International Land Alliance Inc 10-Q for FY2022 Q3
International Land Alliance Inc. (ILAL)
About this 10-Q
International Land Alliance Inc filed this 10-Q on November 21, 2022, covering the quarter ended September 30, 2022 (FY2022 Q3).
Headline figures
Quarter ended September 30, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $16.97K
- up 103.5% from $8340 a year earlier
- Net loss
- $978.05K
- compared with a net loss of $642.06K a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For
the quarterly period ended
For the transition period from to
Commission
file number:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
(Address of principal executive offices) (Zip Code)
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Exchange Act: None
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.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (Sec.232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was
required to submit such files).
Indicate by check mark whether the registrant is a large-accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large-accelerated filer”, “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large-accelerated filer | ☐ | Accelerated filer | ☐ | |
| ☒ | Smaller reporting company | |||
| Emerging growth company |
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
As of November 18, 2022, the registrant had shares of common stock, $0.001 par value per share, outstanding.
TABLE OF CONTENTS
| 2 |
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
INTERNATIONAL LAND ALLIANCE, INC.
CONSOLIDATED BALANCE SHEETS
September 30, 2022 | December 31, 2021 | |||||||
| (unaudited) | (audited) | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash | $ | $ | ||||||
| Accounts Receivable | ||||||||
| Prepaid and other current assets | ||||||||
| Total current assets | ||||||||
| Accounts receivable | ||||||||
| Land | ||||||||
| Land Held for Sale | ||||||||
| Buildings, net | ||||||||
| Furniture and equipment, net | ||||||||
| Construction in Process | ||||||||
| Note receivable | ||||||||
| Accrued interest on note receivable | ||||||||
| Equity-method investment | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued liabilities | $ | $ | ||||||
| Accounts payable and accrued liabilities – Related party | ||||||||
| Contract liability | ||||||||
| Deposits | ||||||||
| Derivative liability | ||||||||
| Promissory notes, net of debt discounts | ||||||||
| Promissory notes, net of debt discounts– Related Parties | ||||||||
| Total current liabilities | ||||||||
| Promissory notes, net of current portion | ||||||||
| Total liabilities | ||||||||
| Commitments and Contingencies (Note 9) | ||||||||
| Preferred Stock Series B (Temporary Equity) | ||||||||
| Stockholders’ equity (deficit) | ||||||||
| Preferred stock; $ par value; shares authorized; Series A shares issued and outstanding as of September 30, 2022, and December 31, 2021 | ||||||||
| Series B shares issued and outstanding as of September 30, 2022, and December 31, 2021 | ||||||||
| Common stock; $ par value; shares authorized; and shares issued and outstanding as of September 30, 2022, and December 31, 2021, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity (deficit) | ( | ) | ||||||
| Total liabilities and stockholders’ equity (deficit) | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| 3 |
INTERNATIONAL LAND ALLIANCE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
| September 30, 2022 | September 30, 2021 | September 30, 2022 | September 30, 2021 | |||||||||||||
| For the three months ended | For the nine months ended | |||||||||||||||
| September 30, 2022 | September 30, 2021 | September 30, 2022 | September 30, 2021 | |||||||||||||
| Revenues and lease income | $ | $ | $ | $ | ||||||||||||
| Cost of revenues | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses | ||||||||||||||||
| Sales and marketing | ||||||||||||||||
| General and administrative expense | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense) | ||||||||||||||||
| Other income | ||||||||||||||||
| Income (loss) from equity-method investment | ( | ) | ( | ) | ||||||||||||
| Change in fair value derivative | ||||||||||||||||
| Interest income | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total other expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Loss per common share - basic and diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average common shares outstanding - basic and diluted | ||||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| 4 |
INTERNATIONAL LAND ALLIANCE, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
For the Three and Nine Months Ended September 30, 2022, and 2021
(unaudited)
Activity for the Nine Months Ended September 30, 2022
Series A Preferred Stock | Series B Preferred Stock | Common Stock | Additional Paid-in | Accumulated | Total Stockholders’ | |||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||||||||||||||
| Balance, December 31, 2021 | $ | | $ | | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||
| Common shares issued pursuant to promissory notes | - | - | ||||||||||||||||||||||||||||||||||
| Common stock issued for option exercise | - | - | ||||||||||||||||||||||||||||||||||
| Common stock issued for consulting services | - | - | ||||||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | |||||||||||||||||||||||||||||||||
| Warrants issued in connection with debt financing | - | - | - | |||||||||||||||||||||||||||||||||
| Dividend on Series B Preferred | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Balance, March 31, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||
| Common stock issued with Finders’ Fee agreement | - | - | ||||||||||||||||||||||||||||||||||
| Common stock issued for option exercise | - | - | ||||||||||||||||||||||||||||||||||
| Common stock issued for consulting services | - | - | ||||||||||||||||||||||||||||||||||
| Dividend on Series Preferred | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | |||||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Balance, June 30, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||
| Common stock issued for consulting services | - | - | ||||||||||||||||||||||||||||||||||
| Dividend on Series Preferred | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Balance, September 30, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||
Activity for the Nine Months Ended September 30, 2021
| Balance, December 31, 2020 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||
| Common stock issued with debt settlement | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||
| Commitment shares issued | - | - | ||||||||||||||||||||||||||||||||||||||
| Common stock issued against accrued interest due to related party | - | - | ||||||||||||||||||||||||||||||||||||||
| Common stock to be issued for cash | - | - | ||||||||||||||||||||||||||||||||||||||
| Common stock issued from plot sale | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||
| Common stock granted for services | - | - | - | ( | ) | |||||||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | |||||||||||||||||||||||||||||||||||||
| Dividend on Series Preferred | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Balance, March 31, 2021 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||
| Common stock issued with plot purchase | - | - | ||||||||||||||||||||||||||||||||||||||
| Common stock issued for warrant and option exercise | - | - | ||||||||||||||||||||||||||||||||||||||
| Common stock issued with equity-method investment | - | - | ||||||||||||||||||||||||||||||||||||||
| Common stock issued for cash | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||
| Common stock issued pursuant to consulting agreements | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||
| Dividend on Series Preferred | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | |||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Balance, June 30, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||||||
| Common stock issued with debt settlement | - | - | ( |
) | ||||||||||||||||||||||||||||||||||||
| Common stock issued with cash, net of offering costs | - | - | ||||||||||||||||||||||||||||||||||||||
| Dividend on Series Preferred | - | - | - | ( |
( | |||||||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | |||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( |
( | |||||||||||||||||||||||||||||||||||
| Balance, September 30, 2021 | $ | $ | $ | $ | $ | ( |
) | $ | ( |
) | $ |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| 5 |
INTERNATIONAL LAND ALLIANCE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
September 30, 2022 | September 30, 2021 | |||||||
| For the nine months ended | ||||||||
September 30, 2022 | September 30, 2021 | |||||||
| Cash Flows from Operating Activities | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Stock based compensation | ||||||||
| Fair value equity securities issued for services | ||||||||
| Loss on debt extinguishment | ||||||||
| Depreciation and amortization | ||||||||
| Loss (Income) from equity-method investment | ( | ) | ||||||
| Amortization of debt discount | ||||||||
| Excess Fair Value of derivative | ||||||||
| Change in fair value of derivative liability | ( | ) | ||||||
| Changes in operating assets and liabilities | ||||||||
| Accounts Receivable | ( | ) | ||||||
| Prepaid and other current assets | ||||||||
| Accounts payable and accrued liabilities | ( | ) | ||||||
| Accounts payable and accrued liabilities | ||||||||
| Other non-current assets | ( | ) | ||||||
| Accrued interest on note receivable | ( | ) | ||||||
| Contract liability | ||||||||
| Deposits | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash Flows from Investing Activities | ||||||||
| Equity-method investee acquisition | ( | ) | ||||||
| Cash payment to collaborative agreement | ( | ) | ||||||
| Building and Construction in Progress payments | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash Flows from Financing Activities | ||||||||
