Notes
to Financial Statements
March
31, 2021
NOTE
1 – NATURE OF OPERATIONS AND GOING CONCERN
Nature
of Operations
International
Land Alliance, Inc. (the “Company”) was incorporated under the laws of the State of Wyoming on September 26, 2013 (inception).
The Company is a residential land development company with target properties located in the Baja California, Norte region of Mexico and
Southern California. The Company’s principal activities are purchasing properties, obtaining zoning and other entitlements required
to subdivide the properties into residential and commercial building plots, securing financing for the purchase of the plots, improving
the properties infrastructure and amenities, and selling the plots to homebuyers, retirees, investors, and commercial developers.
On
March 18, 2019, the Company acquired real property located in Hemet, California, which included approximately 80 acres of land and two
structures for $1.1 million. The property includes the main parcel of land with existing structures along with three additional parcels
of land which are vacant lots to be used for the purpose of development. The Company is generating Airbnb sales and lease income from
this property.
In
October 2019, the Company entered into an agreement with Valdeland, S.A. de C.V.(“Valdeland”), a Mexican corporation controlled
by our CEO, Robert Valdes, to acquire 1 acre of land at the Bajamar Ocean Front Golf Resort in Ensenada, Baja California, known as the
Costa Bajamar. The transfer of title to 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 and transferred by the end of our second fiscal quarter of
2021, there is no assurance that such transfer of title will be approved in that time frame or at all.
On
October 25, 2020, the Company entered into a business agreement with A&F Agriculture LLC (“A&F”), in which the parties
agreed to operate a business for the purpose of commercially cultivating industrial hemp at the Company’s property in Southern
California. A&F will be the managing party of the business agreement. The Company will provide A&F with the land and water supply
for the purpose of the cultivation. All revenue and expenses associated with the cultivation will be split equally among parties.
On
March 29, 2021, the Company executed a Letter of Intent (the “LOI”) to acquire two parcels of land in Rosarito Beach, Baja
California, Mexico, with total surface area of roughly 32 acres valued at approximately $6 million. The all-stock transaction includes
plans and permits for an existing 450-homesite project situated on the Pacific Ocean, with existing sales averaging $50,000 per residential
lot. The LOI includes the accounts receivable for lots sold and the remaining unsold lots. The closing is subject to standard conditions
including, completion of due diligence by both parties and the negotiation and execution of mutually acceptable definitive documents.
The Agreement merely represents the present understanding with respect to the intended acquisition transaction and is not binding upon
the parties.
The
unaudited financial statements herein have been prepared by the Company pursuant to the rules and regulations of the United States Securities
and Exchange Commission (“SEC”). The accompanying interim unaudited financial statements have been prepared under the presumption
that users of the interim financial information have either read or have access to the audited financial statements for the latest year
ended December 31, 2020. Accordingly, note disclosures which would substantially duplicate the disclosures contained in the December
31, 2020 audited financial statements have been omitted from these interim unaudited financial statements.
Certain
information and note disclosures included in the financial statements prepared in accordance with United States generally accepted accounting
principles (“U.S. GAAP” or “GAAP”) have been condensed or omitted pursuant to such rules and regulations. In
the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the
three months ended March 31, 2021, are not necessarily indicative of the results that may be expected for the year ending December 31,
2021. For further information, refer to the audited financial statements and notes for the year ended December 31, 2020 included in the
Company’s Annual Report on Form 10-K filed with the SEC on April 2, 2021.
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 March 31, 2021, the Company’s current liabilities exceeded its current assets by $1.95 million. The Company has recorded
a net loss of approximately $1 million for the three months ended March 31, 2021 and has an accumulated deficit of $10.6 million as of
March 31, 2021. Net cash used in operating activities for the three months ended March 31, 2021 was approximately $0.2 million. These
factors raise substantial doubt about the Company’s ability to continue as a going concern.
