Notes
to Financial Statements
June
30, 2020
NOTE
1 – NATURE OF OPERATIONS AND GOING CONCERN
Nature
of Operations
International
Land Alliance, Inc. (the “Company”) was incorporated under the laws of the State of Wyoming on September 26, 2013
(inception). The Company is a residential land development company with target properties located in the Baja California, Norte
region of Mexico and Southern California. The Company’s principal activities are purchasing properties, obtaining
zoning and other entitlements required to subdivide the properties into residential and commercial building plots, securing financing
for the purchase of the plots, improving the properties infrastructure and amenities, and selling the plots to homebuyers, retirees,
investors and commercial developers.
On
March 5, 2019, the Company received its trading symbol “ILAL” from FINRA. On April 4, 2019, the Company was approved
to have its common stock traded on the OTCQB. On April 12, 2019, the Company became eligible for electronic clearing and settlement
through the Depository Trust Company (“DTC”) in the United States. The DTC is a subsidiary of the Depository Trust
& Clearing Corporation and manages the electronic clearing and settlement of publicly traded companies. Securities that are
eligible to be electronically cleared and settled through DTC are considered “DTC eligible.” This electronic method
of clearing securities creates efficiency of the receipt of stock and cash, and thus accelerates the settlement process for investors
and brokers, enabling the stock to be traded over a much wider selection of brokerage firms by coming into compliance with their
requirements. Being DTC eligible is expected to greatly simplify the process of trading and transferring the Company’s common
shares on the OTCQB.
The
unaudited financial statements herein have been prepared by the Company pursuant to the rules and regulations of the United States
Securities and Exchange Commission (“SEC”). The accompanying interim unaudited financial statements have been prepared
under the presumption that users of the interim financial information have either read or have access to the audited financial
statements for the latest year ended December 31, 2019. Accordingly, note disclosures which would substantially duplicate the
disclosures contained in the December 31, 2019 audited financial statements have been omitted from these interim unaudited financial
statements.
Certain
information and note disclosures included in the financial statements prepared in accordance with United States generally accepted
accounting principles (“U.S. GAAP” or “GAAP”) have been condensed or omitted pursuant to such rules and
regulations. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating
results for the six months ended June 30, 2020, are not necessarily indicative of the results that may be expected for the year
ending December 31, 2020. For further information, refer to the audited financial statements and notes for the year ended December
31, 2019 included in the Company’s Annual Report on Form 10-K filed with the SEC on April 14, 2020.
Going
Concern
The
accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted
in the United States of America on a going concern basis, which contemplates the realization of assets and the satisfaction of
liabilities and commitments in the normal course of business.
Management
evaluated all relevant conditions and events that are reasonably known or reasonably knowable, in the aggregate, as of the date
the consolidated financial statements were available to be issued and determined that substantial doubt exists about the Company’s
ability to continue as a going concern. 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 June 30, 2020, the Company’s current liabilities exceeded its current assets by $1,462,442.
The Company has recorded a net loss of $1,309,660 for the six months ended June 30, 2020 and has an accumulated deficit of $8,284,618
as of June 30, 2020. Net cash used in operating activities for the quarter ended June 30, 2020 was $496,383. These factors
raise substantial doubt about the Company’s ability to continue as a going concern.
Management
anticipates that the Company’s capital resources will significantly improve if its plots of land gain wider market recognition
and acceptance resulting in increased plot sales. If the Company is not successful with its marketing efforts to increase sales
and weak demand for purchase of plots continues, the Company will experience a shortfall in cash and it will be necessary to further
reduce its operating expenses in a manner or obtain funds through equity or debt financing in sufficient amounts to avoid the
need to curtail its future operations subsequent to December 31, 2019. Given the liquidity and credit constraints in the markets,
the business may suffer, should the credit markets not improve in the near future. 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.
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
These
consolidated financial statements are presented in United States dollars. The accompanying unaudited consolidated financial statements
have been prepared in accordance with the instructions to Form 10-Q. All adjustments which are, in the opinion of management,
necessary for a fair presentation of the results of operations for the interim periods have been made and are of a recurring nature
unless otherwise disclosed herein.
Principles
of Consolidation
The
accompanying consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries, ILA Fund I,
LLC (the “ILA Fund”), a company incorporated in the State of Wyoming and International Land Alliance, S.A. de C.V.,
a company incorporated in Mexico (“ILA Mexico”); the Company has a 100% equity interest in ILA Mexico. ILA Fund includes
cash as its only assets with minimal expenses as of June 30, 2020. The sole purpose of this entity is strategic funding for the
operations of the Company. ILA Mexico has lots held for sale for the Oasis Park Resort, no liabilities, and minimal expenses as
of June 30, 2020. All intercompany balances and transactions are eliminated in consolidation.
