allowed to encumber the property with a mortgage at its
discretion, however IntegraGreen has the right to use the property. The Company may also evict IntegraGreen from the premises in the
case of default under the agreement. Due to the nature of the Agreement, the Company’s management deemed that there was an embedded
lease feature in the agreement in accordance with ASC 842. As a result, the initial payment of $63,000 was classified as a deposit. Upon
an event of default in which case the payment is non-refundable, and the Company no longer has any obligation to provide access to the
land. The interest payments will be recognized monthly as lease income. As of September 30, 2021, Integragreen has made payment of an
aggregate amount of $212,980 against the purchase price. Such amount is recorded under deposits in the Company’s consolidated balance
sheets as of September 30, 2021.
Oasis
Park Title Transfer
On
June 18, 2019, Baja Residents Club SA de CV (“BRC”), a related party with common ownership and control by our CEO, Robert
Valdes, transferred title to the Company for the Oasis Park property which was part of a previously held land project consisting of 497
acres to be acquired and developed into Oasis Park resort near San Felipe, Baja. ILA recorded the property held for sale on its balance
sheet in the amount of $670,000 and accordingly reduced the value as plots are sold. As of September 30, 2021, the Company reported a
balance for assets held for sale of $646,434.
The
Company transferred title to individual plots of land to the investors since the Company received this approval of change in transfer
of title to ILA. During the nine months ended September 30, 2021, the Company entered into a contract to sell three individual plots
of land for total consideration of $128,000, of which $12,000 was collected and $108,000 will be payable in thirty-six (36) consecutive
monthly installments at 0% interest. The Company recorded the cash collected under deposits in the consolidated balance sheet as of September
30, 2021. Such amount has not yet been recorded as revenue as of September 30, 2021(refer to Note 2).
NOTE
4 – LAND, BUILDING, NET AND CONSTRUCTION IN PROCESS
Land
and buildings, net as of September 30, 2021, and December 31, 2020:
LAND, BUILDING, NET AND CONSTRUCTION IN PROCESS
|
|
Useful
life
|
|
September
30,
2021
|
|
|
December
31,
2020
|
|
Land
– Emerald Grove
|
|
|
|
$
|
271,225
|
|
|
$
|
271,225
|
|
|
|
|
|
|
|
|
|
|
|
|
Land
held for sale – Oasis Park
|
|
|
|
$
|
646,434
|
|
|
$
|
647,399
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
in Process (Divino – Bajamar)
|
|
|
|
$
|
578,647
|
|
|
$
|
353,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Furniture
& equipment
|
|
5
years
|
|
$
|
2,682
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Building
– Emerald Grove
|
|
20
years
|
|
|
1,040,720
|
|
|
|
943,175
|
|
Less:
Accumulated depreciation
|
|
|
|
|
(117,891
|
)
|
|
|
(82,581
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Building,
net
|
|
|
|
$
|
922,828
|
|
|
$
|
860,594
|
|
Depreciation
expense was $35,310 and $34,343 for the nine months ended September 30, 2021, and 2020, respectively.
Additionally,
in November and December 2019, $250,000 was paid to our CEO, Roberto Valdes, $150,000 for constructing two model Villas at our planned
Plaza Bajamar development. The Company has not yet taken title to this property, which is currently owned by Valdeland, S.A. de C.V.,
an entity controlled by Roberto Valdes. The Company intends to purchase the land from this entity and has paid $100,000 to Roberto Valdes
as a down payment for this purchase. The $150,000 is the total construction cost budget that is intended to pay the construction contractor.
During
the year ended December 31, 2020, the Company issued the 250,000 shares of the Company’s common stock for total amount of $150,000
reported under prepaid and other current assets in the condensed consolidated balance sheets as of September 30, 2021. The Company funded
the construction by an additional $225,647 during the nine months ended September 30, 2021. The construction contractor is also an entity
controlled by Roberto Valdes. Construction commenced during the year ended in 2020, but has not yet been completed.
