Notes
to Financial Statements
For
the Years Ended December 31, 2019 and 2018
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.
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 December 31, 2019, the Company’s current liabilities exceeded its current assets by $813,222.
The Company has recorded a net loss of $1,596,086 for the year ended December 31, 2019 and has an accumulated deficit of $6,974,958
as of December 31, 2019. Net cash used in operating activities for the year ended December 31, 2019 was $(1,214,693). These factors
raise substantial doubt about the Company’s ability to continue as a going concern.
The
Company has begun to recognize revenues during the year ended December 31, 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. Management believes this conveys the
same bundle of rights that holding property “fee simple” does in the United States, which allows the property to 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 2019, 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.
The
Company has plans to take title fee simple for the Villas del Enologo in Rancho Tecate, Valle Divino in Ensenada, Baja California
and Costa Bajamar in Ensenada, Baja California projects, 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 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. (See Note 11 regarding subsequent events .)
In
December 2019, an outbreak of a novel strain of coronavirus originated in Wuhan, China (“COVID-19”) and has since
spread worldwide, including to the United States (the “U.S.”) and Mexico, posing public health risks that have reached
pandemic proportions (the “COVID-19 Pandemic”). The outbreak of COVID-19 continues to grow both in the U.S., Mexico
and globally and related government and private sector responsive actions may adversely affect our business operations. The recent
outbreak of COVID-19 could affect our sales process with travel limitations imposed by the State of California and the U.S. for
international border crossing. This limits sales prospects from visiting our properties in Baja California from our primary target
market, Southern California. In recent days, this outbreak has also resulted in reduced customer traffic from surrounding areas
within Baja California and the temporary reduction of sales office operating hours. These recent developments are expected to
negatively impact sales and gross margin in the near term. It is impossible to predict the effect and ultimate impact of the COVID-19
pandemic as the situation is rapidly evolving. While it appears that the COVID-19 outbreak in the United States and Mexico is
in the early stages, the recent downturn in financial market indices appear to have been primarily driven by uncertainties associated
with the pandemic. These uncertainties include, but are not limited to, the potential adverse effect of the pandemic on the economy,
construction and material supply partners, travel and transportation services, our employees and customers, customer sentiment
in general and traffic to and within geographic areas containing our real estate developments. The pandemic could adversely affect
our near-term and long-term revenues, earnings, liquidity and cash flows and may require significant actions in response including
but not limited to employee furloughs, reduced store hours, expense reductions or discounting of the pricing of our products,
all in an effort to mitigate such impacts. This situation is changing rapidly, and additional impacts may arise that we are not
aware of currently.
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 December 31, 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 December 31, 2019. 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.
Reclassifications
Certain
prior year amounts have been reclassified for consistency with the current period presentation. These reclassifications had no
effect on the reported results of operations.
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 December 31, 2019 and 2018, 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 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 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 adoption of the new revenue recognition guidance had no transition
impact.
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. The Company began to recognize revenues
related to undeveloped land lots sold previously and during year ended December 31, 2019. The Company 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 and other equity instruments 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 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
December 31, 2019 and December 31, 2018, there were a total 50,000 and 1,075,000 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 December 31, 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 as a leasee, therefore, there was no impact on the financial statements to record lease assets or liabilities.
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 - Pridco) 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. 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”), 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 December 31, 2019,
the Company reported a balance for assets held for sale of $647,399.
The
Company transferred title to individual plots of land to the investors since the Company received this approval of change in transfer
of title to the ILA. As such, the Company recognized revenue for the plot sales previously executed during the year ended December
31 ,2019.
NOTE
4 – LAND AND BUILDING
Land
and buildings, net as of December 31, 2019 and 2018:
|
|
Useful
life
|
|
December
31, 2019
|
|
|
December
31, 2018
|
|
Land
– Emerald Grove
|
|
|
|
$
|
271,225
|
|
|
$
|
-
|
|
Land held for
sale
|
|
|
|
$
|
647,399
|
|
|
$
|
-
|
|
Construction
in Process
|
|
|
|
$
|
250,000
|
|
|
|
|
|
Building – Emerald Grove
|
|
20 years
|
|
$
|
917,496
|
|
|
$
|
-
|
|
Less: Accumulated
depreciation
|
|
|
|
|
(36,707
|
)
|
|
|
-
|
|
Building, net
|
|
|
|
$
|
880,789
|
|
|
$
|
-
|
|
During
the year ended December 31, 2019, improvements to existing buildings costing $66,670 were completed and increased the carrying
cost of purchased building.