Use
of Estimates
The
preparation of financial statements in conformity with Generally Accepted Accounting Principles (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 managements estimates. To the extent there are material differences between the
estimates and the actual results, future results of operations will be affected.
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 June 30, 2020 and 2019, respectively.
Fair
value of Financial Instruments and Fair Value Measurements
Accounting
Standards Codification (“ASC”) 820 Fair Value Measurements and Disclosures, requires an entity to maximize
the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes a fair
value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial
instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant
to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be used to measure fair value:
Level
1
Level
1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level
2
Level
2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability
such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in
markets with insufficient volume or infrequent transactions (less active markets); or model- derived valuations in which significant
inputs are observable or can be derived principally from, or corroborated by, observable market data. If the asset or liability
has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability.
Level
3
Level
3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to
the measurement of the fair value of the assets or liabilities
As
defined by ASC 820, the fair value of a financial instrument is the amount at which the instrument could be exchanged in a current
transaction between willing parties, other than in a forced or liquidation sale, which was further clarified as the price that
would be received to sell an asset or paid to transfer a liability (“an exit price”) in an orderly transaction between
market participants at the measurement date.
The
reported fair values for financial instruments that use Level 2 and Level 3 inputs to determine fair value are based on a variety
of factors and assumptions. Accordingly, certain fair values may not represent actual values of the Company’s financial
instruments that could have been realized as of June 30, 2020 and December 31, 2019 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 payable, accrued liabilities, and related party and third-party notes payables
approximate fair value due to their relatively short maturities.
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 are also capitalized.
A
variety of costs are incurred in the acquisition, development and leasing of properties. After determination is made to capitalize
a cost, it is allocated to the specific component of a project that is benefited. Determination of when a development project
is substantially complete, and capitalization must cease, involves a degree of judgment. Our capitalization policy on development
properties is guided by ASC 835-20 Interest – Capitalization of Interest and ASC 970 Real Estate - General.
The costs of land and buildings under development include specifically identifiable costs. The capitalized costs include pre-construction
costs essential to the development of the property, development costs, construction costs, interest costs, real estate taxes,
salaries and related costs and other costs incurred during the period of development. We consider a construction project as substantially
completed and held available for occupancy or sale upon the receipt of certificates of occupancy, but no later than one year from
cessation of major construction activity. We cease capitalization on the portion (1) substantially completed and (2) occupied
or held available for occupancy, and we capitalize only those costs associated with the portion under construction.
Land
Held for Sale
The
Company considers properties to be assets held for sale when (1) management commits to a plan to sell the property; (2) the property
is available for immediate sale in its present condition and (3) the property is actively being marketed for sale at a price that
is reasonable given our estimate of current market value. Upon designation of a property as an asset held for sale, we record
the property’s value at the lower of its’ carrying value or its estimated net realizable value.
Land
and Buildings
Land
and buildings are stated at cost. Depreciation is provided by the use of the straight-line and accelerated methods for financial
and tax reporting purposes, respectively, over the estimated useful lives of the assets. Buildings will have an estimated useful
life of 20 years. Land is an indefinite lived asset that is stated at fair value at date of acquisition.
Revenue
Recognition
On
January 1, 2018, the Company adopted Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic
606), which supersedes the revenue recognition requirements in ASC Topic 605, Revenue Recognition. Results for reporting
periods beginning after January 1, 2018 are presented under Topic 606.
Under
Topic 606, revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount
that reflects the consideration we expect to be entitled to in exchange for those goods or services. The new guidance sets forth
a new five-step revenue recognition model which replaces the prior revenue recognition guidance in its entirety and is intended
to eliminate numerous industry-specific pieces of revenue recognition guidance that have historically existed in U.S. GAAP. The
underlying principle of the new 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 for the sale of lots including delivering title to the property being acquired
from ILA;
|
●
|
determination
of the transaction price;
|
●
|
allocation
of the transaction price to the lots 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 delivering title to lots purchased.
|
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 lot sales or the execution of terms and conditions contracts with third parties and investors. These contracts
define each party’s rights, payment terms and other contractual terms and conditions of the sale. Consideration was historically
paid prior to transfer of title as stated above and in future land sales, the Company plans to transfer title to buyers at the
time consideration has been transferred if the acquisition of the property has been completed by the Company. The Company applies
judgment in determining the customer’s ability and intention to pay, however collection risk is mitigated through collecting
payment in advance or through escrow arrangements. A performance obligation is a promise in a contract or agreement to transfer
a distinct product or item to the customer, which for us is transfer of title to our buyers. Performance obligations promised
in a contract are identified based on the property that will be transferred to the customer that are both capable of being distinct
and are distinct in the context of the contract, whereby the transfer of the property is separately identifiable from other promises
in the contract. We have concluded the sale of property and delivering title is accounted for as the single performance obligation.