| Common stock, warrants and options sold for cash | ||||||||
| Common stock issued from options exercise | ||||||||
| Common stock, warrants and plots promised for cash, net | ||||||||
| Cash payments on promissory notes- related party | ( | ) | ( | ) | ||||
| Cash payments on promissory notes | ( | ) | ( | ) | ||||
| Cash proceeds from convertible notes | ||||||||
| Cash proceeds from promissory notes- related party | ||||||||
| Cash proceeds from refinancing | ||||||||
| Net cash provided by financing activities | ||||||||
| Net increase in Cash | ||||||||
| Cash, beginning of period | ||||||||
| Cash, end of period | $ | $ | ||||||
| Supplemental disclosure of cash flow information | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income tax | $ | $ | ||||||
| Non-Cash investing and financing transactions | ||||||||
| Dividend on Series B | $ | $ | ||||||
| Debt discount from issuance of promissory notes | $ | $ | ||||||
| Debt discount from bifurcated derivative | $ | $ | ||||||
| Common stock issued for finder’s fee agreement | $ | $ | ||||||
| Debt discount created from warrants embedded in financing | $ | $ | ||||||
| Corporate expenses paid by related party note | $ | $ | ||||||
| Shares issued with debt modification | $ | $ | ||||||
| Cancellation of previously issued common stock | $ | $ | ||||||
| Interest on notes paid by related party | $ | $ | ||||||
| Construction in progress paid by related party | $ | $ | ||||||
| Common stock issued as consideration for equity-method investee | $ | $ | ||||||
| Commitment shares issued with convertible note | $ | $ | ||||||
| Corporate expenses paid through related party note | $ | $ | ||||||
| Common stock issued in settlement of related party accrued interest on note | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| 6 |
INTERNATIONAL LAND ALLIANCE, INC.
Notes to Financial Statements
September 30, 2022
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. The Company is a residential land development company with target properties located in the Baja California, Northern 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.
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, 2022, are not necessarily indicative of the results that may be expected for the year ending December 31, 2022. For further information, refer to the audited financial statements and notes for the year ended December 31, 2021, included in the Company’s Annual Report on Form 10-K filed with the SEC on April 15, 2022.
Liquidity and Going Concern
The accompanying consolidated unaudited 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. The Company’s ability to continue as a going concern is dependent on the Company’s ability to generate
revenues and raise capital. The Company has faced significant liquidity shortages as shown in the accompanying financial statements.
As of September 30, 2022, the Company’s current liabilities exceeded its current assets by approximately $
The Company continues to raise additional capital through the issuance of debt instruments and equity to fund its ongoing operations, which may have the effect of potentially diluting the holdings of existing shareholders.
Management anticipates that the Company’s capital resources will significantly improve if its plots of land gain wider market recognition and acceptance resulting in increased plot sales and house construction. If the Company is not successful with its marketing efforts to increase sales, the Company will continue to experience a shortfall in cash, and it will be necessary to obtain funds through equity or debt financing in sufficient amounts or to further reduce its operating expenses in a manner to avoid the need to curtail its future operations subsequent to September 30, 2022. The direct impact of these conditions is not fully known.
However, there can be no assurance that the Company would be able to secure additional funds if needed and that if such funds were available on commercially reasonable terms or in the necessary amounts, and whether the terms or conditions would be acceptable to the Company. In such case, the reduction in operating expenses might need to be substantial in order for the Company to generate positive cash flow to sustain the operations of the Company. (See Note 11 regarding subsequent events).
| 7 |
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, International Land Alliance, S.A. de C.V., a company incorporated in Mexico (“ILA Mexico”), and Emerald Grove Estates LLC, incorporated in the State of California, Plaza Bajamar, LLC, incorporated in State of Wyoming, Plaza Valle Divino, LLC, incorporated in the State of Wyoming. ILA Fund includes cash as its only assets with minimal expenses as of September 30, 2022. The sole purpose of this entity 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, 2022. All intercompany balances and transactions are eliminated in consolidation.
The Company’s consolidated subsidiaries and/or entities were as follows:
SCHEDULE OF CONSOLIDATED SUBSIDIARIES AND ENTITY
| Name of Consolidated Subsidiary or Entity | State or Other Jurisdiction of Incorporation or Organization | Attributable Interest | ||||
| ILA Fund I, LLC | % | |||||
| International Land Alliance, S.A. de C.V. (ILA Mexico) | % | |||||
| Emerald Grove Estates, LLC | % | |||||
| Plaza Bajamar LLC | % | |||||
| Plaza Valle Divino, LLC | % | |||||
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, 2022, management believes the carrying value of its equity method investments was recoverable in all material respects.
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:
| ■ | Liability for legal contingencies. |
| 8 |
| ■ | Useful life of buildings. | |
| ■ | Assumptions used in valuing equity instruments. | |
| ■ | Deferred income taxes and related valuation allowances. | |
| ■ | Going concern. | |
| ■ | Assessment of long-lived asset for impairment. | |
| ■ | Significant influence or control over the Company’s investee. | |
| ■ | Revenue recognition. |
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, 2022, and December 31, 2021, 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: uses quoted market prices in active markets for identical assets or liabilities.
Level 2: uses observable market-based inputs or unobservable inputs that are corroborated by market data.
Level 3: uses unobservable inputs that are not corroborated by market data.
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, prepaid, and other current assets, accounts payable and accrued liabilities, contracts liability, deposits, promissory notes, net of debt discounts and promissory notes related party 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.
| 9 |
The fair value of the Company’s recorded derivative liability is determined based on unobservable inputs that are not corroborated by market data, which require a Level 3 classification. A Black-Sholes option valuation model was used to determine the fair value. The Company records derivative liability on the consolidated balance sheets at fair value with changes in fair value recorded in the consolidated statements of operation.
The following table presents balances of the liabilities with significant unobservable inputs (Level 3) as of September 30, 2022:
SCHEDULE OF LIABILITIES WITH SIGNIFICANT UNOBSERVABLE INPUTS
| Fair Value Measurements at September 30, 2022 Using | ||||||||||||||||
| Quoted Prices in Active Markets for | Significant Other | Significant | ||||||||||||||
| Identical Assets | Observable Inputs | Unobservable Inputs | ||||||||||||||
| (Level 1) | (Level 2) | (Level 3) | Total | |||||||||||||
| Derivative liability | $ | $ | $ | $ | ||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
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 the 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.
| 10 |
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
Revenue Recognition
Under ASC 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. 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:
| ■ | Identification of the agreement or agreements with a buyer and/or investor. | |
| ■ | Identification of the performance obligations in the agreement(s) for the sale of plots including the delivering title to the property being acquired from ILA. | |
| ■ | Determination of the transaction price. | |
| ■ | Allocation of the transaction price to the plots purchased when issued with equity or warrants to purchase equity in the Company; and | |
| ■ | Recognition of revenue when, or as, we satisfy a performance obligation such as the transfer of control of the plots. |
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 that the existing contracts only have
one single performance obligation identified as the transfer of control of the property to the buyer, since the delivery of the title
is merely seen as a protective right. 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. The Company
has recognized $
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. The Company’s principal activities in the real estate development industry which it generates its revenues is the sale of developed and undeveloped land.
| 11 |
Advertising costs
The
Company expenses advertising costs when incurred. Advertising costs incurred amounted to $
Debt issuance costs and debt discounts
Debt issuance costs and debt discounts are being amortized over the term of the related financings on a straight-line approach, which 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 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. Any compensation cost previously recognized for an unvested award that is forfeited because of a failure to satisfy a service condition is reversed in the period of the forfeiture. Compensation expense is recognized on a straight-line basis over the requisite service period of the award. Stock-based compensation includes the fair value of options, warrants and restricted stocks issued to employees, directors, and non-employees.