The
balance of construction in process for Plaza Bajamar and Valle Divino totaled $578,647 and $353,000 as of September 30, 2021, and December
31, 2020, respectively. Management believes that the transfer of title to the land will be approved and transferred by the end of our
fourth fiscal quarter of 2021
NOTE
5 – RELATED PARTY TRANSACTIONS
The
Company paid to its Chief Executive Officer salary for services directly related to continued operations of $0 and $5,000 for the nine
months ended September 30, 2021, and 2020, respectively. The Company has accrued $101,424 of compensation costs in relation to the employment
agreement for the nine months ended September 30, 2021. The balance owed is $231,656 and $130,232 as of September 30, 2021, and December
31, 2020, respectively.
The
Company paid to the Company’s Chief Financial Officer salary for services directly related to continued operations in the amount
of $1,600 and $92,308 for the nine months ended September 30, 2021, and 2020, respectively. The Company has accrued $101,424 of compensation
costs in relation to the employment agreement for the nine months ended September 30, 2021. The balance owed is $170,085 and $70,261
as of September 30, 2021, and December 31, 2020, respectively.
The
Company paid to a relative to the Company’s Chief Financial Officer (formerly the Company’s Secretary) salary for services
directly related to continued operations in the amount of $28,255 and $11,300 for the nine months ended September 30, 2021, and 2020,
respectively. The Company has accrued $69,114 of compensation cost in relation to the employment agreement in the nine months ended September
30, 2021. The balance owed is $116,211 and $75,352 as of September 30, 2021, and December 31, 2020.
In
May 2021, the Company executed an employment agreement with the Company’s new President. The base salary is in the amount of $120,000
per annum, a $500 monthly auto stipend, and four weeks of paid vacation. The Company has accrued $52,615 as salary for services during
the nine months ended September 30, 2021. The balance owed is $52,615 as of September 30, 2021. The Company also granted 50,000 shares
of its common stock for total fair value of $66,000 as incentive bonus per the President’s employment agreement in the nine months
ended September 30, 2021.
On
October 25, 2019, the Company issued a promissory note to RAS, LLC (“RAS”), a company controlled by Lisa Landau, a former
officer and related party to an officer of the Company, for $440,803. The proceeds of the note were largely used to repay shareholder
loans and other liabilities. The loan bears interest at 10%. The loan matures on June 25, 2020, is secured by 2,500,000 common shares
and a Second Deed of Trust for property in Hemet, CA (Emerald Grove). Additionally, as in incentive to the note holder, the Company is
required to issue to the holder 132,461 shares of common stock valued at $97,858, which was recorded as a debt discount as of December
31, 2019. As of September 30, 2021, the discount has been fully amortized, and the note is shown less amortized discount of $0. The shares
were issued on May 1, 2020. Interest expense for the nine months ended September 30, 2021, was $48,190. The Company issued 29,727 shares
of common stock with fair value of $10,999 as payment for accrued interest in the nine months ending September 30, 2021. The Company
paid $37,400 of interest during the nine months ended September 30, 2021.
Six
Twenty Capital Management LLC (Related Party)
On
March 31, 2021, the Company issued a promissory note to Six Twenty Capital Management LLC, a company controlled by Jason Sunstein, Chief
Financial Officer of the Company, for $288,611. The proceeds of the note were largely used to fund current operations and for general
purposes. The loan bears interest at 8% and matures on March 31, 2022. The Company received additional funding of approximately $475,200
and repaid approximately $417,000 during the nine months ended September 30, 2021. Six Twenty Capital Management LLC paid, on behalf
of the Company, approximately $124,444 relating to the first and second agreed-upon installment from another convertible note. The Company
recognized approximately $20,000 of interest expense in the nine months ended September 30, 2021.