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 be entitled to receive in exchange for transferring title to the customer.
The
Company recognizes revenue when it satisfies a performance obligation in a contract by transferring control over property to a
customer when land title is legally transferred by the Company. The Company’s principal activities in the real estate development
industry which it generates its revenues is the sale of developed and undeveloped land.
Stock-Based
Compensation
The
fair value of stock options is estimated on the grant date using the Black-Scholes option pricing model, based on weighted average
assumptions. Expected volatility is based on historical volatility of our common stock. The Company has elected to use the simplified
method described in the Securities and Exchange Commission Staff Accounting Bulletin Topic 14C to estimate the expected term of
employee stock options. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant. The value
of restricted stock awards is determined using the fair value of the Company’s common stock on the date of grant. The Company
accounts for forfeitures as they occur. Compensation expense is recognized on a straight-line basis over the requisite service
period of the award.
Income
Taxes
The
Company accounts for income taxes using the asset and liability method in accordance with ASC 740, Income Taxes. The asset
and liability method provide that deferred tax assets and liabilities are recognized for the expected future tax consequences
of temporary differences between the financial reporting and tax basis of assets and liabilities, and for operating loss and tax
credit carry forwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates and laws. The Company
records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.
When
tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities,
while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately
sustained. In accordance with the guidance of ASC 740, the benefit of a tax position is recognized in the financial statements
in the period during which, based on all available evidence, management believes it is more likely than not that the position
will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are
not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured
as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable
taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described
above should be reflected as a liability for unrecognized tax benefits in the accompanying balance sheets along with any associated
interest and penalties that would be payable to the taxing authorities upon examination. Management makes estimates and judgments
about our future taxable income that are based on assumptions that are consistent with our plans and estimates. Should the actual
amounts differ from our estimates, the amount of our valuation allowance could be materially impacted. Any adjustment to the deferred
tax asset valuation allowance would be recorded in the income statement for the periods in which the adjustment is determined
to be required. Management does not believe that it has taken any positions that would require the recording of any additional
tax liability nor does it believe that there are any unrealized tax benefits that would either increase or decrease within the
next year.
Loss
Per Share
The
Company computes loss per share in accordance with ASC 260 – Earnings per Share. ASC 260 requires presentation of
both basic and diluted earnings per share (“EPS”) on the face of the consolidated statements of operations. Basic
EPS is computed by dividing net loss available to common shareholders (numerator) by the weighted average number of shares outstanding
(denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period
using the treasury stock method and convertible notes payable using the if-converted method. Diluted EPS excludes all dilutive
potential shares if their effect is antidilutive. During periods of net loss, all common stock equivalents are excluded from the
diluted EPS calculation because they are antidilutive.
At
June 30, 2020 and December 31, 2019, there were a total 310,000 and 50,000 warrants issued and outstanding convertible into common
stock, respectively, and all warrants are considered anti-dilutive.
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 June 30, 2020.
Recent
Accounting Pronouncements
In
August 2020, the FASB issued “ASU 2020-06, Debt with Conversion and Other Options (Subtopic 47020) and Derivatives and Hedging—Contracts
in Entity’s Own Equity (Subtopic 815-40)” which simplifies the accounting for convertible instruments. The guidance
removes certain accounting models which separate the embedded conversion features from the host contract for convertible instruments.
Either a modified retrospective method of transition or a fully retrospective method of transition is permissible for the adoption
of this standard. Update No. 2020-06 is effective for fiscal years beginning after December 15, 2021, including interim periods
within those fiscal years. Early adoption is permitted no earlier than the fiscal year beginning after December 15, 2020. The
Company is currently evaluating the potential on its 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 (“RPA” or
“the Agreement”) to acquire real property located in Hemet, California, which included approximately 80 acres of land
and a structure for $1.1 million from an unrelated seller. The property includes the main parcel of land with an existing structure
along with three additional parcels of land which are vacant lots to be used for the purpose of development “vacant lots”.
The purpose of the transaction was as an investment in real property to be assigned to the Company subsequent to acquisition.
The property was acquired by Mr. Sunstein since it was required by the seller to transfer the property for consideration from
an individual versus a separate legal entity. The transaction closed on March 18, 2019 and the consideration included a loan financed
in the amount of $605,000 (see Note 6 - PrideCco) in addition to cash consideration of $524,613 which came from a portion
of funds loaned by investors of the Company to be repaid as interest bearing notes payable (see Note 6). On March 18, 2019, Mr.