Management
anticipates that the Company’s capital resources will significantly improve if its 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 or obtain funds through equity and/or debt financing in sufficient amounts to avoid the need to curtail its future
operations subsequent to December 31, 2020. 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. This could include construction
delays or abilities of our customers to obtain sufficient funding to close on sales. However, there can be no assurance that the Company
would be able to secure additional funds if needed and that if such funds were available on commercially reasonable terms or in the necessary
amounts, and whether the terms or conditions would be acceptable to the Company. In such case, the reduction in operating expenses might
need to be substantial in order for the Company to generate positive cash flow to sustain the operations of the Company.
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
Company maintains its accounting records on an accrual basis in accordance with GAAP. These consolidated financial statements are presented
in United States dollars. The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions
to Form 10-Q. All adjustments which are, in the opinion of management, necessary for a fair presentation of the results of operations
for the interim periods have been made and are of a recurring nature unless otherwise disclosed herein.
Principles
of Consolidation
The
accompanying consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries, ILA Fund I, LLC (the
“ILA Fund”), a company incorporated in the State of Wyoming and International Land Alliance, S.A. de C.V., a company incorporated
in Mexico (“ILA Mexico”), Emerald Grove Estates LLC (“Emerald Estates”), incorporated in the State of California;
the Company has a 100% equity interest in ILA Mexico and in Emerald Estates. ILA Fund includes cash as its only assets with minimal expenses
as of March 31, 2021. 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 March 31, 2021. The Company granted deed of the property
in Sycamore Road, Hemet, California to Emerald Estates. All intercompany balances and transactions are eliminated in consolidation.
Use
of Estimates
The
preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Management regularly evaluates estimates and assumptions related
to the valuation of assets and liabilities. Management bases its estimates and assumptions on current facts, historical experience and
various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments
about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources.
The actual results experienced by the Company may differ materially and adversely from management’s estimates. To the extent there
are material differences between the estimates and the actual results, future results of operations will be affected. Significant estimates
include:
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Liability
for legal contingencies.
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Useful
life of building.
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Assumptions
used in valuing equity instruments.
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Deferred
income taxes and related valuation allowances.
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Segment
Reporting
The
Company operates as one reportable segment under ASC 280, Segment Reporting. The Chief Operating Decision Maker (“CODM”)
regularly reviews the financial information of the Company at a consolidated level in deciding how to allocate resources and in assessing
performances.
Cash
and Cash Equivalents
The
Company considers all highly liquid instruments with maturity of three months or less at the time of issuance to be cash equivalents.
The Company did not have any cash equivalents as of March 31, 2021 and December 31, 2020, respectively.
Fair
value of Financial Instruments and Fair Value Measurements
Accounting
Standards Codification (“ASC”) 820 Fair Value Measurements and Disclosures, requires an entity to maximize the use
of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy
based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s
categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
ASC 820 prioritizes the inputs into three levels that may be used to measure fair value:
Level
1
Level
1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level
2
Level
2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability
such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets
with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are
observable or can be derived principally from, or corroborated by, observable market data. If the asset or liability has a specified
(contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability.
Level
3
Level
3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement
of the fair value of the assets or liabilities.
As
defined by ASC 820, the fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction
between willing parties, other than in a forced or liquidation sale, which was further clarified as the price that would be received
to sell an asset or paid to transfer a liability (“an exit price”) in an orderly transaction between market participants
at the measurement date.
The
reported fair values for financial instruments that use Level 2 and Level 3 inputs to determine fair value are based on a variety of
factors and assumptions. Accordingly, certain fair values may not represent actual values of the Company’s financial instruments
that could have been realized as of any balance sheet dates presented or that will be recognized in the future, and do not include expenses
that could be incurred in an actual settlement. The carrying amounts of the Company’s financial assets and liabilities, such as
cash, accounts 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.