Promissory
notes to related party consisted of the following at September 30, 2021, and December 31, 2020:
SCHEDULE OF RELATED PARTY TRANSACTIONS
|
|
September
30, 2021
|
|
|
December
31, 2020
|
|
RAS
Real Estate LLC, 18% interest, due December 2020, due June 2022
|
|
$
|
357,389
|
|
|
$
|
361,989
|
|
Lisa
Landau, no maturity date, no coupon
|
|
|
25,077
|
|
|
|
-
|
|
Six
Twenty Management, 8% interest, due March 2022
|
|
|
471,594
|
|
|
|
-
|
|
Total
Notes Payable
|
|
$
|
854,061
|
|
|
$
|
361,989
|
|
Less
discounts
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total
Related Parties Notes Payable
|
|
|
854,061
|
|
|
|
361,989
|
|
|
|
|
|
|
|
|
|
|
Less
current portion
|
|
|
(854,061
|
)
|
|
|
(361,989
|
)
|
|
|
|
|
|
|
|
|
|
Total
Related Parties Notes Payable - long term
|
|
$
|
-
|
|
|
$
|
-
|
|
NOTE
6 – NOTES PAYABLE
Promissory
notes consisted of the following at September 30, 2021, and December 31, 2020:
SCHEDULE OF NOTES PAYABLE
|
|
September
30, 2021
|
|
|
December
31, 2020
|
|
Note
payable, due August 2020 (past maturity)
|
|
$
|
24,785
|
|
|
$
|
36,660
|
|
Note
payable, 18% interest, due March 2020 (past maturity)
|
|
|
1,500
|
|
|
|
1,500
|
|
Note
payable, secured, 10% interest, due October 2021
|
|
|
-
|
|
|
|
975,000
|
|
Note
payable, 15% interest, due December 2020
|
|
|
-
|
|
|
|
50,000
|
|
Note
payable, 15% interest, due December 2020
|
|
|
-
|
|
|
|
50,000
|
|
Note
payable, 15% interest, due December 2020
|
|
|
-
|
|
|
|
100,000
|
|
Note
payable, 15% interest, due December 2020
|
|
|
-
|
|
|
|
100,000
|
|
Note
payable, 15% interest, due December 2020
|
|
|
-
|
|
|
|
20,000
|
|
Note
payable, 15% interest, due December 2020
|
|
|
-
|
|
|
|
25,000
|
|
Note
payable, 13% interest, due December 2021
|
|
|
-
|
|
|
|
128,884
|
|
Note
Payable, 12% interest, due June 2021
|
|
|
-
|
|
|
|
166,733
|
|
Note
Payable, 15% interest, due March 2021 (past maturity)
|
|
|
76,477
|
|
|
|
126,477
|
|
Note
Payable, 12% interest, due February 2021
|
|
|
-
|
|
|
|
10,000
|
|
Note
payable, 0% interest, due December 2020
|
|
|
-
|
|
|
|
142,100
|
|
Note
payable, 12% interest, due February 2023
|
|
|
1,787,000
|
|
|
|
-
|
|
Total
Notes Payable
|
|
$
|
1,889,762
|
|
|
$
|
1,932,300
|
|
Less
discounts
|
|
|
(63,387
|
)
|
|
|
(57,136
|
)
|
|
|
|
|
|
|
|
|
|
Total
Notes Payable
|
|
|
1,826,375
|
|
|
|
1,875,164
|
|
|
|
|
|
|
|
|
|
|
Less
current portion
|
|
|
(102,762
|
)
|
|
|
(1,875,164
|
)
|
|
|
|
|
|
|
|
|
|
Total
Notes Payable - long term
|
|
$
|
1,723,613
|
|
|
$
|
-
|
|
Interest
expense including amortization of the associated debt discount for the nine months ended September 30, 2021, and 2020 was $572,372 and
$271,702, respectively.
