ILAL International Land Alliance Inc (QB)

Notes to Financial Statements

For the Three and Six Months Ended June 30, 2019

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.

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, 2018. Accordingly, note disclosures which would substantially duplicate the disclosures contained in the December 31, 2018 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 three and six months ended June 30, 2019, are not necessarily indicative of the results that may be expected for the year ended December 31, 2019. For further information, refer to the audited financial statements and notes for the year ended December 31, 2018 included in the Company’s Annual Report on Form 10-K filed with the SEC on April 24, 2019.

Going Concern

The Company has faced significant liquidity shortages as shown in the accompanying financial statements. As of June 30, 2019, the Company’s current liabilities exceeded its current assets by $1,532,431. The Company has recorded a net loss of $410,214 for the six months ended June 30, 2019 and has an accumulated deficit of $5,789,086 as of June 30, 2019. Net cash used in operating activities for the six months ended June 30, 2019 was $491,282. Although the Company has had difficulty in obtaining working lines of credit from financial institutions and trade credit from vendors, management has been able to raise capital from private placements and further expand the Company’s operations geographically to continue its growth. During the six months ended June 30, 2019, the Company initiated Private Placements of its securities, and had warrants exercised receiving total cash proceeds of $315,000. In addition, the Company obtained financing through short term notes payable totaling $735,000.

The Company has begun to recognize revenues during the three and six months ended June 30, 2019 and is continuing to focus its efforts on increased marketing campaigns to sell the plots of land. Americans and Canadians can own property in Mexico through a Fideicomiso or Bank Trust. Any foreigner can institute a Fideicomiso (the equivalent to an American beneficial trust) through a Mexican bank (ILA has selected Banco Bajio) in order to purchase real estate anywhere in Mexico, including what is commonly called the Restricted Zone. To do so, the buyer requests a Mexican bank to act as a trustee on his/her behalf. This conveys the same bundle of rights that holding property “fee simple” does in the United States. The property can be willed, leased, sold, rented, or improved in perpetuity and it is irrevocable. This title management system is very common in Mexico.

However, management determined in prior reporting periods that it does not fulfill “ownership”, as title is held by Banco Bajio, pursuant to generally accepted accounting principles in the United States of America. During the current period, the Company has taken title to all 497 acres fee simple in the name of its wholly-owned subsidiary, International Land Alliance, S.A. de C.V.. Banco Bajio will continue to act as Trustee for all Fideimosos on an ongoing basis.

Upon completion of the Oasis Park Resort, the Company also plans to take title fee simple for its Villas del Enologo in Rancho Tecate and Valle Divino in Ensenada, Baja California, while using Banco Bajio for all Fideicomisos.

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 June 30, 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.

Public Listing

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.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The Company maintains its accounting records on an accrual basis in accordance with GAAP.

These consolidated financial statements are presented in United States dollars. The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q. All adjustments which are, in the opinion of management, necessary for a fair presentation of the results of operations for the interim periods have been made and are of a recurring nature unless otherwise disclosed herein.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries, ILA Fund I, LLC (the “ILA Fund”) a Company incorporated in the State of Wyoming and International Land Alliance, S.A. de C.V., a company incorporated in Mexico (“ILA Mexico”); the Company has a 100% equity interest in ILA Mexico. ILA Fund includes cash as it’s only assets with minimal expenses as of June 30, 2019. 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, 2019. All intercompany balances and transactions are eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management regularly evaluates estimates and assumptions related to the valuation of assets and liabilities. Management bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from managements estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.

Fair Value of Financial Instruments and Fair Value Measurements

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.

The Company’s financial instruments consist principally of cash, accounts payable, accrued liabilities, and notes payable to a third party. Pursuant to ASC 820, “ Fair Value Measurements and Disclosures” and ASC 825, “ Financial Instruments”, the fair value of our cash equivalents is determined based on “Level 1” inputs, which consist of quoted prices in active markets for identical assets. The Company believes that the recorded values of all the other financial instruments approximate their current fair values because of their nature and respective maturity dates or durations.