A
variety of costs are incurred in the acquisition, development and leasing of properties. After determination is made to capitalize a
cost, it is allocated to the specific component of a project that is benefited. Determination of when a development project is substantially
complete, and capitalization must cease, involves a degree of judgment. Our capitalization policy on development properties is guided
by ASC 835-20 Interest – Capitalization of Interest and ASC 970 Real Estate - General. The costs of land and buildings
under development include specifically identifiable costs. The capitalized costs include pre-construction costs essential to the development
of the property, development costs, construction costs, interest costs, real estate taxes, salaries and related costs and other costs
incurred during the period of development. We consider a construction project as substantially completed and held available for occupancy
or sale upon the receipt of certificates of occupancy, but no later than one year from cessation of major construction activity. We cease
capitalization on the portion (1) substantially completed and (2) occupied or held available for occupancy, and we capitalize only those
costs associated with the portion under construction.
Land
Held for Sale
The
Company considers properties to be assets held for sale when (1) management commits to a plan to sell the property; (2) the property
is available for immediate sale in its present condition and (3) the property is actively being marketed for sale at a price that is
reasonable given our estimate of current market value. Upon designation of a property as an asset held for sale, we record the property’s
value at the lower of its carrying value or its estimated net realizable value.
Land
and Buildings
Land
and buildings are stated at cost. Depreciation is provided by the use of the straight-line and accelerated methods for financial and
tax reporting purposes, respectively, over the estimated useful lives of the assets. Buildings will have an estimated useful life of
20 years. Land is an indefinite lived asset that is stated at fair value at date of acquisition.
Revenue
Recognition
Under
Topic 606, revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects
the consideration we expect to be entitled to in exchange for those goods or services. The guidance sets forth a five-step revenue
recognition model which replaces the prior revenue recognition guidance in its entirety and is intended to eliminate numerous industry-specific
pieces of revenue recognition guidance that have historically existed in U.S. GAAP. The underlying principle of the standard is that
a business or other organization will recognize revenue to depict the transfer of promised goods or services to customers in an amount
that reflects what it expects to receive in exchange for the goods or services. The standard also requires more detailed disclosures
and provides additional guidance for transactions that were not addressed completely in the prior accounting guidance.
The
Company determines revenue recognition through the following steps:
●
|
identification
of the agreement, or agreements, with a buyer and/or investor;
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●
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identification
of the performance obligations in the agreement for the sale of lots including delivering title to the property being acquired from
ILA;
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●
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determination
of the transaction price;
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●
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allocation
of the transaction price to the lots purchased when issued with equity or warrants to purchase equity in the Company; and
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recognition
of revenue when, or as, we satisfy a performance obligation such as delivering title to lots purchased.
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Revenue
is measured based on considerations specified in the agreements with our customers. A contract exists when it becomes a legally enforceable
agreement with a customer. The contract is based on either the acceptance of standard terms and conditions as stated in our agreement
of 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 a 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.
Advertising
costs
The
Company expenses advertising costs when incurred. Advertising costs incurred amounted to $16,900 and $358,599 for the three months ended
March 31, 2021, and 2020, respectively.
Debt
issuance costs and debt discounts
Debt
issuance costs and debt discounts are being amortized over the lives of the related financings on a basis that approximates the effective
interest method. Costs and discounts are presented as a reduction of the related debt in the accompanying consolidated balance sheets.
Stock-Based
Compensation
The
fair value of stock options is estimated on the grant date using the Black-Scholes option pricing model, based on weighted average assumptions.
Expected volatility is based on historical volatility of our common stock. The Company has elected to use the simplified method described
in the Securities and Exchange Commission Staff Accounting Bulletin Topic 14C to estimate the expected term of employee stock options.
The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant. The value of restricted stock awards is
determined using the fair value of the Company’s common stock on the date of grant. The Company accounts for forfeitures as they
occur. Compensation expense is recognized on a straight-line basis over the requisite service period of the award.
Income
Taxes
The
Company accounts for income taxes using the asset and liability method in accordance with ASC 740, Income Taxes. The asset and
liability method provide that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary
differences between the financial reporting and tax basis of assets and liabilities, and for operating loss and tax credit carry forwards.