Additionally,
in November and December 2019, $250,000 was paid our CEO, Roberto Valdes, $150,000 for constructing two model Villas at our planned
Costa Bajamar development. The Company has not yet taken title to this property, which is currently owned by Valdeland, S.A. de
C.V., an entity controlled by Roberto Valdes. The Company intends to purchase the land from this entity and has paid $100,000
to Roberto Valdes as a down payment for this purchase. The $150,000 is the total construction cost budget that is intended to
pay the construction contractor. The construction contractor is also an entity controlled by Roberto Valdes. Construction has
begun subsequent to the year ended December 31, 2019 (Note 8).
Depreciation
expense was $36,707 and $0 for the years ended December 31, 2019 and 2018, respectively.
NOTE
5 – RELATED PARTY TRANSACTIONS
The
Company paid to its Chief Executive Officer consulting fees for services directly related to continued operations of $21,000 and
$40,805 for years ended December 31, 2019 and 2018, respectively.
The
Company paid its Chief Financial Officer consulting fees of $89,681 and $138,079 for the years ended December 31, 2019 and 2018,
respectively this included personal expenses paid directly by the Company on his behalf. 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 $11,500 and $33,706 for
the years ended December 31, 2019 and 2018, respectively. During the year ended December 31, 2019, the Company’s Secretary
paid for certain business expenses totaling $12,254 related to the Emerald Grove property for which she will be reimbursed by
the Company.
On
September 18, 2018, the Company obtained financing through one of its existing shareholders, Sylva International, who also provides
marketing services to the Company. (See Note 7). As of December 31, 2019, the Company satisfied the remaining balance of the note
and any accrued interest in full. The total marketing expense incurred for Sylva was approximately $90,000 for the year ended
December 31, 2019.
The
Company’s Chief Financial Officer also facilitated the Emerald Grove asset purchase as described in Note 3.
During
the year ended December 31, 2019, the Company entered into definitive Land Purchase Agreement with Valdeland, S.A. de C.V., a
Company controlled by our Chief Executive Officer, 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 (See note 4 and 8).
On
June 18, 2019, Baja Residents Club SA de CV, a related party with common ownership and control by our Chief Executive Officer,
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.
NOTE
6 – DEBT
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 years ended December 31, 2019 and 2018, the Company amortized $5,301 and $582 of the debt discount into
interest expense, leaving a remaining total debt discount on the note of $1,617 and $6,918, respectively. On December 12, 2019
the loan and outstanding interest was settled for $52,493. As a result of the settlement, the Company recorded a gain on settlement
of debt of $64,075. As of December 31, 2019, the remaining principal balance was $46,660. Interest expense for the years ended
December 31, 2019 and 2018 was $41,578 and $5,599, respectively.
PrideCo
As
discussed in Note 3, in March 2019, the Company assumed liabilities related to the assigned deeded property Emerald Grove in Hemet,
CA. 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 remained
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 8% 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. Interest expense
for the year ended December 31, 2019 was $22,913. The
loan was refinanced with Velocity in September
2019, and the obligation in no longer outstanding as of December 31, 2019.
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. 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 $3,333.
The note was satisfied in full with cash on that date with a confirmation that the balance was fully satisfied. As of December
31, 2019, the balance is $0. Interest expense for the years ended December 31, 2019 and 2018 was $0 and $3,081 respectively.
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%,
matured on December 10, 2018. The Company also recorded a $7,475 debt discount due to origination fees due at the beginning of
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 December 31, 2019. Interest expense for the years ended December 31, 2019 and 2018 was $0 and $3,263,
respectively.
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%
and 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. The balance was paid in full as of December 31, 2019. Interest expense for the years ended December 31, 2019 and
2018 was $3,396 and $32,187 respectively.
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. 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 $4,928. The note was satisfied in full with cash on that date with a confirmation that the balance was fully satisfied.
As of December 31, 2019, the balance is $0. Interest expense for the years ended December 31, 2019 and 2018 was $182 and $1,040
respectively.