As of June 30, 2019, there are no assets and liabilities that were measured or recognized at fair value on a recurring basis.

Land Held for Sale

We consider 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 fair value, less estimated costs to sell.

Land and Buildings

Land and building 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, generally 5 to 10 years. 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, we adopted Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in Accounting Standards Codification (ASC) Topic 605, Revenue Recognition (Topic 605). 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.

We reviewed all agreements at the date of initial application and elected to use the modified retrospective transition method, where the cumulative effect of the initial application is recognized as an adjustment to opening retained earnings at January 1, 2018. Considering there was no revenue in prior periods, the comparative periods have not been adjusted and continue to be reported under FASB ASC Topic 605, Revenue Recognition , (“ASC 605”). The adoption of the new revenue recognition guidance was immaterial to our balance sheets as of June 30, 2019 and December 31, 2018 and to our statements of operations and cash flows for the three and six months ended June 30, 2019 and 2018.

We determine revenue recognition through the following steps:

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. We apply judgment in determining the customer’s ability and intention to pay.

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 are 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.

We recognize revenue when we satisfy a performance obligation in a contract by transferring control over property to a customer when land title is legally transferred by the Company. Our principal activities in the real estate development industry which we generate our revenues is the sale of developed and undeveloped land. The Company began to recognize revenues related to undeveloped land lots sold since inception during the three and six months ended June 30, 2019. We previously recorded as an accrued liability, the relative fair value of plots of land sold by the Company to investors in conjunction with the sale of common stock to raise capital. The portion of the proceeds that was allocated to the lot sales, could not be recognized in revenues as the title was not previously owned by the Company, who had a promise to transfer title to the investor once the Company owned the land. This transfer of title took place in June 2019 and as such the performance obligation to deliver the property was satisfied in order to recognize revenues for all lots sold since inception and moving forward for the Oasis Park Resort property.

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 are 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. The Company 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 net loss per share in accordance with ASC 260, “ Earnings per Share” . ASC 260 requires presentation of both basic and diluted net earnings per share (“EPS”) on the face of the statements of operations. Basic EPS is computed by dividing 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 preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive. At June 30, 2019 and December 31, 2018, total warrants issued and outstanding convertible into common stock amounted to 166,200 shares and 1,075,200 shares, respectively, and all shares are considered anti-dilutive. At June 30, 2019, there were no options granted under the Company’s equity incentive plan.

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, 2019.

Recent Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, “ Leases (Topic 842).” The objective of this update is to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those annual periods and is to be applied utilizing a modified retrospective approach. The Company currently has no leases, therefore, there was no impact on the 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 57 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. 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 10) 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 10). On March 18, 2019, the Mr. Sunstein assigned the deed of the property to the Company. The attached 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 remains a guarantor on the mortgage. 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 will be allocated to land and building in the following amounts: $180,470 - Land; $941,581 - 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. The building has an estimated useful life of 20 years and were depreciated on a straight-line basis.

Oasis Park Title Transfer

On June 18, 2019, Baja Residents Club SA de CV (“BRC”), an related party with common ownership, 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 three- and six-month period ending June 30, 2019. A portion of this value was allocated to the Oasis Park resort and a portion will be 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.

The Company transferred title to individual plots of land to the investors who have invested in the Company since the Company received this approval of change in transfer of title to the ILA. As such, the Company now recognized revenue for the plot sales previously executed.

Depreciation expense was $11,769 and $15,692 for the three and six months ended June 30, 2019. There was no depreciation expense for the three and six months ended June 30, 2018.

The Company recorded as accrued expense the relative fair value of plots of land sold by the Company to investors in conjunction with the sale of common stock to raise capital (Note 8).

NOTE 6 – RELATED PARTY TRANSACTIONS

The Company paid to its Chief Executive Officer consulting fees for services directly related to continued operations of $13,500 and $40,805 for the six months ended June 30, 2019 and the year ended December 31, 2018, respectively.