Deferred tax assets and liabilities are measured using the currently enacted tax rates and laws. The Company records a valuation allowance
to reduce deferred tax assets to the amount that is believed more likely than not to be realized.
When
tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities,
while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately
sustained. In accordance with the guidance of ASC 740, the benefit of a tax position is recognized in the financial statements in the
period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained
upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated
with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax
benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the
benefits associated with tax positions taken that exceeds the amount measured as described above should be reflected as a liability for
unrecognized tax benefits in the accompanying balance sheets along with any associated interest and penalties that would be payable to
the taxing authorities upon examination. Management makes estimates and judgments about our future taxable income that are based on assumptions
that are consistent with our plans and estimates. Should the actual amounts differ from our estimates, the amount of our valuation allowance
could be materially impacted. Any adjustment to the deferred tax asset valuation allowance would be recorded in the income statement
for the periods in which the adjustment is determined to be required. Management does not believe that it has taken any positions that
would require the recording of any additional tax liability nor does it believe that there are any unrealized tax benefits that would
either increase or decrease within the next year.
Loss
Per Share
The
Company computes loss per share in accordance with ASC 260 – Earnings per Share. ASC 260 requires presentation of both basic
and diluted earnings per share (“EPS”) on the face of the consolidated statements of operations. Basic EPS is computed by
dividing net loss available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during
the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method
and convertible notes payable using the if-converted method. Diluted EPS excludes all dilutive potential shares if their effect is antidilutive.
During periods of net loss, all common stock equivalents are excluded from the diluted EPS calculation because they are antidilutive.
A beneficial conversion feature that arises from a contingent conversion feature has no accounting impact until the contingency occurs.
The Company evaluated whether it is necessary to recognize a beneficial conversion feature by comparing the adjusted effective conversion
price of the convertible preferred stock with the commitment-date fair value of the entity’s common stock. The Company determined
that a beneficial conversion feature existed, and recognized the beneficial conversion feature, creating a discount on the convertible
preferred stock instrument. This discount was amortized in accordance with ASC 470-20-35-7. The amortization of the discount created
by a beneficial conversion feature, which is recognized as a result of the resolution of a contingency, is treated as a dividend that
reduced net income in arriving at income available to common stockholders.
Securities
that are excluded from the calculation of weighted average dilutive common shares because their inclusion would have been antidilutive
are:
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For
the three months
ended
March
31,
2021
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|
|
For the three months
ended
March
31,
2020
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|
|
|
|
|
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Options
|
|
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2,900,000
|
|
|
|
12,385
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|
Warrants
|
|
|
460,000
|
|
|
|
80,000
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|
Total potentially dilutive shares
|
|
|
3,360,000
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|
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92,385
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Concentration
of Credit Risk
The
Company maintains its cash in bank and financial institution deposits that at times may exceed federally insured limits. The Company
has not experienced any losses in such accounts through March 31, 2021.
Recent
Accounting Pronouncements
As
an emerging growth company (“EGC”), the Jumpstart Our Business Startups Act (“JOBS Act”) allows the Company to
delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are applicable to
private companies. The Company has elected to use this extended transition period under the JOBS Act until such time, as the Company
is no longer considered to be an EGC.
In
August 2020, the FASB issued ASU No. 2020-06 (“ASU 2020-06”) “Debt-Debt with Conversion and Other Options (Subtopic
470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments
and Contracts in an Entity’s Own Equity.” ASU 2020-06 simplifies the accounting for convertible instruments by reducing the
number of accounting models for convertible debt instruments and convertible preferred stock. Limiting the accounting models results
in fewer embedded conversion features being separately recognized from the host contract as compared with current GAAP. Convertible instruments
that continue to be subject to separation models are (1) those with embedded conversion features that are not clearly and closely related
to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting
and (2) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in capital. In addition,
ASU 2020-06 amends the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based
accounting conclusions. The Amendments also affects the diluted EPS calculation for instruments that may be settled in cash or shares
and for convertible instruments. The amendments are effective for public entities excluding smaller reporting companies for fiscal years
beginning after December 15, 2021, including interim periods within those fiscal years. For all other entities, the amendments are effective
for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted,
but no earlier than fiscal years beginning after December 15, 2020, including interim periods. The Company adopted the new standard update
on January 1, 2021, which did not have a material impact.