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 requires approval by the Company’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 shareholders’ approval will be “non-qualified”. Pursuant to the 2019 Plan, the Company has reserved a total of shares of the Company’s common stock under the Plan. The Company has a total of options issued and outstanding under the 2019 Plan as of September 30, 2022.
On August 26, 2020, the Company’s Board of Directors approved the 2020 Equity Plan (the “2020 Plan”). The Company has reserved a total of shares of the Company’s authorized common stock for issuance under the 2020 equity plan. The 2020 Equity Plan enables the Company’s board of directors to provide equity-based incentives through grants of awards to the Company’s present and future employees, directors, consultants, and other third-party service providers. The Company has a total of options issued and outstanding under the 2020 plan as of September 30, 2022.
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.
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.
| 12 |
SCHEDULE OF POTENTIALLY DILUTIVE SHARES
For the nine months ended September 30, 2022 | For the nine months ended September 30, 2021 | |||||||
| Options | ||||||||
| Warrants | ||||||||
| Total potentially dilutive shares | ||||||||
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, 2022.
Reclassification
Certain reclassifications have been made to prior year’s data to confirm to the current year’s presentation. Such reclassifications had no impact on the Company’s financial condition, operating results, cash flows or stockholders’ deficit.
Recent Accounting Pronouncements
Not Yet Adopted Accounting Standards:
In March of 2022, the FASB issued ASU 2022-01, Derivatives and Hedging (Topic 815), Fair Value Hedging - Portfolio Layer Method. The amendments in this Update amend the guidance in ASU 2017-12 relating to the “last-of-layer” method and rename the method as the “portfolio layer” method. It expands the scope of existing guidance so that entities can apply the portfolio layer method to portfolios of all financial assets, including both prepayable and non-prepayable financial assets. Additionally, the standard expands the current model to explicitly allow entities to designate multiple layers in a single portfolio as individual hedged items. This allows a larger portion of the interest rate risk associated with such a portfolio to be hedged. The Update is effective for fiscal years beginning after December 15, 2022, with early adoption permitted in any interim period after its issuance. The Company has not yet adopted this Update.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 provides guidance for estimating credit losses on certain types of financial instruments, including trade receivables, by introducing an approach based on expected losses. The expected loss approach will require entities to incorporate considerations of historical information, current information and reasonable and supportable forecasts. The guidance requires a modified retrospective transition method and early adoption is permitted. In November 2019, FASB issued ASU No. 2019-10, Financial Instruments – Credit Losses, Derivatives and Hedging, and Leases (“ASU 2019-10”), which defers the adoption of ASU 2016-13 for smaller reporting companies until periods beginning after December 15, 2022. The Company has not yet adopted ASU 2016-13 and will continue to evaluate the impact of ASU 2016-13 on its consolidated financial statements.
Adopted Accounting Standards:
In August 2020, the FASB issued ASU No. 2020-06 (“ASU 2020-06”) “Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.” ASU 2020-06 simplifies the accounting for convertible instruments by reducing the number of accounting models for convertible debt instruments and convertible preferred stock. Limiting the accounting models results in fewer embedded conversion features being separately recognized from the host contract as compared with current GAAP. Convertible instruments that continue to be subject to separation models are (1) those with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting and (2) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in capital. In addition, ASU 2020-06 amends the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions. The amendments also affect the diluted EPS calculation for instruments that may be settled in cash or shares and for convertible instruments. The amendments are effective for public entities excluding smaller reporting companies for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods. The Company adopted the new standard on January 1, 2022, which did not result in a material impact on the Company’s consolidated results of operations, financial position, and cash flows.
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.
| 13 |
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 emerging growth companies such as the Company, ASU No. 2016-02 is effective for financial statements issued for fiscal years beginning after December 15, 2021. Early adoption is permitted.
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 Company adopted the new standard on January 1, 2022, which did not result in a material impact on the Company’s consolidated results of operations, financial position, and cash flows, as the Company has no material leases.
There were no other new accounting standards that had a material impact on the Company’s consolidated financial statements during the nine-month period ended September 30, 2022, and there were no other new accounting standards or pronouncements that were issued but not yet effective as of September 30, 2022, that the Company expects to have a material impact on its consolidated financial statements.
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) to acquire real property located
in Hemet, California, which included approximately
On
September 30, 2019, the Company entered into a contract for deed agreement with Integra Green whose principal is also a creditor. Under
the agreement the Company agreed to the sale of
During
the year ended December 31, 2021, the Company received an additional $
During
the nine months ended September 30, 2022, the Company recognized $
| 14 |
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
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, 2022, the Company did not enter into any new contract to sell plots of land.
On
September 29, 2021, the Company entered into a house construction contract for total consideration of $
During
the year ended December 31, 2021, the Company sold three (3) lots to an affiliate of a related party of the Company for a total purchase
price of $
NOTE 4 – LAND, BUILDING, NET AND CONSTRUCTION IN PROCESS
Land, buildings, net and construction in process as of September 30, 2022, and December 31, 2021:
SCHEDULE OF LAND, BUILDING, NET AND CONSTRUCTION IN PROCESS
| Useful life | September 30, 2022 | December 31, 2021 | ||||||||
| Land – Emerald Grove | $ | $ | ||||||||
| Land held for sale – Oasis Park | $ | $ | ||||||||
| Construction in Process (Divino – Bajamar) | $ | $ | ||||||||
| Furniture & equipment | $ | $ | ||||||||
| Building – Emerald Grove | $ | $ | ||||||||
| Less: Accumulated depreciation | ( | ) | ( | ) | ||||||
| Building, net | $ | $ | ||||||||
Depreciation
expense was $
Valle Divino
The
Valle Divino is the Company’s premier wine country development project in Ensenada, Baja California. This land project consists
of
The
Company funded the construction by an additional $
| 15 |
As of September 30, 2022, the Company almost completed construction of the club house, the wine tasting room and sales office in anticipation of beginning site tours. As of September 30, 2022, the Company has presold 14 units, proceeds of which were recorded under contract liability in the Company’s consolidated financial statements, since the Company has not met the criteria for the existence of a contract pursuant to ASC 606.
Plaza Bajamar
This project is located within the internationally renowned Bajamar Ocean Front Hotel and golf resort. The Company partnered with Clean Spark to provide sustainable, advanced solar-plus-storage power solutions. The Company has completed a 2BR/2BA model home, an enhanced entrance, and interior roads as well as site preparation for four (4) new homes adjacent to the model home. The Company is moving to the next stage, which will provide all units in the property with solar microgrid installations.