The Company paid to its Chief Financial Officer consulting fees of $35,334 and $138,079 for the six months ended June 30, 2019 and the year ended December 31, 2018, respectively. Such amounts were determined by the Chief Executive Officer and Chief Financial Officer, as the Company currently does not have employment or consulting agreements.

The Company paid to its Secretary consulting fees for services directly related to continued operations of $2,500 and $33,706 for the six months ended June 30, 2019 and the year ended December 31, 2018, respectively. During the three and six months ended June 30, 2019, the Company’s Secretary paid for certain business expenses totaling $5,874 related to the Emerald Grove property for which she will be reimbursed by the Company.

The Company has obtained financing through one of its existing shareholders, Sylva International, who also provides marketing services to the Company. See Note 10.  

The Company’s Chief Financial Officer, Jason Sunstein, also facilitated the Emerald Grove asset purchase as described in Note 3.

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. As of June 30, 2019, there was no promise to deliver title on any lots for the Valle Divino resort.

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.

In the normal course of business, the Company incurs costs to hire and retain external legal counsel to advise it on regulatory, litigation and other matters. The Company expenses these costs as the related services are received. If a loss is considered probable and the amount can be reasonable estimated, the Company recognizes an expense for the estimated loss.

NOTE 8 – STOCKHOLDERS’ EQUITY

The Company’s capitalization at June 30, 2019 was 75,000,000 authorized common shares and 100,000 authorized preferred shares, both with a par value of $0.001 per share.

Common Stock

For Six Months Ended June 30, 2019

In April 2019, the Board approved the issuance of 2,363,200 shares of common stock for cash, services, warrants, and plots promised for cash or services with a value of approximately $321,000. Of the 2.4 million shares, 657,200 were previously included in stock payable. All shares were issued on May 2, 2019 as noted in a board resolution upon the success of triggering events previously noted and any shares previously included in stock payable are now considered issued as of June 30, 2019. See further detail below.

Common Stock Issued for Services

On April 1, 2019, the Company issued 1,656,000 shares of common stock to be issued for services valued at $165,600. The majority of these shares included the issuance of 1,200,000 shares to be issued for consulting services valued at approximately $120,000. The share issuance was contingent upon certain triggering events including the effectuation of our public listing and successful commencement of trading under the Company’s new ticker symbol. The value of shares would have previously been treated as stock payable until the shares were eventually issued in May 2019 as noted above.

Common Stock sold with Warrants

On March 26, 2019, the Company received cash proceeds of $10,000 for 20,000 shares of common stock to be issued to a third-party investor. In conjunction with this sale of shares, the Company also attached and issued 20,000 warrants at an exercise price of $0.50 per share, exercisable over a term of one year from the date of issuance. The fair value of $7,573 of the warrants was calculated using a Black-Scholes option pricing model with the following assumptions: stock price $0.50, expected term of one year, expected volatility of 232%, and discount rate of 2.72%. The total cash proceeds of $10,000 was allocated to equity.

On April 9, 2019, the Company issued 10,000 shares of common stock to a third-party investor for cash proceeds of $2,500. In conjunction with this sale of shares, the Company also attached and issued 10,000 warrants at an exercise price of $0.25 per share, exercisable over a term of one year from the date of issuance. The fair value of $2,478 of the warrants was calculated using a Black-Scholes option pricing model with the following assumptions: stock price $0.50, expected term of one year, expected volatility of 232%, and discount rate of 2.72%. The total cash proceeds of $2,500 was allocated based upon the relative fair value of the shares and warrants in the following amounts: shares were valued at $1,261; and warrants were valued at $1,239.

On May 3, 2019, the Company issued 40,000 shares of common stock to a third-party investor for cash proceeds of $20,000. In conjunction with this sale of shares, the Company also attached and issued 40,000 warrants at an exercise price of $0.50 per share, exercisable over a term of one year from the date of issuance. The fair value of $188,428 of the warrants was calculated using a Black-Scholes option pricing model with the following assumptions: stock price $5.00, expected term of one year, expected volatility of 232%, and discount rate of 2.72%. The total cash proceeds of $20,000 was allocated based upon the relative fair value of the shares and warrants in the following amounts: shares were valued at $10,298; and warrants were valued at $9,702.