Sunstein assigned the deed of the property to the Company. The mortgage obligation was assumed by the Company, as approval by
the Board of Directors in March 2019. The mortgage loan was not assigned to the Company by the lender, however the lender acknowledged
that the transfer of the property to the Company did not trigger an event of default. Mr. Sunstein remained a guarantor on the
mortgage until the debt was paid in full during the year ended December 31, 2019 through a refinancing transaction (see Note 6
– Velocity). The Company recorded the assets acquired and liabilities assumed at fair value on the date of assignment and
assumption.
The
Company has included all allowed acquisition costs of $22,050 in the value of the capitalized assets. The building and land asset
values were assigned using a purchase price allocation based on the appraised land values. The total of the consideration plus
acquisition costs assets of $1,122,050 was allocated to land and building in the following amounts: $271,225 – Land; $850,826
– Building. The land is an indefinite long-lived asset that were assessed for impairment as a grouped asset with the building
on a periodic basis.
Oasis
Park Title Transfer
On
June 18, 2019, Baja Residents Club SA de CV (“BRC”), a related party with common ownership and control by our CEO,
Robert Valdes , transferred title to the Company for the Oasis Park property which was part of a previously held land project
consisting of 497 acres to be acquired and developed into Oasis Park resort near San Felipe, Baja. It was previously subject to
approval by the Mexican government in Baja, California which was finalized in June 2019. As consideration for the promise to transfer
title, the Company previously issued 7,500,000 shares of founder’s common stock that was valued at $750,000 or $0.10 per
common share. No prior accounting was recorded for this issuance pending resolution of the contingency to transfer title, which
was resolved during the year ended December 31, 2019. A portion of this value was allocated to the Oasis Park resort and a portion
was allocated to other properties as the Company continues to receive transfer of title. ILA recorded the property held for sale
on its balance sheet in the amount of $670,000 and accordingly reduced the value as lots are sold. As of June 30, 2020, the Company
reported a balance for assets held for sale of $647,399.
NOTE
4 – BUILDING, NET
Buildings,
net as of June 30, 2020 and December 31, 2019:
|
|
Useful life
|
|
June 30, 2020
|
|
|
December 31, 2019
|
|
Building – Emerald Grove
|
|
20 years
|
|
|
917,496
|
|
|
|
917,496
|
|
Less: Accumulated depreciation
|
|
|
|
|
(59,519
|
)
|
|
|
(36,707
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Building, net
|
|
|
|
$
|
857,977
|
|
|
$
|
880,789
|
|
Depreciation
expense was $22,812 and $15,692 for the six months ended June 30, 2020 and 2019, respectively.
NOTE
5 – RELATED PARTY TRANSACTIONS
The
Company entered into an employment agreement with the Chief Executive Officer on January 1, 2020 to perform duties and responsibilities
as may be assigned. The base salary is in the amount of $120,000 per annum, a $500 monthly auto stipend, and four weeks of paid
vacation. The Company paid to its Chief Executive Officer consulting and payroll fees for services directly related to continued
operations of $5,000 and $13,500 for the six months ended June 30, 2020 and 2019, respectively.
The
Company entered into an employment agreement with the Chief Financial Officer on January 1, 2020 to perform duties and responsibilities
as may be assigned. The base salary is in the amount of $120,000 per annum, a $500 monthly auto stipend, and four weeks of paid
vacation. The Company paid its Chief Financial Officer consulting and payroll fees of $30,016 and $35,334 for the six months ended
June 30, 2020 and 2019, respectively.
The
Company entered into an employment agreement with the Sales and Marketing Director on January 1, 2020 to perform duties
and responsibilities as may be assigned. The base salary is in the amount of $80,000 per annum, a $500 monthly auto stipend, and
four weeks of paid vacation. The Company paid to its Secretary consulting and payroll fees for services directly related to continued
operations of $13,000 and $2,500 for the six months ended June 30, 2020 and 2019, respectively.
The
Company’s Chief Financial Officer, Jason Sunstein, also facilitated the Emerald Grove asset purchase as described in Note
3.
On
October 25, 2019, the Company issued a promissory note to RAS, LLC “RAS”, a company controlled by Jason Sunstein and
Lisa Landau who are officers of the Company, for $440,803. The proceeds of the note were largely used to repay shareholder loans
and other liabilities. The loan bears interest at 10%. The loan matures on June 25, 2020 and is secured by 2,500,000 common shares
and a Second Deed of Trust for property in Hemet, CA (Emerald Grove). Additionally, as in incentive to the note holder, the Company
is required to issue to the holder 132,461 shares of common stock valued at $97,858, which was recorded as a debt discount as
of December 31, 2019. As of June 30, 2020, the discount has been fully amortized, and the note is shown less amortized
discount of $0. The shares were issued on May 1, 2020. Interest expense for the six months ending June 2020 and 2019 was
$19,925 and $0, respectively.