On
January 21, 2021, the Company refinanced its existing first and second mortgage loans on the 80 acres of land and the structure located
at Sycamore Road in Hemet, California for aggregate amount of $1,787,000, carrying coupon at twelve (12) percent, payable in monthly
interest installments of $17,870 starting on September 1st, 2021, and continuing monthly thereafter until maturity on February 1st, 2023,
at which time all sums of principal and interest then remaining unpaid shall be due and payable. The balloon payment promissory note
is secured by deed of trust. Upon execution, the Company paid $53,610 of loan origination fees, presented as debt discount in the consolidated
balance sheets, and prepaid six (6) months of interest only installments totaling $107,220, presented as Prepaid and other current assets
in the consolidated balance sheets. The total amount of prepaid interest has been fully reversed to interest expense during the nine
months ended September 30, 2021. The refinanced amount paid off the first and second mortgage loans with a net funding to the Company
of approximately $387,000, net of finders’ fees.
Convertible
Notes
Labrys
Fund LP
On
February 25, 2021, the Company entered into a convertible promissory note pursuant to which it borrowed $500,000, net of an issuance
costs of $25,500 and original issuance discount of $50,000. Interest under the convertible promissory note is 12% per annum, and the
principal and all accrued but unpaid interest is due on February 25, 2022. Additionally, as in incentive to the note holder, the note
includes the issuance of 85,000 commitment shares of common stock with fair value of approximately $131,000 and additional 250,000 shares
that must be returned to the Company if the note is fully repaid and satisfied on or prior to the maturity date. The note is convertible
upon an event of default after the issuance date at the noteholder’s option into shares of our common stock at a fixed conversion
price equal to $1.00, subject to standard anti-dilutive rights. Portion of the proceeds were used to retire an existing convertible note
with Labrys for total amount of approximately $135,000. During the nine-month ended September 30, 2021, Six Twenty Management (related
party) paid, on behalf of the Company, the first and second installments for total amount of $124,444, of which $111,110 was applied
against the principal and $13,334 against accrued interest. During the nine months ended September 30, 2021, the Company paid $435,556,
of which $388,885 was applied against the principal and $46,671 against accrued interest. The balance owed to Labrys Fund LP is $0 as
of September 30, 2021.
Cash
Call
On
February 10, 2021, the Company accepted a settlement offer from Cash Call to settle its obligation in exchange for total consideration
of nine (9) installments of approximately $3,940 each. During the nine-months ended September 30, 2021, the Company paid $11,821 in cash.
The balance is $24,785 as of September 30, 2021.
NOTE
7 – EQUITY METHOD INVESTMENT
In
May 2021, the Company acquired a 25% investment in Rancho Costa Verde Development, LLC (“RCV”) in exchange for 3,000,000
shares of the Company’s common stock at a determined fair value of $0.86 per share and $100,000 in cash for total consideration
of $2,680,000. The fair value of the non-monetary exchange was determined based on a valuation report obtained from an independent third-party
valuation firm. The fair value of the Company’s common stock was determined based on weighted combination of market approach and
asset approach. The market approach estimates fair value based on a weighted average between the listed price of the Company’s
common share and the Company’s recent private transaction adjusted for a lack of marketability discount.
The
investment has been accounted for under the equity method. It was determined that the Company does not have the power to direct the activities
that most significantly impact RCV’s economic performance, and therefore, the Company is not the primary beneficiary of RCV and
RCV has not been consolidated under the variable interest model.
The
investment was recorded at cost, which was determined to be $2,680,000. A total of 3,000,000 shares of common stock were issued as of
September 30, 2021.
The
following represents summarized financial information of RCV for the nine months ended September 30, 2021:
SUMMARIZED FINANCIAL INFORMATION OF RCV
Revenue
|
|
$
|
1,623,662
|
|
Gross
margin
|
|
$
|
1,195,584
|
|
Income
from continuing operations
|
|
$
|
|
Net
income
|
|
$
|
98,238
|
|
Based
on its 25% equity investment, the Company has recorded an income from equity investment of $32,270 and $39,212 for the three and nine
months ended September 30, 2021, which has increased the carrying value of the investment as of September 30, 2021, to $2,719,212.
NOTE
8 – COMMITMENTS AND CONTINGENCIES
Commitment
to Purchase Land – Valle Divino.