Velocity
In
September, 2019, the Company issued a mortgage promissory note
to Velocity with a face value of $975,000 whereby the Company received $943,751 in cash consideration, net of issuance and financing
costs of $31,249 related to the assigned deeded property in Note 4 (Emerald Grove). The proceeds of the note were largely used
to repay the PrideCo mortgage and other liabilities. The mortgage bears interest monthly on the unpaid principal at 10% with payments
commencing on November 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 October 1, 2021
and is secured by the property. 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. Interest expense for the year ended December 31, 2019 was $26,445.
RAS,
LLC
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 December 31, 2019, $26,871 of the discount has been amortized and the note is shown less amortized
discount of $70,987. As of December 31, 2019, the shares have not been issued and recorded as stock payable. Interest expense
for the year ended December 31, 2019 was $7,938.
Rushmyfile,
Inc
On
December 5, 2019, the Company issued a promissory note to Rushmyfile, Inc for $129,000 of cash consideration, net of $14,431 in
financing costs and secured by property (Emerald Grove Vacant Land). The loan bears interest at 13%. The loan matures on December
1, 2021. Interest expense for the year ended December 31, 2019 was $1,195.
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 matured in June 2019. As of December 31, 2019, the loans were paid in full. Interest
expense for the year ended December 31, 2019 was $193,348.
On
June 26, 2019, the Company entered into a short-term note payable with an existing shareholder of the Company totaling $25,000.
During the year ended December 31, 2019 the shareholder advanced an additional $31,723 and the Company made repayments totaling
$55,223. The notes bear interest at 10% and is due on March 1, 2020. As of December 31, 2019, the balance on the loan payable
was $1,500. Interest expense for the year ended December 31, 2019 was $682.
In
December 2019, the Company entered into short term notes payable with six existing shareholders of the Company totaling $345,000.
The notes bear interest at 15%, mature in December 2020, and are secured by a Second Deed of Trust on the Emerald Grove property.
As of December 31, 2019, the loans had an outstanding balance of $345,000. Interest expense for the year ended December 31, 2019
was $3,000.
NOTE
7 – 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. As of
December 31, 2019, the Company satisfied the remaining balance of the note and any accrued interest in full.
Hoyt
On
August 7, 2019, the Company entered into a convertible promissory note pursuant to which it borrowed $50,000, net of an issuance
costs of $8,500. Interest under the convertible promissory note is 20% per annum, and the principal and all accrued but unpaid
interest is due on December 7, 2019. The note is convertible at any date after the issuance date at the noteholder’s option
into shares of our common stock at a variable conversion price equal to the lower of (i) the lowest trading price during the previous
ten (10) Trading Day period immediately preceding the date of the note or (ii) a price equal to the 75% of the lowest trading
price during the previous ten (10) Trading Day period immediately preceding the Conversion date. The Company recorded a debt discount
in the amount of $50,000 in connection with the original issuance discount, offering costs and initial valuation of the derivative
liability related to the embedded conversion option of the Note to be amortized utilizing the effective interest method of accretion
over the term of the Note. Further, the Company recognized a derivative liability of $61,664 and an initial loss of $20,164 based
on the Black-Scholes pricing model. During the year ended December 31, 2019 the loan was satisfied in full, and a gain of $65,531
was recognized in association with termination of the derivative liability.
Gordon
On
August 7, 2019, the Company entered into a $25,000 convertible promissory note pursuant, net of an issuance costs of $2,125. Interest
under the convertible promissory note is 20% per annum, and the principal and all accrued but unpaid interest is due on December
7, 2019. The note is convertible at any date after the issuance date at the noteholder’s option into shares of our common
stock at a variable conversion price equal to the lower of (i) the lowest trading price during the previous ten (10) Trading Day
period immediately preceding the date of the note or (ii) a price equal to the 75% of the lowest trading price during the previous
ten (10) Trading Day period immediately preceding the Conversion date.
The
Company recorded a debt discount in the amount of $25,000 in connection with the original issuance discount, offering costs and
initial valuation of the derivative liability related to the embedded conversion option of the Note to be amortized utilizing
the effective interest method of accretion over the term of the Note. Further, the Company recognized a derivative liability of
$30,832 and an initial loss of $7,957 based on the Black-Scholes pricing model. During the year ended December 31, 2019, the loan
was satisfied in full, and a gain of $32,765 was recognized in association with termination of the derivative liability.