NOTE
6 – NOTES PAYABLE
|
|
June
30, 2020
|
|
|
December 31, 2019
|
|
Note payable, due August 2020
|
|
$
|
40,828
|
|
|
$
|
46,660
|
|
Note payable, 10% interest, due March 2020
|
|
|
1,500
|
|
|
|
1,500
|
|
Note payable, secured, 10% interest, due October 2021
|
|
|
975,000
|
|
|
|
975,000
|
|
Note payable, 15% interest, due December 2020
|
|
|
50,000
|
|
|
|
50,000
|
|
Note payable, 15% interest, due December 2020
|
|
|
50,000
|
|
|
|
50,000
|
|
Note payable, 15% interest, due December 2020
|
|
|
100,000
|
|
|
|
100,000
|
|
Note payable, 15% interest, due December 2020
|
|
|
100,000
|
|
|
|
100,000
|
|
Note payable, 15% interest, due December 2020
|
|
|
20,000
|
|
|
|
20,000
|
|
Note payable, 15% interest, due December 2020
|
|
|
25,000
|
|
|
|
25,000
|
|
Note payable, 13% interest, due December 2021
|
|
|
129,000
|
|
|
|
129,000
|
|
Note Payable, 12% interest, due June 2021
|
|
|
285,000
|
|
|
|
-
|
|
Total Notes Payable
|
|
$
|
1,776,328
|
|
|
$
|
1,497,160
|
|
Less discounts
|
|
|
(82,728
|
)
|
|
|
(28,680
|
)
|
|
|
|
|
|
|
|
|
|
Total Notes Payable
|
|
|
1,693,599
|
|
|
|
1,468,480
|
|
|
|
|
|
|
|
|
|
|
Less current portion
|
|
|
(712,180
|
)
|
|
|
(391,543
|
)
|
|
|
|
|
|
|
|
|
|
Total Notes Payable - long term
|
|
$
|
981,419
|
|
|
$
|
1,076,937
|
|
Interest
expense including amortization of the associated debt discount for the six months ended June 30, 2020 and 2019 was $194,125 and
$184,950, respectively.
NOTE
7 – COMMITMENTS AND CONTINGENCIES
Commitment
to Purchase Land
There
is one remaining land project consisting of 20 acres to be acquired and developed into Valle Divino resort in Ensenada, which
is subject to approval by the Mexican government in Baja, California. The Company has promised to transfer title to the plots
of land to the investors who have invested in the Company once the Company receives an approval of change in transfer of title
to the Company. The Company has promised to transfer title to the plots of land to the investors who have invested in the Company
once the Company receives an approval of change in transfer of title to the Company. As of June 30, 2020, the Company has entered
into five contracts for deed agreements to sell eight lots of land.
Land
purchase- Costa Bajamar
On
September 25, 2019, the Company, entered into a definitive Land Purchase Agreement with Valdeland, S.A. de C.V., a Company controlled
by our CEO Roberto Valdes, to acquire approximately one acre of land with plans and permits to build 34 units at the Bajamar Ocean
Front Golf Resort located in Ensenada, Baja California. Pursuant to the terms of the Agreement, the total purchase price is $1,000,000,
payable in a combination of preferred stock ($600,000); common stock ($250,000/250,000 common shares at $1.00/share); a promissory
note ($150,000); and an initial construction budget of $150,000 payable upon closing. A recent appraisal valued the land “as
is” for $1,150,000. The closing is subject to obtaining the necessary approval by the City of Ensenada and transfer of title,
which includes the formation of a wholly owned Mexican subsidiary. As of June 30, 2020, the agreement has not closed.
Commitment
to Sell Land
On
September 30, 2019, the Company entered into a contract for deed agreement “Agreement” with IntegraGreen whose principal
is also a creditor. Under the agreement the Company agreed to the sale of 20 acres of vacant land and associated improvements
located at the Emerald Grove property in Hemet, California for a total purchase price of $630,000, $63,000 was paid upon execution
and the balance is payable in a balloon payment on October 1, 2026 with interest only payments of $3,780 due on the 1st of each
month beginning April 1, 2020. During the duration of the Agreement the Company retains title and is allowed to encumber the property
with a mortgage at its discretion, however IntegraGreen has the right to use the property. The Company may also evict IntegraGreen
from the premises in the case of default under the agreement.
During
the six months ended June 30, 2020 the Company received an additional payment of $32,000. 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 received payments of $95,000 were classified as a deposit. Upon an event of default in which case the payment is
non-refundable, and the Company no longer has any obligation to provide access to the land. The interest payments will be recognized
monthly as lease income. During the six months ended June 30, 2020, the Company recognized $21,079 in lease income.