This
is one land project consisting of 20 acres to be acquired and developed into Valle Divino resort in Ensenada, which is subject to approval
by the Mexican government in Baja, California. The Company has promised to transfer title to the plots of land to the investors who have
invested in the Company once the Company receives an approval of change in transfer of title to the Company. The Company has promised
to transfer title to the plots of land to the investors who have invested in the Company once the Company receives an approval of change
in transfer of title to the Company. During the nine months ended September 30, 2021, the Company entered into two (2) contracts for
deed agreements to sell two (2) plots of land. The Company cancelled one contract for deed agreement to sell one (1) plot of land and
used the proceeds for the payment of the exercise price relating to the grant of 1,000,000 stock options at strike price of $0.05, which
were immediately exercised into an equivalent number of shares of common stock.
Land
purchase- Plaza Bajamar.
On
September 25, 2019, the Company, entered into a definitive Land Purchase Agreement with Valdeland, S.A. de C.V., a Company controlled
by our CEO Roberto Valdes, to acquire approximately one acre of land with plans and permits to build 34 units at the Bajamar Ocean Front
Golf Resort located in Ensenada, Baja California. Pursuant to the terms of the Agreement, the total purchase price is $1,000,000, payable
in a combination of preferred stock ($600,000); common stock ($250,000/250,000 common shares at $1.00/share); a promissory note ($150,000);
and an initial construction budget of $150,000 paid upon closing. A recent appraisal from August 2019 valued the land “as is”
for approximately $1,100,000. The closing is subject to obtaining the necessary approval by the City of Ensenada and transfer of title,
which includes the formation of a wholly owned Mexican subsidiary, which is expected in the fourth fiscal quarter of year ended December
31, 2021. As of September 30, 2021, the Company also received $5,000 deposit for one (1) unit reservation in the “Plaza at Bajamar”,
which is presented under contract liability in the financial statements.
Commitment
to Sell Land
On
September 30, 2019, the Company entered into a contract for deed agreement “Agreement” with IntegraGreen whose principal
is also a creditor. Under the agreement the Company agreed to the sale of 20 acres of vacant land and associated improvements located
at the Emerald Grove property in Hemet, California for a total purchase price of $630,000, $63,000 was paid upon execution and the balance
is payable in a balloon payment on October 1, 2026, with interest only payments of $3,780 due on the 1st of each month beginning April
1, 2020. During the duration of the Agreement the Company retains title and is allowed to encumber the property with a mortgage at its
discretion; however, IntegraGreen has the right to use the property. The Company may also evict IntegraGreen from the premises in the
event of default under the agreement.
Due
to the nature of the Agreement, the Company’s management deemed that there was an embedded lease feature in the agreement in accordance
with ASC 842. As a result, the initial payment of $63,000 was classified as a deposit. The Company received additional principal payments
in the aggregate amount of $149,980 in the nine months ended September 30, 2021. Upon an event of default in which case the payment is
non-refundable, and the Company no longer has any obligation to provide access to the land. The interest payments will be recognized
monthly as lease income. During the nine months ended September 30, 2021, and 2020, the Company recognized $25,900 and $31,618 in lease
income, respectively. Lease income is presented as revenue in the consolidated statements of operations.
During
the nine months ended September 30, 2021, the Company entered into a contract for deed agreement with a third-party investor. Under the
contract the Company agreed to the sale of 1 plot of vacant land and associated improvements located at the Valle Divino property in
Ensenada, Mexico for a total purchase price of $35,000, paid upon execution. The total cash proceeds of $35,000, of which $5,479 was
allocated to the one promised plot of land. 70,000 shares of common stock were included in the contract for deed.
Litigation
Costs and Contingencies
From
time to time, the Company may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business.
Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may
harm business. Management is currently not aware of any such legal proceedings or claims that could have, individually or in the aggregate,
a material adverse effect on our business, financial condition, or operating results.