In
November and December 2019, $
The
Company funded the construction by an additional $
During
the nine months ended September 30, 2022, the Company sold seven (7) house construction for total consideration of $
NOTE 5 – RELATED PARTY TRANSACTIONS
Chief Executive Officer – Roberto Valdes
Effective January 1, 2020, the Company executed an employment agreement with its Chief Executive Officer.
The
Company has paid $
On October 2, 2021, the Company issued stock options under the 2019 Plan with an exercise price of $, vesting six months after issuance with a term of years for estimated fair value of $. These options have fully vested as of September 30, 2022. The Company recognized approximately $ of stock-based compensation related to these stock options during the nine months ended September 30, 2022.
Chief Financial Officer – Jason Sunstein
Effective January 1, 2020, the Company executed an employment agreement with its Chief Financial Officer.
The
Company paid its Chief Financial Officer salary compensation for services directly related to continued operations of $
| 16 |
On October 2, 2021, the Company issued stock options under the 2019 Plan with an exercise price of $, vesting six months after issuance with a term of years for estimated fair value of $. These options have fully vested as of September 30, 2022. The Company recognized approximately $ of stock-based compensation related to these stock options during the nine months ended September 30, 2022.
The Company’s Chief Financial Officer is also the managing member of Six Twenty Management LLC, an entity that has been providing ongoing capital support to the Company (See Note 7).
The Company’s Chief Financial Officer also facilitated the Emerald Grove asset purchase as described in Note 3.
President – Frank Ingrande
In
May 2021, the Company executed an employment agreement with its President. The Company paid its President, a total amount of compensation
of $
Frank
Ingrande is the co-founder and owner of
NOTE 6 – PROMISSORY NOTES
Promissory notes consisted of the following at September 30, 2022, and December 31, 2021:
SCHEDULE OF PROMISSORY NOTES
| September
30, 2022 | December
31, 2021 | |||||||
| Cash Call note payable, due | $ | $ | ||||||
| Christopher Elder note payable, | ||||||||
| Christopher Elder note Payable, | ||||||||
| Redwood Trust note payable, | ||||||||
| Sixth Street Lending note payable, | ||||||||
| 1800 Diagonal note payable, | ||||||||
| Mast Hill note payable, | ||||||||
| Blue Lake note payable,
| ||||||||
| Total Notes Payable | $ | $ | ||||||
| Less discounts | ( | ) | ( | ) | ||||
| Total Promissory notes | ||||||||
| Less current portion | ( | ) | ( | ) | ||||
| Total Promissory notes - non-current | $ | $ | ||||||
| 17 |
Accrued
interest was approximately $
Amortization
of the associated debt discount for the nine months ended September 30, 2022, and 2021, was $
Redwood Trust
On
January 21, 2021, the Company refinanced its existing first and second mortgage loans on the
Promissory Notes
Cash Call, Inc.
On
March 19, 2018, the Company issued a promissory note to Cash Call, Inc. for $
Convertible Notes
Sixth Street Lending LLC
On
February 2, 2022, the Company issued a convertible promissory note pursuant to which it borrowed gross proceeds of $116,200 for net proceeds
of $
The
note is convertible upon an event of default at the noteholder’s option into shares of our common stock at the greater of a fixed
conversion price or
During
the nine months ended September 30, 2022, the Company paid its required monthly installments for aggregate amount of $
The
balance owed to Sixth Street Lending LLC is $
Mast Hill Fund, L.P (“Mast note”)
On
March 23, 2022, the Company issued a convertible promissory note pursuant to which it borrowed gross proceeds of $
During
the nine months ended September 30, 2022, the Company did not pay any principal or interest on the Mast note. During the nine months
ended September 30, 2022, the Company was able to extend the required amortization payment at three instances, pursuant to the terms
of the underlying agreement, for total penalty paid of $
| 18 |
The
Company is in technical default of the note since the Company (i) consummates a variable rate transaction with another lender and (ii)
failed to make the required installment payment as required under the terms of the agreement. The Company has not yet received any default
notice from the investor. Upon event of default, the Company is required to pay the outstanding principal plus accrued interest and a
default penalty which is equal to
Blue Lake Partners LLC (“Blue Lake note”)
On
March 28, 2022, the Company issued a convertible promissory note pursuant to which it borrowed gross proceeds of $
The
note is convertible upon an event of default at the noteholder’s option into shares of our common stock at a fixed conversion price
of $
During
the nine months ended September 30, 2022, the Company did not pay any principal or interest on the Blue Lake note. The principal balance
owed to Blue Lake Partners is $
The
Company is in technical default of the note since the Company (i) consummates a variable rate transaction with another lender and (ii)
failed to make the required installment payment as required under the terms of the agreement. The Company has not yet received any default
notice from the investor. Upon event of default, the Company is required to pay the outstanding principal plus accrued interest and a
default penalty which is equal to
1800 Diagonal Lending Inc. (“Diagonal note”)
On
July 28, 2022, the Company issued a convertible promissory note pursuant to which it borrowed gross proceeds of $
On
September 2, 2022, the Company issued a convertible promissory note pursuant to which it borrowed gross proceeds of $
During
the nine months ended September 30, 2022, the Company did not pay any principal or interest on the Diagonal note. The principal balance
owed to Diagonal is $
NOTE 7 – PROMISSORY NOTES – RELATED PARTY
Related party promissory notes consisted of the following at September 30, 2022, and December 31, 2021:
SCHEDULE OF RELATED PARTY TRANSACTIONS
| September
30, 2022 | December
31, 2021 | |||||||
| RAS Real Estate LLC – Past maturity | $ | $ | ||||||
| Six-Twenty Management LLC – On demand | ||||||||
| Lisa Landau – On demand | ||||||||
| Total On demand notes, net of discount | $ | $ | ||||||
Six Twenty Management LLC (“Six-Twenty”) – Manager is the Company’s Chief Financial Officer
On
March 31, 2021, the Company executed a non-convertible promissory note with a related party for an initial amount funded of $
| 19 |
During
the nine months ended September 30, 2022, Six-Twenty funded the Company for additional cash of $
During
the nine months ended September30, 2022, the Company paid $
As
of September 30, 2022, the balance owed to Six-Twenty totals $
RAS, LLC (past maturity)
On
October 25, 2019, the Company issued a promissory note to RAS, LLC, a company controlled by an employee, who is a relative of the Company’s
Chief Financial Officer for $
During
the nine months ended September 30, 2022, the Company paid $
Lisa Landau
Lisa
Landau is a relative of the Company’s Chief Financial Officer. Lisa Landau advanced approximately $
NOTE 8 – EQUITY METHOD INVESTMENT
In
May 2021, the Company acquired a
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 initially recorded at cost, which was determined to be $
| 20 |
The following represents summarized financial information of RCV as of and for the nine months ended September 30, 2022:
SUMMARIZED FINANCIAL INFORMATION OF RCVD
| Income statement | September 30, 2022 | |||
| Revenue | $ | |||
| Cost of goods sold | ( | ) | ||
| Gross margin | ||||
| Operating expenses | ( | ) | ||
| Other Expense | ( | ) | ||
| Net loss | $ | ( | ) | |
| Balance sheet | ||||
| Current assets | $ | |||
| Non-current assets | $ | |||
| Current liabilities | $ | |||
| Non-Current liabilities | $ | |||
Based
on its
NOTE 9 – COMMITMENTS AND CONTINGENCIES
Commitment to Purchase Land (Valle Divino)
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 $
Commitment to Sell Land (IntegraGreen)
On
September 30, 2019, the Company entered into a contract for deed agreement with IntegraGreen whose principal is also a creditor. Under
the agreement the Company agreed to the sale of
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 $
| 21 |
Effective
on October 1, 2021, management determined that the agreement met the definition of a contract pursuant to the guidance in ASU 2014-09
Revenue from Contracts with Customers (Topic 606). During the nine months ended September 30, 2022, the Company recognized $
Oasis Park Resort construction budget
During
the year ended December 31, 2021, the Company engaged a general contractor to complete phase I of the project including the two-mile
access road and the community entrance structure. The contractor also commenced phase II construction including the waterfront clubhouse,
casitas, and model homes. The total budget was established at approximately $
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 10 – STOCKHOLDERS’ EQUITY
The Company’s equity at September 30, 2022, consisted of authorized shares of common stock and authorized shares of preferred stock, both with a par value of $ per share. As of September 30, 2022, and December 31, 2021, there were and shares of common stock issued and outstanding, respectively. As of September 30, 2022, and December 31, 2021, shares of Series A Preferred Stock were issued and outstanding and shares of Series B Preferred Stock were issued and outstanding, respectively.