In
February 2016, the FASB issued ASU 2016-02 (Topic 842), Leases, and issued subsequent amendments to the initial guidance or implementation
guidance including ASU 2017-13, 2018-01, 2018-10, 2018-11, 2018-20 and 2019-01 (collectively, including ASU 2016-02, “ASC 842”),
which supersedes the guidance in topic ASC 840, Leases. The new standard requires lessees to classify leases as either finance or operating
based on whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether related
expenses are recognized based on the effective interest method or on a straight-line basis over the term of the lease. For any leases
with a term of greater than 12 months, ASU 2016-02 requires lessees to recognize a lease liability for the obligation to make the lease
payments arising from a lease, and a right-of-use asset for the right to use the underlying asset for the lease term. An election can
be made to account for leases with a term of 12 months or less similar to existing guidance for operating leases under ASC 840.
The new standard will also require new disclosures,
including qualitative and quantitative requirements, providing additional information about the amounts recorded in the financial statements.
For public companies, the new standard is effective for interim and annual reporting periods beginning after December 15, 2018. The
accounting standard is effective for non-public entities for fiscal years beginning after December 15, 2021 and interim periods
within fiscal years beginning after December 15, 2022. We have elected this extension and the effective date for us to adopt this standard
will be for fiscal years beginning after December 15, 2021.
Early adoption is permitted. Management is in the
initial stage of its assessment of the new standard and is currently evaluating the quantitative impact of adoption, and the related
disclosure requirements. Management expects that the adoption will result in the recognition of right-of-use assets and lease liabilities
that were not previously recognized, which will increase total assets and liabilities on the Company’s balance sheet. The Company
does not expect the adoption of Topic 842 to have a material impact to the statements of operations or to have any impact on its cash
flows from operating, investing, or financing activities.
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. On March 18, 2019, Mr.
Sunstein assigned the deed of the property to the Company. The total of the consideration plus acquisition costs assets of $1,122,050
was allocated to land and building in the following amounts: $271,225 – Land; $850,826 – Building. The land is an indefinite
long-lived asset that was assessed for impairment as a grouped asset with the building on a periodic basis.
Oasis
Park Title Transfer
On
June 18, 2019, Baja Residents Club SA de CV (“BRC”), a related party with common ownership and control by our CEO, Robert
Valdes, transferred title to the Company for the Oasis Park property which was part of a previously held land project consisting of 497
acres to be acquired and developed into Oasis Park resort near San Felipe, Baja. ILA recorded the property held for sale on its balance
sheet in the amount of $670,000 and accordingly reduced the value as lots are sold. As of March 31, 2021, the Company reported a balance
for assets held for sale of $647,399.
The
Company transferred title to individual plots of land to the investors since the Company received this approval of change in transfer
of title to ILA. The Company has not recognized any revenue for the three months ended March 31, 2021, since the Company did not
sell any plots.
NOTE
4 – LAND, BUILDING, NET AND CONSTRUCTION IN PROCESS
Land
and buildings, net as of March 31, 2021 and December 31, 2020:
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Useful life
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|
March 31,
2021
|
|
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December 31,
2020
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Land – Emerald Grove
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$
|
271,225
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$
|
271,225
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|
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|
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Land held for sale – Oasis Park
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$
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647,399
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$
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647,399
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Construction in Process
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$
|
488,647
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$
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353,000
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Building – Emerald Grove
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20 years
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943,175
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|
943,175
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Less: Accumulated depreciation
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(94,178
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)
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(82,581
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)
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|
|
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|
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Building, net
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$
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848,997
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$
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860,594
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Depreciation
expense was $11,597 and $11,406 for the three months ended March 31, 2021 and 2020, respectively.