NOTE
9 – STOCKHOLDERS’ EQUITY
The
Company’s equity at September 30, 2021 consisted of 75,000,000 authorized common shares and 2,000,000 authorized preferred shares,
both with a par value of $0.001 per share. As of September 30, 2021, and December 31, 2020, there were 31,364,327 and 23,230,654 shares
of common stock issued and outstanding, respectively. As of September 30, 2021, and December 31, 2020, 28,000 shares of Series A Preferred
Stock were issued and outstanding and 1,000 shares of Series B Preferred Stock were issued and outstanding, respectively.
On
August 26, 2020, the Company’s shareholders of record approved the increase of the Company’s authorized common stock, par
value $0.001, from 75,000,000 shares to 100,000,000 shares and the holders of a majority of the Company’s outstanding voting securities
approved the Company’s 2020 Equity Incentive Plan (the “2020 Plan”). The Company has not yet amended its articles of
incorporation as of September 30, 2021, reflecting the increase of the Company’s authorized common stock. Subsequent to September
30, 2021, the Board of Directors approved an amendment of the Company’s articles of incorporation to increase the number of authorized
shares to 150,000,000 (note 10).
The
Company has reserved a total of 3,000,000 shares of the authorized common stock for issuance under the 2020 Plan. As of September 30,
2021, ILA has issued 2,700,000 options under the 2020 Plan and 1,000,000 options were exercised, leaving a balance of 1,700,000 options
issued and outstanding.
On
February 11, 2019, the Company’s Board of Directors approved a 2019 Equity Incentive Plan (the “2019 Plan”). In order
for the 2019 Plan to grant “qualified stock options” to employees, it required approval by the Corporation’s shareholders
within 12 months from the date of the 2019 Plan. The 2019 Plan was never approved by the shareholders. Therefore, any options granted
under the 2019 Plan prior to shareholder approval will be “non-qualified”. Pursuant to the 2019 Plan, the Company has reserved
a total of 3,000,000 shares of the Company’s common stock to be available under the plan. As of September 30, 2021, ILA has granted
1,200,000 options under the 2019 Plan.
Common
Stock Issued for Services
During
the nine months ended September 31, 2021, the Company committed to issue 200,000 shares per a consulting agreement valued at $280,000.
These shares were issued on May 19, 2021.
During
the nine months ended September 30, 2021, the Company issued 50,000 shares to the Company’s President in accordance with an executed
employment agreement valued at $66,000.
During
the nine months ended September 30, 2021, the Company issued an aggregate of 100,000 shares to two consultants in accordance with executed
consulting and real estate sales agreements valued at $132,000.
During
the nine months ended September 30, 2021, the Company issued 45,946 shares per advisory agreement with registered broker-dealer valued
at $61,108.
Common
Stock Issued for Cash
On
February 22, 2021, the Company received cash of $45,000 for 100,000 shares of common stock. These shares were issued on April 1, 2021.
On
May 7, 2021, the Company received cash of $20,000 for 40,000 shares of common stock.
Common
Stock Issued from warrants and options exercise.
During
the nine months ended September 30, 2021, the Company issued 160,000 shares of common stock for total consideration of $50,000 from warrants
exercise.
During
the nine months ended September 30, 2021, the Company issued 1,000,000 shares of common stock from option exercise for total consideration
of $50,000.
Common
Stock sold with a Promise to Deliver Title to Plot of Land and Warrants
On
December 8, 2020, the Company received cash proceeds of $20,000 for 50,000 shares of common stock to be issued to a third-party investor.
In conjunction with this sale of shares, the Company also attached one (1) plot of land. The total cash proceeds of $20,000 was allocated
based upon the relative fair value of the shares and one (1) promised plot of land in the following amounts: shares were valued at $11,890;
and plot of land was valued at $8,110. The shares were issued on March 1, 2021.
On
December 31, 2020, the Company received cash proceeds of $30,000 for 50,000 shares of common stock to be issued to a third-party investor.