On October 14, 2021, the Board of Directors approved an amendment to the Company’s articles of incorporation to increase the Company’s authorized common stock from shares to and to carry out a reverse split in a ratio of not less than 1 for 2 and not more than 1 for 12. The Company has not yet initiated any reverse split as of September 30, 2022.
The Company has reserved a total of shares of the authorized common stock for issuance under the 2020 Equity Incentive Plan (the “2020 Plan”). During the nine months ended September 30, 2022, the Company has granted options under the 2020 Plan and options were exercised, leaving a balance of options issued and outstanding as of September 30, 2022.
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 Company’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 will be “non-qualified”. Pursuant to the 2019 Plan, the Company has reserved a total of shares of the Company’s common stock to be available under the 2019 Plan. No options under the 2019 Plan were issued, cancelled, forfeited, or exercised during the three and nine months ended September 30, 2022. The Company has options issued and outstanding under the 2019 Plan as of September 30, 2022, and December 31, 2021.
All shares of common stock issued during the three and nine months ended September 30, 2022, and 2021, were unregistered.
| 22 |
Activity during the nine months ended September 30, 2022
During the nine months ended September 30, 2022, the Company issued an aggregate of commitment shares pursuant to securities purchase agreements with two accredited investors (see note 6) for a total fair value of approximately $.
During
the nine months ended September 30, 2022, the Company issued shares of common stock from option exercise for total cash consideration
of $
During
the nine months ended September 30, 2022, the Company issued shares of common stock pursuant to consulting agreements for total
fair value of approximately $
During
the nine months ended September 30, 2022, the Company issued shares of common stock pursuant to a finders’ fee agreement
with respect to the financing in the Company’s first fiscal quarter for total fair value of approximately $
Activity during the nine months ended September 30, 2021
During
the nine months ended September 30, 2021, the Company issued shares pursuant to consulting and employment agreement valued at
$
During
the nine months ended September 30, 2021, the Company received cash of $
During
the nine months ended September 30, 2021, the Company issued shares of common stock for total consideration of $
During
the nine months ended September 30, 2021, the Company issued shares of common stock from option exercise for total consideration
of $
During
the nine months ended September 30, 2021, the Company issued shares of common stock along with plots of land to investors for
total cash consideration of $
During
the nine months ended September 30, 2021, the Company issued shares per advisory agreement with registered broker-dealer valued
at $
During the nine months ended September 30, 2021, the Company issued shares of common stock in conjunction with existing promissory notes and senior secured convertible notes
During
the nine months ended September 30, 2021, the Company issued shares of common stock with a fair value of $
On
July 26, 2021, the Company entered into securities purchase agreements with certain institutional and accredited investors for the issuance
and sale of shares of the Company’s common stock at a closing price of $
| 23 |
Preferred Stock
On
November 6, 2019, the Company authorized and issued shares of Series B Preferred Stock (“Series B”) and
The
terms and conditions of the Series B include an in-kind accrual feature, which provides for a cumulative accrual at a rate of
The Company did not issue any share of preferred stock during the nine months ended September 30, 2022.
Warrants
A summary of the Company’s warrant activity during the nine months ended September 30, 2022, is presented below:
SCHEDULE OF WARRANTS ACTIVITY
| Weighted | Weighted Contract | |||||||||||
Number of Warrants | Average Exercise Price | Term (Year) | ||||||||||
| Outstanding at December 31, 2021 | $ | |||||||||||
| Granted | ||||||||||||
| Exercised | ||||||||||||
| Forfeited-Canceled | ||||||||||||
| Outstanding at September 30, 2022 | $ | |||||||||||
| Exercisable at September 30, 2022 | ||||||||||||
| 24 |
During
the nine months ended September 30, 2022, the Company issued
The
warrants have an exercise price of $
The aggregate intrinsic value as of September 30, 2022, and December 31, 2021, was $.
The Company used the following assumptions to value the warrants issued during the nine months ended September 30, 2022:
SCHEDULE OF ASSUMPTIONS TO VALUE WARRANTS
September 2022 | ||||
| Warrants | ||||
| Risk free rate | % | |||
| Market price per share | $ | |||
| Life of instrument in years | years | |||
| Volatility | % | |||
| Dividend yield | % | |||
Options
SCHEDULE OF OPTION ACTIVITY
| Weighted | Weighted Average Remaining Contract | |||||||||||
Number of Options | Average Exercise Price | Term (Year) | ||||||||||
| Outstanding at December 31, 2021 | $ | |||||||||||
| Granted | ||||||||||||
| Exercised | ( | ) | ( | ) | ( | ) | ||||||
| Forfeited-Canceled | ||||||||||||
| Outstanding at September 30, 2022 | $ | |||||||||||
| Exercisable at September 30, 2022 | ||||||||||||
Options outstanding as of September 30, 2022, and December 31, 2021, had aggregate intrinsic value of $ and $, respectively.
NOTE 11 – 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, 2022, the Company issued shares of common stock [ ]
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Overview of Our Company
The Company was incorporated pursuant to the laws of the State of Wyoming on September 26, 2013. We are based in San Diego, California. We are a residential land development company with target properties located primarily in the Baja California Norte region of Mexico and Southern California. Our 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 lots to homebuyers, retirees, investors, and commercial developers. We offer the option of financing (i.e. taking a promissory note from the buyer for all or part of the purchase price) with a guaranteed acceptance on any purchase for every customer.
Overview
The real estate market in the Northern Baja California has continued to significantly improve and has fully recover from the negative impact of Covid-19. The housing prices has continued to rise in the Southwest U.S., and inventory has remained severely low, which generated additional attraction from home buyers seeking second homes or vacation homes.