The
embedded conversion feature in the convertible debt instruments above were convertible at issuance which qualified them as a derivative
instrument since the number of shares issuable under the note is indeterminate based on guidance in ASC Topic No. 815-15, “Derivatives
and Hedging (“Topic No. 815-15”). Topic No. 815-15 requires the Company to bifurcate and separately account for the
conversion features as an embedded derivative contained in the Company’s convertible debt.
The
Black-Scholes model, adopted by management as an appropriate financial model, utilized the following inputs to value the derivative
liabilities at the date of issuance of the convertible note through December 30, 2019:
Risk free interest rate
|
|
|
1.88-2.05
|
%
|
Expected term (years)
|
|
|
0.263-0.585
|
|
Expected volatility
|
|
|
265%-282
|
%
|
Expected dividends
|
|
|
0
|
%
|
As
of December 31, 2019, the Company had no outstanding convertible debt or thereby related derivatives.
NOTE
8 – COMMITMENTS AND CONTINGENCIES
Commitment
to Purchase Land
There
is one remaining land project consisting of 20 acres to be acquired from Baja Residents Club (a Company controlled by our CEO
Roberto Valdes) and developed into Valle Divino resort in Ensenada, Baja California, the acquisition of title to the land for
this project is subject to approval from the Mexican government in Baja, California. Although management believes that the transfer
of title to the land will be approved within the next 60 days, there is no assurance that such transfer of title will be approved
in that time frame or at all. 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 December 31, 2019, the
Company has entered into two contracts for deed agreements to sell 2 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 December 31, 2019, 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.
Due
to the nature of the Agreement, the Company’s management deemed that there was an embedded lease feature in the agreement
in accordance with ASC 842. As a result, the initial payment of $63,000 was classified as a deposit. Upon an event of default
in which case the payment is non-refundable, and the Company no longer has any obligation to provide access to the land. The interest
payments will be recognized monthly as lease income. During the year ended December 31, 2019, the Company recognized $10,540 in
lease income.
On
October 2, 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
for a total purchase price of $50,000, $25,000 was paid upon execution and the balance was paid on October 7, 2019.
Due
to the nature of the agreement, management deemed that there was a customer contract. As a result, the payment of $50,000 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
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
is due on February 4, 2020. The payments have been classified as a customer deposit on the balance sheet as of December 31, 2019.
Litigation
Costs and Contingencies
From
time to time, the Company may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of
business. Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time
to time that may harm business. Management is currently not aware of any such legal proceedings or claims that could have, individually
or in the aggregate, a material adverse effect on our business, financial condition, or operating results.
NOTE
9 – STOCKHOLDERS’ EQUITY
The
Company’s equity at December 31, 2019 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 December 31, 2019 and 2018, there were 20,164,299 and 15,927,901 shares of common stock issued and outstanding, respectively.
On
February 11, 2019, the Company’s Board of Directors approved a 2019 Equity Incentive Plan (the “2019 Plan”).
In order for the 2019 Plan to grant “qualified stock options” to employees, it required approval by the Corporation’s
shareholders within 12 months from the date of the 2019 Plan. The 2019 Plan was never approved by the shareholders. Therefore,
any options granted under the 2019 Plan prior to shareholder approval will be “non-qualified”. Pursuant to the 2019
Plan, the Company has reserved a total of 3,000,000 shares of the Company’s common stock to be available under the plan.
As of December 31, 2019, ILA has not granted any options, as such, there is no share-based compensation for the year ended December
31, 2019.
On
October 31, 2019, the Company’s Board of Directors designated 1,000 shares of Preferred B stock with a par value of $0.001.
As
of December 31, 2019 and 2018, 28,000 shares of Series A Preferred Stock were issued and outstanding and 1,000 and 0 shares of
Series B Preferred Stock were issued and outstanding, respectively.
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.
On
July 1, 2019, the Company issued 40,000 shares of common stock valued at $40,000 to a consultant for business development and
advisory services. The term of the agreement is for a period of 12 months from the date of execution. As of December 31, 2019,
the Company has recorded an expense of $40,000.
On
July 1, 2019, the Company issued 12,000 shares of common stock valued at $12,000 to a consultant for business development and
advisory services. The term of the agreement is for a period of twelve months from the date of execution. As of December 31, 2019,
the Company has recorded an expense of $12,000.