In conjunction with this sale of shares, the Company also attached one (1) plot of land. The total cash proceeds of $30,000 was allocated
based upon the relative fair value of the shares and one (1) promised plot of land in the following amounts: shares were valued at $20,622;
and plot of land was valued at $9,378. The shares were issued on March 1, 2021.
On
April 22, 2021, the Company received cash proceeds of $35,000 for 70,000 shares of common stock to be issued to a third-party investor.
In conjunction with this sale of shares, the Company also attached one (1) plot of land. The total cash proceeds of $35,000 was allocated
based upon the relative fair value of the shares and one (1) promised plot of land in the following amounts: shares were valued at $29,521;
and plot of land was valued at $5,479.
Common
Stock Issued for debt settlement.
On
December 31, 2020, the Company executed amendments to promissory notes with six (6) existing investors to extend the maturity date for
the issuance of an aggregate of 23,000 shares of common stock with a fair value of approximately $10,000. These shares were issued on
January 1, 2021.
On
January 1, 2021, the Company issued an aggregate of 95,000 shares of common stock in conjunction with previously executed promissory
notes. These shares were previously recorded as stock payable for aggregate fair value of approximately $75,600.
On
January 1, 2021, the Company issued an aggregate of 23,000 shares of common stock in conjunction with executed amendments to previously
executed promissory notes. These shares were issued with an estimated fair value of $8,970.
On
February 25, 2021, the Company issued 85,000 shares of common stock as commitment shares in accordance with the terms of one of its senior
secured self-amortization convertible note with aggregate fair value of $130,900.
On
July 1, 2021, the Company issued an aggregate of 35,000 shares of common stock in conjunction with executed amendments to previously
executed promissory notes. These shares were issued with an estimated fair value of $12,605.
All
shares of common stock issued during the three and nine months ended September 30, 2021, were unregistered.
Common
Stock Issued for equity-method investment.
On
May 14, 2021, the Company issued 3,000,000 shares of common stock with a fair value of $2,580,000 for the acquisition of 25% of the membership
interest of Rancho Costa Verde Development (See note 7).
Common
Stock issued following registered offering (July 2021 offering)
On
July 26, 2021, the Company entered into securities purchase agreements with certain institutional and accredited investors for the issuance
and sale of 3,000,000 shares of the Company’s common stock at a closing price of $0.68 per share. The issuance also includes an
equivalent number of warrants convertible into an equivalent number of the Company’s common stock at a strike price of $0.68. The
gross proceeds of the financing were $2,040,000 and the net proceeds were approximately $1,800,000.
Preferred
Stock
On
November 6, 2019, the Company authorized and issued 1,000 shares of Series B Preferred Stock (“Series B”) and 350,000 shares
of common stock to Cleanspark Inc. in a private equity offering for $500,000. Management determined that the Series B should not be classified
as liability per the guidance in ASC 480 Distinguishing Liabilities from Equity upon issuance, even though the conversion would require
the issuance of variable number of shares since such obligation is not unconditional. As of June 30, 2021, Management recorded the value
attributable to the Series B of $293,500 as temporary equity on the consolidated balance sheet since the instrument is contingently redeemable
at the option of the holder. The Company recognized the beneficial conversion feature (“BCF”) that arises from a contingent
conversion feature, since the instrument reached maturity during the year ended December 31, 2020. The Company recognized such BCF as
a discount on the convertible preferred stock. The amortization of the discount created by a BCF recognized as a result of the resolution
of the contingency is treated as a deemed dividend that reduced net income in arriving at income available to common stockholders.