On
October 10, 2019, the Company entered into a contract for deed agreement with a third-party investor. Under the contract the Company
agreed to the sale of 1 lot of vacant land and associated improvements located at the Valle Divino property in Ensenada, Mexico
and 100,000 shares of common stock for a total purchase price of $50,000. $25,000 was paid upon execution and the balance was
paid on October 7, 2019. The total cash proceeds of $50,000 was allocated based upon the relative fair value of the shares and
one (1) promised plot of land in the following amounts: shares were valued at $39,282; and plot of land was valued at $10,718.
Due
to the nature of the agreement, management deemed that there was a customer contract. As a result, the $10,718 value of the land
was classified as a contract liability under ASC 606, and it will be recognized as revenue when the Company fulfills its performance
obligations to provide title to the lot.
On
November 6, 2019, the Company entered into a contract for deed agreement with a third-party investor. Under the contract the Company
agreed to the sale of 1 lot of vacant land and associated improvements located at the Valle Divino property in Ensenada, Mexico
and 70,160 shares of common stock for a total purchase price of $35,080, $10,000 was paid upon execution, $9,580 was paid on December
23, 2019, and the balance was paid on February 4, 2020. The total cash proceeds of $35,080 was allocated based upon the relative
fair value of the shares and one (1) promised plot of land in the following amounts: shares were valued at $25,258; and plot of
land was valued at $9,822, which was classified as a contract liability on the balance sheet as of June 30,2020.
On
January 13, 2020, the Company entered into a contract for deed agreement with a third-party investor. Under the contract the Company
agreed to the sale of 2 lots of vacant land and associated improvements located at the Valle Divino property in Ensenada, Mexico
for a total purchase price of $40,000, paid upon execution. The total cash proceeds of $40,000 was allocated based upon the relative
fair value of the shares and two (2) promised plots of land in the following amounts: shares were valued at $23,780; and plot
of land was valued at $16,220, which was classified as a contract liability on the balance sheet as of June 30,2020.
On
January 24, 2020, the Company entered into a contract for deed agreement with a third-party investor. Under the contract the Company
agreed to the sale of 1 lot of vacant land and associated improvements located at the Valle Divino property in Ensenada, Mexico
for a total purchase price of $25,000, paid upon execution. The total cash proceeds of $25,000 was allocated based upon the relative
fair value of the shares and one (1) promised plot of land in the following amounts: shares were valued at $16,174; and plot of
land was valued at $8,826, which was classified as a contract liability on the balance sheet as of June 30,2020.
On
March 25, 2020, the Company entered into a contract for deed agreement with a third-party investor. Under the contract the Company
agreed to the sale of 1 lot of vacant land and associated improvements located at the Valle Divino property in Ensenada, Mexico
for a total purchase price of $25,000, paid upon execution. The total cash proceeds of $25,000 was allocated based upon the relative
fair value of the shares and one (1) promised plot of land in the following amounts: shares were valued at $16,174; and plot of
land was valued at $8,826, which was classified as a contract liability on the balance sheet as of June 30,2020.
On
April 28, 2020, the Company entered into a contract for deed agreement with a third-party investor. Under the contract the Company
agreed to the sale of 1 lot of vacant land and associated improvements located at the Valle Divino property in Ensenada, Mexico
for a total purchase price of $25,000, paid upon execution. The total cash proceeds of $25,000 was allocated based upon the relative
fair value of the shares and one (1) promised plot of land in the following amounts: shares were valued at $16,174; and plot of
land was valued at $8,826, which was classified as a contract liability on the balance sheet as of June 30,2020.
On
June 19, 2020, the Company entered into a contract for deed agreement with a third-party investor. Under the contract the Company
agreed to the sale of 1 lot of vacant land and associated improvements located at the Valle Divino property in Ensenada, Mexico
for a total purchase price of $25,000, paid upon execution. The total cash proceeds of $25,000 was allocated based upon the relative
fair value of the shares and one (1) promised plot of land in the following amounts: shares were valued at $16,174; and plot of
land was valued at $8,826, which was classified as a contract liability on the balance sheet as of June 30,2020.
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.
Employment
Agreements
The
Company entered into an employment agreement with the Chief Executive Officer on January 1, 2020 to perform duties and
responsibilities as may be assigned. The base salary is in the amount of $120,000 per annum, a $500 monthly auto stipend, and
four weeks of paid vacation.
The
Company entered into an employment agreement with the Chief Financial Officer on January 1, 2020 to perform duties and
responsibilities as may be assigned. The base salary is in the amount of $120,000 per annum, a $500 monthly auto stipend, and
four weeks of paid vacation.
The
Company entered into an employment agreement with the Sales and Marketing Director on January 1, 2020 to perform duties and responsibilities
as may be assigned. The base salary is in the amount of $80,000 per annum, a $500 monthly auto stipend, and four weeks of paid
vacation.