On
July 1, 2019, the Company entered into an agreement with a consultant for real-estate advisory services. Under the terms of the
agreement the Company agreed to issue 80,000 shares of common stock valued at $74,748, 50,000 warrants valued at $47,823,
and two plots of land with a total value of $25,725. The fair value of $47,823 of the warrants was calculated using a Black-Scholes
option pricing model with the following assumptions: stock price $1.00, strike price of $0.50, expected term of two years,
expected volatility of 262%, and discount rate of 1.78%. The total value of the consideration issued was $155,107. The term of
the agreement is for a period of six months from the date of execution. As of December 31, 2019, the Company has recorded an expense
of $77,553 related to the agreement and expects to recognize an additional expense of $77,553 in future periods.
On
July 25, 2019, the Company agreed to issued 100,000 shares valued at $42,000 to an investment banker for advisory services.
As of December 31, 2019, the Company has recorded an expense of $10,742 related to the agreement and expects to recognize an additional
expense of $31,258 in future periods.
On
October 8, 2019, the Company entered into an agreement with a consultant for real-estate advisory services. Under the terms of
the agreement the Company agreed to issue 300,000 shares of common stock valued at $165,000.
On
October 10, 2018, the Company entered into an agreement with investment banker for advisory services. The term of the agreement
is for a period of twelve months, and automatically renewed on October 10, 2019. Pursuant to this agreement 68,965 shares valued
at $40,000 were issued as a finder’s fee related to connecting the company with business contacts.
All
shares of common stock issued during the year ended December 31, 2019 were unregistered.
Common
stock issued for 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
by 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
by two (2) third-party investors.
On
April 4, 2019, the Company issued 95,000 shares of common stock in a warrant exercise by 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 by 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 by a third-party investor for cash proceeds
of $20,000.
On
May 2, 2019, the Company issued 104,200 shares of common stock in a warrant exercise by a third-party investor for cash proceeds
of $10,420.
On
May 15, 2019, the Company issued 100,000 shares of common stock in a warrant exercise by a third-party investor for cash proceeds
of $50,000. Proceeds were received in the year ended December 31, 2018 and recorded as stock payable until issuance.
All
shares of common stock issued during the year ended December 31, 2019 were unregistered.
Common
stock issued for cash
During
the year ended December 31, 2019, the Company issued 747,500 shares for cash proceeds of $203,675.
On
August 12, 2019, the Company agreed to issue 66,667 shares of common stock to a third-party investor for cash proceeds of $30,000.
The shares had not been issued as of December 31, 2019 and stock payable of $30,000 was recorded as a result.
All
shares of common stock issued during the year ended December 31, 2019 were unregistered.
Common
Stock sold with a Promise to Deliver Title to Plot of Land and Warrants
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 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 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 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%.
On
May 2, 2019, the Company issued 50,000 shares of common stock to a third-party investor for cash proceeds of $25,000.
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 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.
On
August 2, 2019, the Company issued 50,000 shares of common stock to a third-party investor for cash proceeds of $22,500. In conjunction
with this sale of shares, the Company also attached one (1) plot of land and issued 50,000 shares. The total cash proceeds of
$22,500 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 $14,007, and plot of land was valued at $8,493.
All
shares of common stock issued during the year ended December 31, 2019 were unregistered.
Common
Stock Issued in Relation to Debt
On
October 25, 2019 the Company issued 28,889 shares of common stock valued at $21,378 to settle $17,172 of outstanding debt.
On
October 25, 2019 the Company agreed to issue 132,241 shares of common stock valued at $97,858 in connection with securing a loan
from a third-party. As of December 31, 2019, the shares were not issued and were recorded as stock payable.
On
August 7, 2019 the Company agreed issued 10,000 shares of common stock valued at $8,500 to in connection with securing convertible
debt. These shares were issued on December 7, 2019.
On
August 7, 2019 the Company agreed to issued 2,500 shares of common stock valued at $2,125 in connection with securing convertible
debt. The shares were issued December 10, 2019.
On
December 31, 2019 the Company issued 33,000 shares of common stock valued at $22,667 to settle $22,200 of outstanding debt.
All
shares of common stock issued during the year ended December 31, 2019 were unregistered.
Preferred
Stock
On
November 6, 2019 the Company authorized and issued 1,000 shares of Series B Preferred Stock and 350,000 shares of common stock
to Cleanspark Inc in a private equity offering for $500,000. Management evaluated the Series B Preferred stock under ASC 470 and
determined that its embedded are more akin to equity than debt and as such recorded the value attributable to the shares of $293,500
as temporary equity on the consolidated balance sheet.