On May 6, 2019, the Company issued 20,000 shares of common stock to a third-party investor for cash proceeds of $10,000. In conjunction with this sale of shares, the Company also attached and issued 20,000 warrants at an exercise price of $0.50 per share, exercisable over a term of one year from the date of issuance. The fair value of $94,214 of the warrants was calculated using a Black-Scholes option pricing model with the following assumptions: stock price $5.00, expected term of one year, expected volatility of 232%, and discount rate of 2.72%. The total cash proceeds of $10,000 was allocated based upon the relative fair value of the shares and warrants in the following amounts: shares were valued at $5,149; and warrants were valued at $4,851.

Warrant Exercise

On January 28, 2019, the Company received cash proceeds of $40,000 for 400,000 shares of common stock to be issued in a warrant exercise to a third-party investor.

On March 13, 2019, the Company received cash proceeds of $6,000 for 48,000 shares of common stock to be issued in a warrant exercise to two (2) third-party investors.

On April 4, 2019, the Company issued 95,000 shares of common stock in a warrant exercise to a third-party investor for cash proceeds of $9,500.

On April 8, 2019, the Company issued 45,000 shares of common stock in a warrant exercise to a third-party investor for cash proceeds of $4,500.

On April 17, 2019, the Company issued 80,000 shares of common stock in a warrant exercise to a third-party investor for cash proceeds of $20,000.

On May 15, 2019, the Company issued 100,000 shares of common stock in a warrant exercise to a third-party investor for cash proceeds of $50,000.

Common Stocks sold with a Promise to Deliver Title to Plot of Land and Warrants

On November 29, 2018, the Company sold 50,000 shares of common stock to a third-party investor for cash proceeds of $25,000. In conjunction with this sale of shares, the Company also attached one (1) plot of land (the title to which not currently owned by the Company as its promise to transfer title to the investor once the Company owns the land) and issued 50,000 warrants at an exercise price of $0.50 per share, exercisable over a term of one year from the date of issuance. The fair market value of $8,317 of the warrants was calculated using a Black-Scholes option pricing model with the following assumptions: stock price $0.50, expected term of one year, expected volatility of 232%, and discount rate of 2.69%. The total cash proceeds of $25,000 was allocated based upon the relative fair market value of the shares, warrants and one (1) promised plot of land in the following amounts: shares were valued at $12,935; warrants were valued at $4,303, and plot of land was valued at $7,761.

On November 13, 2018 and December 19, 2018, the Company sold 75,000 shares and 29,200 shares of common stock to a third-party investor for total cash proceeds of $10,420. In conjunction with this sale of shares, the Company also attached one (1) plot of land (the title to which not currently owned by the Company as its promise to transfer title to the investor once the Company owns the land) and issued 104,200 warrants at an exercise price of $0.10 per share, exercisable over a term of one year from the date of issuance. The fair market value of $22,207 of the warrants was calculated using a Black-Scholes option pricing model with the following assumptions: stock price $0.10, expected term of one year, expected volatility of 232%, and discount rate of 2.72%. The total cash proceeds of $10,420 was allocated based upon the relative fair market value of the shares, warrants and one (1) promised plot of land in the following amounts: shares were valued at $4,188; warrants were valued at $3,720, and plot of land was valued at $2,513.

On February 27, 2019, the Company received cash proceeds of $17,500 for 35,000 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 title to which not currently owned by the Company as its promise to transfer title to the investor once the Company owns the land). The total cash proceeds of $17,500 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 $9,875; and plot of land was valued at $7,625.

On March 8, 2019, the Company issued 50,000 shares of common stock to a third-party investor for cash proceeds of $25,000. In conjunction with this sale of shares, the Company also attached one (1) plot of land (the title to which not currently owned by the Company as its promise to transfer title to the investor once the Company owns the land) and issued 50,000 warrants at an exercise price of $0.50 per share, exercisable over a term of one year from the date of issuance. The fair market value of $18,932 of the warrants was calculated using a Black-Scholes option pricing model with the following assumptions: stock price $0.50, expected term of one year, expected volatility of 232%, and discount rate of 2.72%. The total cash proceeds of $25,000 was allocated based upon the relative fair market value of the shares, warrants and one (1) promised plot of land in the following amounts: shares were valued at $9,446; warrants were valued at $8,750, and plot of land was valued at $6,804.