NOTE
8 – STOCKHOLDERS’ EQUITY
The
Company’s equity at June 30, 2020 consisted of 75,000,000 authorized common shares and 2,000,000 authorized preferred shares,
both with a par value of $0.001 per share. As of June 30, 2020, and December 31, 2019, there were 21,670,654 and 20,614,299 shares
of common stock issued and outstanding, respectively.
As
of June 30, 2020, and December 31, 2019, 28,000 shares of Series A Preferred Stock were issued and outstanding and 1,000 shares
of Series B Preferred Stock were issued and outstanding, respectively.
Common
Stock Issued for Services
On
January 1, 2020, the Company issued 50,000 shares of common stock and 150,000 warrants to be issued for services valued at $50,000
and $186,748, respectively.
Common Stock Issued for Cash
On August 12, 2019, the Company received cash
proceeds of $30,000 for 66,667 shares of common stock. These shares were issued on May 1, 2020
On January 21,
2020, the Company received cash proceeds of $20,000 for 40,000 shares of common stock.
On February 26, 2020, the Company received
cash proceeds of $20,000 for 40,000 shares of common stock.
On February 28, 2020, the Company received
cash proceeds of $20,000 for 40,000 shares of common stock.
On March 2, 2020, the Company received cash
proceeds of $8,807 for 17,615 shares of common. These shares were issued on May 19, 2020.
On March 12, 2020, the Company received cash
proceeds of $10,000 for 20,000 shares of common stock. These shares were issued on May 1, 2020.
On May 4, 2020, the Company received cash proceeds
of $9,000 for 20,000 shares of common.
On May 5, 2020, the Company received cash proceeds
of $10,000 for 40,000 shares of common. As of June 30, 2020, the shares had not been issued and were recorded as stock payable.
On May 16, 2020, the Company received cash
proceeds of $16,000 for 40,000 shares of common. As of June 30, 2020, the shares had not been issued and were recorded as stock
payable.
On May 18, 2020, the Company received cash
proceeds of $20,000 for 80,000 shares of common. As of June 30, 2020, the shares had not been issued and were recorded as stock
payable.
On May 18, 2020, the Company received cash
proceeds of $15,000 for 60,000 shares of common. As of June 30, 2020, the shares had not been issued and were recorded as stock
payable.
On June 20, 2020, the Company received cash
proceeds of $12,500 for 50,000 shares of common stock.
Common Stock sold with a Promise to Deliver
Title to Plot of Land and Warrants
On October 10, 2019, the Company received cash
proceeds of $50,000 for 100,000 shares of common stock to be issued to a third-party investor. In conjunction with this sale of
shares, the Company also attached one (1) plot of land. The total cash proceeds of $50,000 was allocated based upon the relative
fair value of the shares and one (1) promised plot of land in the following amounts: shares were valued at $39,282; and plot of
land was valued at $10,718. The shares were issued on May 1, 2020.
On
November 6, 2019, the Company received cash proceeds of $35,080 for 70,160 shares of common stock to be issued to a third-party
investor. In conjunction with this sale of shares, the Company also attached one (1) plot of land. The total cash proceeds of
$35,080 was allocated based upon the relative fair value of the shares and one (1) promised plot of land in the following amounts:
shares were valued at $25,258; and plot of land was valued at $9,822. The shares were issued on May 1, 2020.
On
January 13, 2020, the Company received cash proceeds of $40,000 for 80,000 shares of common stock to be issued to a third-party
investor. In conjunction with this sale of shares, the Company also attached two (2) plots of land. The total cash proceeds of
$40,000 was allocated based upon the relative fair value of the shares and two (2) promised plots of land in the following amounts:
shares were valued at $23,780; and plot of land was valued at $16,220. The shares were issued on May 1, 2020.
On
January 24, 2020, the Company received cash proceeds of $25,000 for 50,000 shares of common stock to be issued to a third-party
investor. In conjunction with this sale of shares, the Company also attached one (1) plot of land. The total cash proceeds of
$25,000 was allocated based upon the relative fair value of the shares and one (1) promised plot of land in the following amounts:
shares were valued at $16,174; and plot of land was valued at $8,826. The shares were issued on May 1, 2020.
On
March 25, 2020, the Company received cash proceeds of $25,000 for 50,000 shares of common stock to be issued to a third-party
investor. In conjunction with this sale of shares, the Company also attached one (1) plot of land. The total cash proceeds of
$25,000 was allocated based upon the relative fair value of the shares and one (1) promised plot of land in the following amounts:
shares were valued at $16,174; and plot of land was valued at $8,826. The shares were issued on April 3, 2020
On
April 01, 2020, the Company received cash proceeds of $25,000 for 50,000 shares of common stock to be issued to a third-party
investor. In conjunction with this sale of shares, the Company also attached one (1) plot of land. The total cash proceeds of
$25,000 was allocated based upon the relative fair value of the shares and one (1) promised plot of land in the following amounts:
shares were valued at $16,174; and plot of land was valued at $8,826.