All
shares of Preferred stock issued during the year ended December 31, 2019 were unregistered.
Stock
Warrants
A
summary of the Company’s warrant activity during the year ended December 31, 2019 is presented below:
|
|
Number
of
Warrants
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contract
Term
(Year)
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2018
|
|
|
1,075,200
|
|
|
$
|
0.27
|
|
|
|
0.60
|
|
Granted
|
|
|
390,000
|
|
|
|
0.49
|
|
|
|
0.77
|
|
Exercised
|
|
|
(768,000
|
)
|
|
|
0.41
|
|
|
|
-
|
|
Forfeit/Canceled
|
|
|
(647,200
|
)
|
|
|
0.24
|
|
|
|
-
|
|
Outstanding at December 31, 2019
|
|
|
50,000
|
|
|
$
|
0.50
|
|
|
|
1.75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2019
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
At
December 31, 2019, 50,000 warrants were exercisable into common stock. The exercise price of outstanding warrants for common stock
was $0.50 per warrant, and the term of exercise of the outstanding warrants was two years from the date of issuance. The aggregate
intrinsic value as of December 31, 2019 and 2018 was approximately $0 and $133,000, respectively.
NOTE
10 – INCOME TAX
Significant
components of the Company’s deferred tax assets and liabilities for federal and state income taxes as of December 31, 2019
and 2018 are as follows:
|
|
December
31, 2019
|
|
|
December
31, 2018
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net
operating loss carry forward
|
|
$
|
1,464,741
|
|
|
$
|
492,121
|
|
Total gross deferred tax assets
|
|
|
1,464,741
|
|
|
|
492,121
|
|
Less - valuation
allowance
|
|
|
(1,464,741
|
)
|
|
|
(492,121
|
)
|
Net deferred
tax assets
|
|
$
|
—
|
|
|
$
|
—
|
|
As
of December 31, 2019 and 2018, the Company had gross federal net operating loss carryforwards of approximately $6,974,958 and
$5,378,872, respectively. The Company expects the limitation placed on the federal net operating loss carryforwards prior to the
ownership change will likely expire unused. As of December 31, 2019, all tax years are open for examination by the taxing authorities.
Due
to the enactment of the Tax Reform Act of 2017, the corporate tax rate for those tax years beginning with 2018 has been reduced
to 21%.
NOTE
11 – SUBSEQUENT EVENTS
Common
Stock Issued for Services
On
January 1, 2020, the Company issued 50,000 shares of common stock to be issued for services valued at $25,000.
Warrant
Exercise
On
March 12, 2020, the Company received $10,000 in a warrant exercise to a third-party investor to issue 20,000 shares of common
stock. As of the date of filing the shares have not been issued.
Option
Exercise
Between
January 21, 2020 and March 2, 2020, the Company received $68,808 in a option exercise from a third-party investor to issue 137,615
shares of common stock. As of the date of filing 17,165 shares from the exercise have not been issued.
Contract
for deed agreement with common stock grant
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 located at the Valle Divino property in Ensenada, Mexico for a total purchase price
of $40,000. This also includes a stock grant of 80,000 shares of common stock. As of the date of filing the shares have not been
issued.
On
January 29, 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 located at the Valle Divino property in Ensenada, Mexico for a total purchase price
of $25,000. This also includes a stock grant of 50,000 shares of common stock. As of the date of filing the shares have not been
issued.
On
March 26, 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 located at the Valle Divino property in Ensenada, Mexico for a total purchase price
of $25,000. This also includes a stock grant of 50,000 shares of common stock.
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 located at the Valle Divino property in Ensenada, Mexico 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 of $15,500 was paid on February
4, 2020. The payments have been classified as a customer deposit on the balance sheet as of December 31, 2019.
On
February 24, 2020 IntegraGreen made a payment towards the contract for deed in the amount $32,000 .
On
March 11, 2020, the World Health Organization declared the novel strain of coronavirus (COVID-19) a global pandemic and recommended
containment and mitigation measures worldwide. The Company is monitoring this closely, and although operations have not been materially
affected by the coronavirus outbreak to date, the ultimate severity of the outbreak is uncertain. Operations of the Company are
ongoing. Further the uncertain nature of its spread globally may impact our business operations resulting from quarantines of
employees, customers, and third-party service providers. At this time, the Company is unable to estimate the impact of this event
on its operations.