On April 8, 2019, the Company issued 100,000 shares of common stock to a third-party investor for cash proceeds of $50,000. In conjunction with this sale of shares, the Company also attached one (1) plot of land (the title to which not currently owned by the Company as its promise to transfer title to the investor once the Company owns the land) and issued 100,000 warrants at an exercise price of $0.50 per share, exercisable over a term of one year from the date of issuance. The fair value of $37,863 of the warrants was calculated using a Black-Scholes option pricing model with the following assumptions: stock price $0.50, expected term of one year, expected volatility of 232%, and discount rate of 2.72%. The total cash proceeds of $50,000 was allocated based upon the relative fair value of the shares, warrants and one (1) promised plot of land in the following amounts: shares were valued at $24,629; warrants were valued at $18,651, and plot of land was valued at $6,720.

On May 24, 2019, the Company issued 100,000 shares of common stock to a third-party investor for cash proceeds of $50,000. In conjunction with this sale of shares, the Company also attached one (1) plot of land (the title to which not currently owned by the Company as its promise to transfer title to the investor once the Company owns the land) and issued 100,000 warrants at an exercise price of $0.50 per share, exercisable over a term of one year from the date of issuance. The fair value of $108,345 of the warrants was calculated using a Black-Scholes option pricing model with the following assumptions: stock price $1.27, expected term of one year, expected volatility of 232%, and discount rate of 2.72%. The total cash proceeds of $50,000 was allocated based upon the relative fair value of the shares, warrants and one (1) promised plot of land in the following amounts: shares were valued at $14,536; warrants were valued at $31,498, and plot of land was valued at $3,966.

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, 2019 and December 31, 2018, 28,000 shares of Series A Preferred Stock were issued and outstanding.

At June 30, 2019, 166,200 warrants were exercisable into common stock. The exercise price of warrants to convert into common stock ranged from $0.10 to $0.50 per warrant, and term of exercise of warrants was one year from the date of issuance. The aggregate intrinsic value as of June 30, 2019 and December 31, 2018 was approximately $94,000 and $133,000, respectively.

Stock Options

On February 11, 2019, the Company’s board approved a 2019 Equity Incentive Plan (the “2019 Plan”). In order for the 2019 Plan to grant “qualified stock options” to employees, it required approval by the Corporation’s shareholders within 12 months from the date of the 2019 Plan. The 2019 Plan was never approved by the shareholders. Therefore, any options granted under the 2019 Plan prior to shareholder approval will be “non-qualified”. Pursuant to the 2019 Plan, the Company has reserved a total of 3,000,000 shares of the Company’s common stock to be available under the plan. As of June 30, 2019, ILA has not granted any options, as such, there is no share-based compensation for the three or six months ended June 30, 2019.

The tax effects of temporary differences that gave rise to significant portions of deferred tax assets and liabilities at June 30, 2019 and December 31, 2018 are as follows:

Deferred income taxes are provided for the tax effects of transactions reported in the financial statements and consist of deferred taxes related primarily to differences between the bases of certain assets and liabilities for financial and tax reporting. The deferred taxes represent the future tax return consequences of those differences, which will either be deductible or taxable when the assets and liabilities are recovered or settled.

On December 22, 2017, the Tax Cuts and Jobs Act (the Tax Act) was enacted, significantly altering U.S. corporate income tax law. The SEC issued Staff Accounting Bulletin 118, which allows companies to record reasonable estimates of enactment impacts where all of the underlying analysis and calculations are not yet complete. The provisional estimates must be finalized within a one-year measurement period. The Company reduced its net domestic deferred tax asset balance by $219,863 due to the reduction in corporate tax rate from 34% to 21%. These adjustments are fully offset by a change in the Company’s U.S. valuation allowance.