The Company’s current portfolio includes residential, resort and commercial properties comprising the following projects:
| ■ | Oasis Park Resort is a 497-acres master planned real estate community including 1,344 residential home sites, south of San Felipe, Baja California that offers180-degree sea and mountain views. In addition to the residential lots, there is a planned boutique hotel, a spacious commercial center, and a nautical center. The Company recently allowed prospective homeowners and existing lot holders to tour the property again, which resulted in multiple sales closings and commitments for new home construction. 75 of the 1,344 planned residential lots were pre-sold to initial stakeholders. The Company has made significant progress on the project, which included the completion of the two-mile access road and the community entrance structure. The Company also completed the construction of the waterfront clubhouse, and model homes. The Company has not sold any home sites during the nine months ended September 30, 2022, but has received approximately $24,000 in additional payments from a home construction sold during the fourth quarter of 2021 for purchase price of $99,000. | |
| ■ | Valle Divino is a self-contained solar 650-home site project in Ensenada, Baja California, with test vineyard at the property. This resort includes 137 residential lots and 3 commercial lots on 20 acres of land. The Company has a dedicated partner for solar-plus-storage power solutions at its properties, CleanSpark, Inc., which serves as the Company’s exclusive partner for the installation of solar solutions across its portfolio. Management believes that this represents an estimated $60 million in gross sales opportunity. During the nine months ended September 30, 2022, the Company sold 6 land plots for total purchase price of $270,000, of which $2,250 has been collected. The amount collected was reported under contract liability in the consolidated balance sheets. | |
| ■ | Plaza Bajamar Resort is an 80-unit project located at the internationally renowned Bajamar Ocean front hotel and golf resort. The Bajamar oceanfront golf resort is a master planned golf community located 45 minutes south of the San Diego-Tijuana border along the scenic toll road to Ensenada. The first Phase will include 22 “Merlot” 1,150 square-foot single-family homes that features two bedrooms and two baths. The home includes two primary bedroom suites - one on the first floor and one upstairs, as well as fairway and ocean views from a rooftop terrace. The Merlot villas will come with the installation of solar packages. The Company sold seven (7) house construction for total contractual consideration of $1,573,000 funded through seller’s carryback, of which $282,570 was collected during the nine months ended September 30 and reported under contract liability in the consolidated balance sheets. | |
| ■ | Emerald Grove Estates is the Company’s newly renovated Southern California property, used for organized events at this 8,000 square foot event venue. There was no activity during the nine months ended September 30, 2022. Define what is or was the idea of this property. The Company acquired 80-acre Emerald Grove in 2019 for $1.1 million. In 2021, the Company sold 20-acre for sale price of $630,000. As of September 30, 2022, the Company collected $212,980 and the financed amount remains at $417,020. The Company recently listed for sale its 20-acre event venue and is currently in the process of subdividing its remaining 40-acres into 8 residential lots for total price of $3.5 million. |
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Equity-method investment:
| ■ | Rancho Costa Verde (“RCVD”) is a 1,100-acre master planned second home, retirement home and vacation home real estate community located on the east coast of Baja California. RCV is a self-sustained solar powered green community that takes advantage of the advances in solar and other green technology. In May 2021, the Company acquired a 25% investment in RCV in exchange for $100,000 and 3,000,000 shares of the Company’s common stock, and such investment was recorded as an equity-method investment in the Company’s condensed consolidated financial statements. During the nine months ended September 30, 2022, RCVD generated approximately $2 million in revenue for gross profit of approximately $1 million. |
Summary of key operational and financial events:
| ■ | During the nine months ended September 30, 2022, the Company collected an aggregate amount of $282,570 from house construction at the Plaza Bajamar project resulting from the execution of seven (7) house construction contracts for total contractual consideration of $1,573,000 payable over term of 120 months. cash received from the construction contract was recorded and presented as contract liability in the consolidated balance sheets. | |
| ■ | As of September 30, 2022, the Company executed six (6) contracts for the sale of vacant plots for total contractual consideration of $270,000, of which $2,250 was collected and presented as contractual liability in the consolidated balance sheets. | |
| ■ | To avoid paying multiple title transfer fees and the extended time for each recording, the seller for both properties, Valdeland, S.A. de C.V., an entity controlled by the Company’s Chief Executive Officer, is in the process of creating a master bank trust. This will provide the Company through its Mexican’s subsidiary, International Land Alliance, S.A. de C.V., the rights, and interest to each property, including buildings and improvements. As demonstrated from the Company’s Oasis Park Resort, this will also potentially allow the Company to record revenue from its Valle Divino and Plaza Bajamar projects, as sales are made and performance obligations are satisfied, and individual trusts are established for each buyer, pending further review of Mexican trust law. The Company expects to have this trust established by the end of our fourth fiscal quarter of 2022. | |
| ■ | Continued our research and marketing efforts to identify potential home buyers in the United States, Canada, Europe, and Asia. Through the formation of a partnership with a similar development company in the Baja California Norte Region of Mexico, we have been able to leverage additional resources with the use of their established and proven marketing plan which can help us with sophisticated execution and the desired results for residential plot sales and development. | |
| ■ | The Company has raised $0.7 million financing through convertible promissory notes to continue the funding of its projects and for working capital. | |
| ■ | The Company executed a binding letter of intent to acquire the remaining 75% of its equity-method investment in RCVD for a total purchase price of $13.5 million through the issuance of a new series of preferred stock. | |
| ■ | The Company intends to raise up to $5 million from accredited investors under SEC Regulation D 506(c) offering to launch a new mortgage division. The majority of the funds will be allocated to finance loans to purchasers of the Company’s real estate, including home sites, home construction and finished homes, positioning itself as the first real estate developer to provide real estate financing to US citizen. This strategy is aimed at circumventing the difficulty for US citizen to obtain property financing in Mexico |
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Results of Operations for the Three Months Ended September 30, 2022, compared to the Three Months Ended September 30, 2021
| For the three months ended | ||||||||
September 30, 2022 | September 30, 2021 | |||||||
| Revenue, net | $ | 16,973 | $ | 8,340 | ||||
| Cost of revenue | - | - | ||||||
| Gross profit | 16,973 | 8,340 | ||||||
| Operating expenses | ||||||||
| Sales and marketing | 100,600 | 61,000 | ||||||
| General and administrative expenses | 432,434 | 496,822 | ||||||
| Total operating expenses | 533,034 | 557,822 | ||||||
| Loss from operations | (516,061 | ) | (549,482 | ) | ||||
| Other income (expense) | ||||||||
| Other income | - | 100,000 | ||||||
| Income (loss) from equity-method investment | (49,752 | ) | 32,270 | |||||
| Interest income | - | 1,534 | ||||||
| Change in fair value of derivative | 219,069 | - | ||||||
| Interest expense | (631,308 | ) | (226,379 | ) | ||||
| Total other expense | (461,991 | ) | (92,575 | ) | ||||
| Net loss | $ | (978,052 | ) | $ | (642,057 | ) | ||
Revenue
Revenue increased by $8,633 to $16,973 for the three months ended September 30, 2022, from $8,340 for the three months ended September 30, 2021. The revenue recognized during the three months ended September 30, 2021, relates to the rental activity for the agreement executed with Integragreen as the Company determined that there was an embedded lease feature in the agreement pursuant to ASC 842. Effective on October 1, 2021, the Company determined that the agreement met the definition of a contract pursuant to the guidance in ASU 2014-09 and recognized to revenue $15,000 of interest income from the financing component of the lot sale to Integragreen as well as the coupon on the financed amount. The Company also recognized $1,973 of interest related to the note receivable with A&F Agriculture, LLC in the three months ended September 30, 2022.
Operating Expenses
Operating expenses decreased by $24,788 to $533,034 for the three months ended September 30, 2022, from $557,822 for the three months ended September 30, 2021.
Sales and marketing costs increased by $39,600, to $100,600 in the three months ended September 30, 2022, from $61,000 in the three months ended September 30, 2021. Such increase mainly relates to the additional consulting agreements the Company entered into the third fiscal quarter to improve marketing efforts and drive sales of its existing projects.