On
June 25, 2020, the Company received cash proceeds of $25,000 for 100,000 shares of common stock and 100,000 one year warrants to
be issued to a third-party investor. In conjunction with this sale of shares, the Company also attached one (1) plot of land.
The total cash proceeds of $25,000 was allocated based upon the relative fair value of the shares and one (1) promised plot of
land in the following amounts: shares and warrants were valued at $16,174; and plot of land was valued at $8,826
Common
Stock Issued in Relation to Debt
On
October 25, 2019, the Company agreed to issue 132,461 shares of common stock valued at $97,858 in connection with securing
a loan from a third-party. These shares were issued on May 1, 2020.
On
June 4, 2020, the Company issued 39,462 shares valued at $29,202 in connection with securing a loan from a third- party.
Preferred
Stock
The
Preferred Stock may be issued from time to time in one or more series. The Board of Directors is authorized to fix the number
of shares of any series of Preferred Stock and to determine the designation of any such series. The Board of Directors is also
authorized to determine or alter the rights, preferences, privileges, and restrictions granted to or imposed upon any wholly unissued
series of Preferred Stock and, within the limits and restrictions stated in any resolution or resolutions of the Board of Directors
originally fixing the number of shares constituting any series, to increase or decrease (but not below the number of shares of
such series than outstanding) the number of shares of any such series subsequent to the issue of shares of that series.
On
October 1, 2013, the Company authorized and issued 28,000 shares of Series A Preferred Stock to Grupo Valcas, a related party
which provides consulting services on project development, in exchange for services. Grupo Valcas is master planner and real estate
development firm owned by the Valdes family. Roberto Valdes, the Company President and Chief Executive Officer, was a minority
owner of Valcas until December 2018 when he left the family company to focus 100% on International Land Alliance. The 28,000 shares
grant the holder to have the right to vote on all shareholder matters equal to 100 votes per share. The Series A shares were valued
according to the additional voting rights assigned. The value assigned to the voting rights was derived from a model utilizing
control premiums to value the voting control of the preferred stock which was prepared by an independent valuation specialist.
The value assigned to the Series A Preferred Stock was $2,260,496 and was recorded on the grant date as stock-based compensation.
At
June 30, 2020 and December 31, 2019, 28,000 shares of Series A Preferred Stock were issued and outstanding.
Warrants
A
summary of the Company’s warrant activity during the six months ended June 30, 2020 is presented below:
|
|
|
|
|
|
Weighted
|
|
Weighted
Average
Remaining
Contract
|
|
|
Number
of
Warrants
|
|
|
Average
Exercise
Price
|
|
|
Term
(Year)
|
|
Outstanding at December 31, 2019
|
|
|
50,000
|
|
|
$
|
0.50
|
|
|
|
1.25
|
|
Granted
|
|
|
310,000
|
|
|
|
0.40
|
|
|
|
1.76
|
|
Exercised
|
|
|
(0
|
)
|
|
|
0.0
|
|
|
|
-
|
|
Forfeit/Canceled
|
|
|
(0
|
)
|
|
|
0.0
|
|
|
|
-
|
|
Outstanding at June 30, 2020
|
|
|
360,000
|
|
|
$
|
0.50
|
|
|
|
3.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at June 30, 2020
|
|
|
360,000
|
|
|
|
|
|
|
|
|
|
At
June 30, 2020, 360,000 warrants were exercisable into common stock. The exercise price of outstanding warrants for common stock
was between $.25 - $0.50 per warrant, and the term of exercise of the outstanding warrants was one - two years from the date of
issuance. The aggregate intrinsic value as of June 30, 2020 and December 31, 2019 was approximately $98,200 and $33,000, respectively.
NOTE
9 – SUBSEQUENT EVENTS
Management has
evaluated events subsequent to June 30, 2020 for accounting and disclosure.
Stock
issuances
Subsequent
June 30, 2020, the Company issued 180,000 shares for $45,000 cash, which was received during the six month period ended June 30,
2020 and recorded as stock payable.
Subsequent June 30, 2020, the Company issued
30,000 shares for $7,500 cash,
Subsequent June 30, 2020, the Company issued
400,000 shares for services valued at.$192,000.
Subsequent June 30, 2020, the Company received
cash proceeds of $25,000 for 150,000 shares of common stock and 100,000 one year warrants to be issued to a third-party investor.
In conjunction with this sale of shares, the Company also attached one (1) plot of land. The total cash proceeds of $25,000 was
allocated based upon the relative fair value of the shares and one (1) promised plot of land in the following amounts: shares
and warrants were valued at $16,174; and plot of land was valued at $8,826
Subsequent
June 30, 2020, the Company issued 710,640 shares to honor expired stock warrants for shareholders in good standing with
the Company.