At June 30, 2019, the Company had accumulated deficit of approximately $5,800,000 for U.S. federal and Wyoming income tax purposes, such net operating losses (NOLs) are available to offset future taxable income expiring on various dates through 2035. Due to changes in our ownership through common stock issuances, the utilization of NOLs may be subject to annual limitations and discounts under provisions of the Internal Revenue Code. We have not conducted a complete analysis to determine the extent of these limitations or any future limitation. Such limitations could result in the permanent loss of a significant portion of the NOLs. The Company has recorded a 100% valuation allowance on the deferred tax assets due to the uncertainty of its realization. The net change in the valuation allowance for the six months ended June 30, 2019 and 2018 was an increase of $86,145 and $404,177, respectively.

In the normal course of business, the Company’s income tax returns are subject to examination by various taxing authorities. Such examinations may result in future tax and interest assessment by these taxing authorities. Accordingly, the Company believes that it is more likely than not that it will realize the benefits of tax positions it has taken in its tax returns or for the amount of any tax benefit that exceeds the cumulative probability threshold in accordance with FASB ASC 740. Differences between the estimated and actual amounts determined upon ultimate resolution, individually or in the aggregate, are not expected to have a material adverse effect on the company’s financial position. The Company believes its tax positions are all highly certain of being upheld upon examination. As such, the Company has not recorded a liability for unrecognized tax benefits. As of June 30, 2019, tax years 2015, 2016, 2017 and 2018 remain open for examination by the IRS and California. The Company has received no notice of audit from the Internal Revenue Service or California for any of the open tax years.

NOTE 10 – DEBT

Promissory Notes - long-term

Cash Call, Inc.

On March 19, 2018, the Company issued a promissory note to CashCall, Inc. for $75,000 of cash consideration. The note bears interest at 94%, matures on May 1, 2028. The Company also recorded a $7,500 debt discount due to origination fees due at the beginning of the note. During the three months ended June 30, 2019 and 2018, the Company amortized $187 and $24 , respectively, of the debt discount into interest expense. During the six months ended June 30, 2019 and 2018, the Company amortized $375 and $209, respectively, of the debt discount into interest expense, leaving a remaining total debt discount on the note of $6,543 and $6,918 as of June 30, 2019 and December 31, 2018, respectively. There was accrued interest of $5,874 and $5,599 at June 30, 2019 and December 31, 2018, respectively. There were two small principal payments made on the note during the six months ended June 30, 2019 as the note was previously deferred until April 8, 2019 when payments re-commenced. As of June 30, 2019, the remaining principal balance was $74,990 with a current portion due of $28

PrideCo

As discussed in Note 3, in March 2019, the Company assumed liabilities related to the assigned deeded property in Note 4. The liabilities include a mortgage entered into with PrideCo Private Mortgage Loan Fund, LP for $605,000 with prepaid interest of $2,353 on the date of closing, March 18, 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 remains a guarantor on the mortgage. The amount has been prorated for the days remaining in the month. The mortgage bears interest monthly on the unpaid principal at 10% with interest only payments commencing on May 1, 2019 and applied to interest due prior to any additional principal payments. Any late payments will include an additional 10% based on the principal plus unpaid interest accrued at the time. The loan matures on April 1, 2020 and is secured by the property acquired. There is no prepayment penalty on this loan after the first sixty days and any remaining principal at the maturity of the loan is due in full. As of June 30, 2019, the balance on the mortgage payable totaled $605,000. For the three and six months ended June 30, 2019, there was interest expense of $7,395 and $22,520 with accrued interest of $5,042 as of June 30, 2019.

Promissory Notes – Previously and Currently in Default

Yellowstone

On August 9, 2018, the Company issued a promissory note to Yellowstone for $12,325 of cash consideration. The note bears interest at 25%, matured on December 9, 2018. The Company also recorded a $4,540 debt discount due to origination fees due at the beginning of the note. As of June 30, 2019, there is no remaining debt discount on the note. This note was previously in default and was being paid down through a debt settlement agency hired by the Company. On April 5, 2019 the Company settled the promissory note with Yellowstone for the remaining total balance with fees for $4,000. The note was satisfied in full with cash on that date with a confirmation that the balance was fully satisfied. As of June 30, 2019, the balance is $0.