General and administrative costs decreased by $64,388 in the three months ended September 30, 2022, compared to the three months ended September 30, 2021, primarily due to a decrease in investors relation fees by approximately $111,000, offset by an increase in stock-based compensation expense of approximately $55,000
Other expense
Other expense increased by approximately $369,416 to $461,991 in the three months ended September 30, 2022, from $92,575 in the three months ended September 30, 2021. Such increase is related to an increase in loss from the Company’s equity-method investment by $82,022 and additional interest expense by $404,929 related to (i) the amortization of the debt discount generated from the embedded instruments in the promissory notes, (ii) the excess of the fair value of the derivative attributable to the conversion feature of the new convertible notes over the carrying amount of the underlying debt instrument and (iii) additional coupon on the Company’s convertible notes, offset by a change in fair value of the derivative generating an income of approximately $219,000.
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Net Loss
The Company finished the three months ended September 30, 2022, with a net loss of $978,052, as compared to a net loss of $642,057 for the three months ended September 30, 2021. The increase in our net loss resulted from the reasons outlined above.
Results of Operations for the Nine Months Ended September 30, 2022, compared to the Nine Months Ended September 30, 2021
| For the nine months ended | ||||||||
September 30, 2022 | September 30, 2021 | |||||||
| Revenue, net | $ | 50,919 | $ | 25,899 | ||||
| Cost of revenue | - | - | ||||||
| Gross profit | 50,919 | 25,899 | ||||||
| Operating expenses | ||||||||
| Sales and marketing | 903,283 | 1,276,200 | ||||||
| General and administrative expenses | 2,506,181 | 1,917,067 | ||||||
| Total operating expenses | 3,409,464 | 3,193,267 | ||||||
| Loss from operations | (3,358,545 | ) | (3,167,368 | ) | ||||
| Other income (expense) | ||||||||
| Other income (expense) | 536 | 91,624 | ||||||
| Income (Loss) from equity-method investment | (231,845 | ) | 39,212 | |||||
| Interest Income | - | 1,534 | ||||||
| Change in fair value of derivative liability | 219,069 | - | ||||||
| Interest expense | (960,496 | ) | (572,372 | ) | ||||
| Total other expense | (972,736 | ) | (440,002 | ) | ||||
| Net loss | $ | (4,331,281 | ) | $ | (3,607,370 | ) | ||
Revenue
Revenue increased by $25,020 to $50,919 for the nine months ended September 30, 2022, from $25,899 for the nine months ended September 30, 2021. The revenue recognized during the nine months ended September 30, 2021, relates to the rental activity for the agreement executed with Integragreen as the Company determined that there was an embedded lease feature in the agreement pursuant to ASC 842. Effective on October 1, 2021, the Company determined that the agreement met the definition of a contract pursuant to the guidance in ASU 2014-09 and recognized to revenue $45,000 of interest income from the financing component of the lot sale to Integragreen as well as the coupon on the financed amount.
Operating Expenses
Operating expenses increased by $216,197 to $3,409,464 for the nine months ended September 30, 2022, from $3,193,267 for the nine months ended September 30, 2021.
Sales and marketing costs decreased by $372,917 to $903,283 in the nine months ended September 30, 2022, from $1,276,200 in the nine months ended September 30, 2021. Such decrease mainly relates to the fair value of the 1,000,000 stock options which were granted pursuant to a consulting and real estate sales agreement in the nine months ended September 30, 2021, offset by the issuance of restricted stock as compensation pursuant to consulting and real estate sales marketing agreements to drive traffic and interest into the various projects of the Company.
General and administrative costs increased by approximately $589,114 to $2,506,181 in the nine months ended September 30, 2022, compared to $1,917,067 in the nine months ended September 30, 2021, primarily due to an increase in share-based compensation expense related to stock options granted to employees, affiliates, and consultants.
Other expense
Other expense increased by approximately $532,734 to $972,736 in the nine months ended September 30, 2022, from $440,002 in the nine months ended September 30, 2021. Such increase is related to an increase in loss from the Company’s equity-method investment by approximately $271,100, additional interest expense by approximately $ 388,120 related to (i) the amortization of the debt discount generated from the embedded additional instruments in the promissory notes, (ii) the excess of the fair value of the derivative attributable to the conversion feature of the new convertible notes over the carrying amount of the underlying debt instrument and (iii) additional coupon on the Company’s convertible notes, offset by a positive change in fair value of the derivative by approximately $219,000.
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Net Loss
The Company finished the nine months ended September 30, 2022, with a net loss of $4,331,281, as compared to a net loss of $3,607,370 for the nine months ended September 30, 2021. The increase in our net loss resulted from the reasons outlined above.
The factors that will most significantly affect future operating results will be:
| ■ | The positive effect of implemented sales and marketing initiatives to drive opportunities into our various projects. | |
| ■ | The quality of our amenities. | |
| ■ | The global economy and the demand for vacation homes. | |
| ■ | The sale price of future plots and home construction compared to the sale price in other resorts in Mexico. | |
| ■ | The prime location of our projects. |
Other than the foregoing we do not know of any trends, events or uncertainties that have had, or are reasonably expected to have, a material impact on our revenues or expenses.
Capital Resources and Liquidity
Cash was $95,841 and $56,590 as of September 30, 2022, and December 31, 2021, respectively. As shown in the accompanying financial statements, we recorded a loss of $4,331,281 for the nine months ended September 30, 2022. Our working capital deficit as of September 30, 2022, was $5,696,934 and net cash flows used in operating activities for the nine months ended September 30, 2022, were $506,041. These factors and our ability to raise additional capital to accomplish our objectives, raises substantial doubt about our ability to continue as a going concern. We expect our expenses will continue to increase during the foreseeable future as a result of increased operations, increased construction activity and the development of current and future projects which include our current business operations.
We anticipate generating revenues over the next twelve months, as we continue to market the sale of plots held for sale at our various projects, generate cash from the sale of house construction at our properties. The above sale will trigger a corresponding revenue only when the Company obtains title of the land at Valle Divino and Plaza Bajamar, which we expect will occur in the Company’s third fiscal quarter of the year ended December 31, 2022.
If the Company is not successful with its marketing efforts to increase sales, the Company will continue to experience a shortfall in cash, and it will be necessary to obtain funds through equity or debt financing in sufficient amounts or to further reduce its operating expenses in a manner to avoid the need to curtail its future operations.
Operating Activities
Net cash flows used in operating activities for the nine months ended September 30, 2022, was $506,041 which resulted primarily due to the loss of $4,331,281 offset by non-cash share-based compensation of $1,281,976, fair value of equity securities issued for services of $1,310,497, amortization of debt discount of $291,374, loss from the Company’s equity-method investment of $231,845, positive change in fair value of derivative liability of $219,069 depreciation of $39,708, and net change in assets and liabilities of $532,124.
Net cash flows used in operating activities for the nine months ended September 30, 2021, was $703,349 which resulted primarily due to the loss of $3,607,370 offset by non-cash share-based compensation of $2,001,021, non-cash amortization of debt discount of 284,616, an increase in accounts payable of $287,596, increase in prepaid and other current assets by $157,212 and increase in deposits by $137,980.
Investing Activities
Net cash flows used in investing activities was $444,535 for the nine months ended September 30, 2022. The funds were used for the development of the various projects and the purchased house construction at Plaza Bajamar and Valle Divino.