Warrants
A
summary of the Company’s warrant activity during the nine months ended September 30, 2021, is presented below:
SCHEDULE OF WARRANTS ACTIVITY
|
|
|
|
|
|
Weighted
|
|
|
Weighted
Average
Remaining
Contract
|
|
|
|
|
Number
of
Warrants
|
|
|
Average
Exercise
Price
|
|
|
Term
(Year)
|
|
Outstanding
at December 31, 2020
|
|
|
|
460,000
|
|
|
$
|
0.38
|
|
|
|
0.70
|
|
Granted
|
|
|
|
3,180,000
|
|
|
|
0.69
|
|
|
|
5.33
|
|
Exercised
|
|
|
|
(160,000
|
)
|
|
|
0.31
|
|
|
|
0.25
|
|
Forfeited-Canceled
|
|
|
|
(150,000
|
)
|
|
|
0.33
|
|
|
|
-
|
|
Outstanding
at September 30, 2021
|
|
|
|
3,330,000
|
|
|
$
|
0.68
|
|
|
|
5.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
at September 30, 2021
|
|
|
|
3,300,000
|
|
|
|
|
|
|
|
|
|
During
the nine months ended September 30, 2021, the Company issued 3,000,000 shares of common stock pursuant to the July 2021 offering, 3,000,000
warrants convertible into an equivalent number of common stock. Each share of common stock and accompanying warrant were sold together
at a combined offering price of $0.68. The warrants have an exercise price of $0.68 per share, are immediately exercisable and expire
five and a half years from the issuance date.
The
placement agent was granted 180,000 warrants convertible into an equivalent number of shares, at an exercise price of $0.85, immediately
exercisable and expiration date of five and a half years from the issuance date.
The
aggregate intrinsic value as of September 30, 2021, and December 31, 2020, was approximately $63,000 and $4,600, respectively.
Options
A
summary of the Company’s option activity during the nine months ended September 30, 2021, is presented below:
SCHEDULE OF OPTION ACTIVITY
|
|
|
|
|
Weighted
|
|
|
Weighted
Average
Remaining
Contract
|
|
|
|
Number
of
Options
|
|
|
Average
Exercise
Price
|
|
|
Term
(Year)
|
|
Outstanding
at December 31, 2020
|
|
|
2,900,000
|
|
|
$
|
0.43
|
|
|
|
3.35
|
|
Granted
|
|
|
1,000,000
|
|
|
|
0.05
|
|
|
|
1.00
|
|
Exercised
|
|
|
(1,000,000
|
)
|
|
|
(0.05
|
)
|
|
|
(1.00
|
)
|
Forfeited-Canceled
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding
at September 30, 2021
|
|
|
2,900,000
|
|
|
$
|
0.43
|
|
|
|
2.60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
at September 30, 2021
|
|
|
1,568,750
|
|
|
|
|
|
|
|
|
|
Options
outstanding as of September 30, 2021, and December 31, 2020, had aggregate intrinsic value of $889,000 and $158,000, respectively. As
of September 30, 2021, the total unrecognized deferred share-based compensation expected to be recognized over the remaining weighted
average vesting periods of 0.35 years for outstanding grants was approximately $0.3 million.
NOTE
10 – SUBSEQUENT EVENTS
The
Company has evaluated subsequent events for adjustment to or disclosure in its consolidated financial statements through the date of
this report, and has not identified any recordable or disclosable events, not otherwise reported in these consolidated financial statements
or the notes thereto, except for the following:
Subsequent
to September 30, 2021, the Company issued 1,300,000 stock options to certain related parties with a strike price of $0.50 pursuant to
the 2019 Equity Incentive Plan, with an estimated fair value of approximately $700,000.
Subsequent
to September 30, 2021, the Company issued 100,000 shares of its common stock pursuant to a consulting agreement.
Subsequent
to September 30, 2021, the Company issued 100,000 shares of its common stock pursuant a finder’s agreement.
Subsequent
to September 30, 2021, the Board of Directors approved an amendment to the Company’s articles of incorporation to effect a reverse
stock split of all of its outstanding shares of common stock in a ratio of not less than 1 for 2 and not more than 1 for 12 by April
30, 2022.
Subsequent
to September 30, 2021, the Board of Directors approved an amendment to the Company’s articles of incorporation to increase the
number of shares of authorized common stock from 75,000,000 to 150,000,000 shares.