EBF

On August 10, 2018, the Company issued a promissory note to EBF for $21,750 of cash consideration. The note bears interest at 15%, matures on December 10, 2018. The Company also recorded a $7,475 debt discount due to origination fees due at the beginning of the note. As of June 30, 2019, there is no remaining debt discount on the note. This note was previously in default and was being paid down through a debt settlement agency hired by the Company. The balance was paid in full as of June 30, 2019.

On Deck

On April 4, 2018, the Company issued a promissory note to On Deck for $35,000 of cash consideration. The note bears interest at 94%, matured on January 6, 2019. The Company also recorded a $14,140 debt discount due to origination fees due at the beginning of the note. During the six months ended June 30, 2019, the company amortized $52 of the debt discount into interest expense leaving a remaining total debt discount on the note of $0 as of June 30, 2019. This note is currently in default and was previously being paid down through a debt settlement agency hired by the Company until April 25, 2019, when the Company settled the promissory note with On Deck with a remaining total balance of $11,467 for $11,600 to be paid in six monthly payments. This note is still considered in default until paid in full. The Company began making settlement payments on April 29, 2019. As of June 30, 2019, the remaining settled balance is $6,760.

Last Chance Funding

On October 10, 2018, the Company issued a promissory note to Last Chance Funding for $7,450 of cash consideration. The note bears interest at 15% and matured on January 5, 2019. The Company also recorded a $2,795 debt discount due to origination fees due at the beginning of the note. During the six months ended June 30, 2019, the Company amortized $248 of the debt discount into interest expense leaving a remaining total debt discount on the note of $0 as of June 30, 2019. This note was previously in default and was being paid down through a debt settlement agency hired by the Company. On April 17, 2019 the Company settled the promissory note with Last Chance Funding with a remaining total balance for $3,000. The note was satisfied in full with cash on that date with a confirmation that the balance was fully satisfied. As of June 30, 2019, the balance is $0.

Notes Payable - Shareholders

In March 2019, the Company entered into short term notes payable with six existing shareholders of the Company totaling $710,000. The notes bear interest at 20% and all notes mature in June 2019. As of June 30, 2019, the loans were in default and the balance on the loan payable totaled $710,000. As of and for the six months ended June 30, 2019, there was accrued interest, default interest, and interest expense of $148,623. The loans are secured by collateral of certain property interests held by the Company and restricted common stock pledges totaling 1,420,000 shares which are held by the Company’s legal counsel. The funds were used to finance the acquisition discussed in Note 3. The Company is currently in the process of obtaining financing to satisfy the notes in full.

Convertible Notes

Sylva International

On September 18, 2018, the Company issued a convertible note to Sylva International for $25,000 of cash consideration. The note is convertible into common stock at a fixed price of $0.50 per share. The note bears interest at 24%, matured on December 19, 2018. The Company evaluated the convertible note and determined that the shares issuable pursuant to the conversion option were determinate due to the fixed conversion price. The Company paid $18,000 leaving a remaining balance of $7,000 at December 31, 2018, respectively. As of and during the six months ended June 30, 2019, the Company satisfied the remaining balance of the note and any accrued interest in full.

In addition to the financing provided by Sylva, they also have provided marketing services to the Company and have purchased 225,000 shares of the Company’s common stock. The total marketing expense incurred for Sylva was approximately $90,000 for the three and six months ended June 30, 2019.  

Promissory Notes - short-term

On June 26, 2019, the Company entered into a short-term note payable with an existing shareholder of the Company totaling $25,000. The notes bear interest at 10% and the note matures in August 26, 2019. As of June 30, 2019, the balance on the loan payable totaled $25,000. As of and for the six months ended June 30, 2019, there was accrued interest and interest expense of $164, respectively.