Net cash flows used in investing activities was $441,259 for the nine months ended September 30, 2021. The funds were used for the development of the commercial agriculture at Emerald Grove resort for $100,000, cash consideration of $100,000 for the acquisition of 25% of RCV accounted for as its equity-method investment and approximately $241,000 for construction at the Company’s projects.
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Financing Activities
Net cash flows provided by financing activities for the nine months ended September 30, 2022, was $989,827 primarily from cash proceeds from issuance of promissory notes for aggregate amount of $663,250, cash proceeds from on-going funding from related party for aggregate amount of $677,347, offset by $262,596 repayment of related party advances, and $89,474 repayment of promissory notes.
Net cash flows provided by financing activities for the nine months ended September 30, 2021, was $1,833,425 primarily from cash proceeds from issuance of promissory notes for aggregate amount of $1,052,686, net funding from refinancing of approximately $368,736, sale of common stocks of $1,804,750, exercise of warrants and options for $100,000, and offset by repayment on a promissory note of $1,492,747.
As a result of these activities, we experienced an increase in cash of $39,251 for the nine months ended September 30, 2022.
Our ability to continue as a going concern is dependent on our success in obtaining additional financing from investors or from sale of our common shares.
Critical Accounting Polices
There have been no material changes to our critical accounting policies as compared to the critical accounting policies and significant judgments and estimates disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on April 15, 2022.
Off-balance Sheet Arrangements
During the period ended September 30, 2022, we have not engaged in any off-balance sheet arrangements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not required under Regulation S-K for “smaller reporting companies.”
Item 4. Controls and Procedures
The Company’s Principal Executive Officer and Principal Financial Officer (the Certifying Officers) are responsible for establishing and maintaining disclosure controls and procedures for the Company. An evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act) was carried out by us under the supervision and with the participation of our Certifying Officers. Based upon that evaluation, our Certifying Officers have concluded that as of September 30, 2022, our disclosure controls and procedures, that are designed to ensure (i) that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and (ii) that such information is accumulated and communicated to management, including our Certifying Officers, in order to allow timely decisions regarding required disclosure, were not effective.
As of September 30, 2022, based on evaluation of these disclosure controls and procedures, management concluded that our disclosure controls and procedures were not effective. We will be required to expend time and resources hiring and engaging additional staff and outside consultants with the appropriate experience to remedy the weaknesses described below. We cannot assure you that management will be successful in locating and retaining appropriate candidates or that newly engaged staff or outside consultants will be successful in remedying material weaknesses thus far identified or identifying material weaknesses in the future.
A material weakness is a control deficiency (within the meaning of the Public Company Accounting Oversight Board (PCAOB) Auditing Standard No. 2) or combination of control deficiencies that result in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. Management has identified the following two material weaknesses which have caused management to conclude that as of September 30, 2022, our disclosure controls and procedures were not effective at the reasonable assurance level:
| ■ | inadequate internal controls relating to the authorization, recognition, capture, and review of transactions, facts, circumstances, and events that could have a material impact on the Company’s financial reporting process. | |
| ■ | inadequate controls over maintenance of records. |
Changes in Internal Control over Financial Reporting
There has been no change to our internal control over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II — OTHER INFORMATION
Item 1. Legal Proceedings
We are not party to, and our property is not the subject of, any material pending legal proceedings.
Item 1A. Risk Factors
See “Item 1A. Risk Factors” in Part I of the 2021 10-K for a detailed discussion of the risks we face. The risk factors described in the fiscal year ended 2021 Form 10-K have not materially changed.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
During the nine months ended September 30, 2022, the Company issued an aggregate of 450,000 commitment shares of common stock for total fair value of $202,275 pursuant to securities purchase agreements with two accredited investors (See note 6).
During the nine months ended September 30, 2022, the Company issued 1,300,000 shares of common stock from option exercises for total cash consideration of $1,300.
During the nine months ended September 30, 2022, the Company issued 2,872,038 shares of common stock pursuant to consulting agreements and finders’ fee agreement for total fair value of $1,350,987.
In connection with the foregoing, we relied upon the exemption from registration provided by Section 4(a)(2) under the Securities Act of 1933, as amended, for transactions not involving a public offering.
| 32 |
Item 3. Defaults upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not Applicable.
Item 5. Other Information
None.
Item 6. Exhibits
| Exhibit No. | Description | |
| 31.1* | Certification of the Principal Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated pursuant to the Securities Exchange Act of 1934, as amended. | |
| 31.2* | Certification of the Principal Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated pursuant to the Securities Exchange Act of 1934, as amended. | |
| 32.1* | Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 32.2* | Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 101 | The following financial information from ILAL, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2022, are formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Consolidated Statements of Operations, (ii) Consolidated Balance Sheets, (iii) Consolidated Statements of Stockholders’ Equity, (iv) Consolidated Statements of Cash Flows, and (v) related notes (submitted electronically with this Quarterly Report on Form 10-Q) | |
| 101.INS | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File as its XBRL tags are embedded within the Inline XBRL document (submitted electronically with this Quarterly Report on Form 10-Q) | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document (submitted electronically with this Quarterly Report on Form 10-Q) | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document (submitted electronically with this Quarterly Report on Form 10-Q) | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document (submitted electronically with this Quarterly Report on Form 10-Q) | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document (submitted electronically with this Quarterly Report on Form 10-Q) | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document (submitted electronically with this Quarterly Report on Form 10-Q) | |
| 104 | Cover Page Interactive Data File, formatted in Inline XBRL and contained in Exhibit 101 | |
| Exhibits designated by the symbol * are filed or furnished with this Quarterly Report on Form 10-Q |
| 33 |
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.
| Dated: | November 21, 2022 | International Land Alliance, Inc. | ||
| By: | /s/ Roberto Jesus Valdes | |||
| Principal Executive Officer and a Director | ||||
| By: | /s/ Jason Sunstein | |||
| Principal Financial and Accounting Officer and a Director | ||||
| 34 |
Exhibit 31.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Roberto Jesus Valdes, Principal Executive Officer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of International Land Alliance, Inc.
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report.
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report.
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in the Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date November 21, 2022
| /s/ Roberto Jesus Valdes | |
| Roberto Jesus Valdes | |
| Principal Executive Officer and Director |
Exhibit 31.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Jason Sunstein, Principal Financial Officer, and Principal Accounting Officer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of International Land Alliance, Inc.
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report.
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report.
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in the Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: November 21, 2022
| /s/ Jason Sunstein | |
| Jason Sunstein | |
| Principal Financial and Accounting Officer and Director |
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
I, Roberto Jesus Valdes, Principal Executive Officer and Director of International Land Alliance, Inc. (the “Company”), certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002 that:
(1) The Quarterly Report on Form 10-Q of the Company for the period ended September 30, 2022 (the “Report”) fully complies with the requirements of § 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the periods covered in the Report.
Date: November 21, 2022
| /s/ Roberto Jesus Valdes | |
| Roberto Jesus Valdes | |
| Principal Executive Officer and Director |
Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
I, Jason Sunstein, Chief Financial Officer, Principal Financial Officer and Director of International Land Alliance, Inc. (the “Company”), certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002 that:
(1) The Quarterly Report on Form 10-Q of the Company for the period ended September 30, 2022 (the “Report”) fully complies with the requirements of § 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the periods covered in the Report.
Date: November 21, 2022
| /s/ Jason Sunstein | |
| Jason Sunstein | |
| Principal Financial and Accounting Officer and Director |