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.
During the year ended December 31, 2020, the Company issued the 250,000 shares of the Company’s common stock for total amount of
$150,000 reported under Prepaid and other current assets in the condensed consolidated balance sheets. The Company funded the construction
by an additional $135,647 during the three months ended March 31, 2021. The construction contractor is also an entity controlled by Roberto
Valdes. Construction commenced during the year ended December 31, 2020. The balance of construction in process for Costa Bajamar
totaled $488,647 and $353,000 as of March 31, 2021 and December 31, 2020, respectively.
NOTE
5 – RELATED PARTY TRANSACTIONS
The
Company paid to its Chief Executive Officer salary for services directly related to continued operations of $0 for the three months ended
March 31, 2021, and 2020, respectively. The Company has accrued $33,808 of compensation costs in relation to the employment agreement.
The balance owed is $164,040 as of March 31, 2021.
The
Company paid to its Chief Executive Officer salary for services directly related to continued operations of $1,600 and $25,901 for the
three months ended March 31, 2021, and 2020, respectively. The Company has accrued $33,808 of compensation costs in relation to the employment
agreement. The balance owed is $102,469 as of March 31, 2021.
The
Company paid to a relative to the Company’s Chief Financial Officer (formerly the Company’s Secretary) salary for services
directly related to continued operations in the amount of $0 and $5,500 for the three months ended March 31, 2021, and 2020, respectively.
The Company has accrued $23,038 of compensation cost in relation to the employment agreement in the three months ended March 31, 2021.
The balance owed is $98,390 as of March 31, 2021.
On
October 25, 2019, the Company issued a promissory note to RAS, LLC “RAS”, a company controlled by Lisa Landau, a former officer
and related party to an officer of the Company, for $440,803. The proceeds of the note were largely used to repay shareholder loans and
other liabilities. The loan bears interest at 10%. The loan matures on June 25, 2020 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 March 31, 2021, the discount has been fully amortized, and the note is shown less amortized discount of $0. The shares were issued
on May 1, 2020. Interest expense for the three months ended March 31, 2021, was $16,066. The Company issued 29,727 shares of common
stock with fair value of $10,999 as payment for accrued interest in the three months ending March 31, 2021.
Six Twenty Capital Management LLC (Related
Party)
On March 31, 2021, the Company issued a promissory
note to Six Twenty Capital Management LLC, a company controlled by Jason Sunstein, Chief Financial Officer of the Company, for $288,611.
The proceeds of the note were largely used to fund current operations and for general purposes. The loan bears interest at 8% and matures
on March 31, 2022. No interest expense has been recognized in the three months ended March 31, 2021
Promissory
notes to related party consisted of the following at March 31, 2021 and December 31, 2020:
|
|
March 31, 2021
|
|
|
December 31, 2020
|
|
RAS Real Estate LLC, 18% interest, due December 2020 (past maturity)
|
|
$
|
361,989
|
|
|
$
|
361,989
|
|
Six Twenty Management, 8% interest, due March 2022
|
|
|
288,612
|
|
|
|
-
|
|
Total Notes Payable
|
|
$
|
650,601
|
|
|
$
|
361,989
|
|
Less discounts
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total Related Parties Notes Payable
|
|
|
650,601
|
|
|
|
361,989
|
|
|
|
|
|
|
|
|
|
|
Less current portion
|
|
|
(650,601
|
)
|
|
|
(361,989
|
)
|
|
|
|
|
|
|
|
|
|
Total Related Parties Notes Payable - long term
|
|
$
|
-
|
|
|
$
|
-
|
|
NOTE
6 – NOTES PAYABLE
Promissory
notes consisted of the following at March 31, 2021 and December 31, 2020:
|
|
March 31, 2021
|
|
|
December 31, 2020
|
|
Note payable, due August 2020
|
|
$
|
32,666
|
|
|
$
|
36,660
|
|
Note payable, 18% interest, due March 2020 (past maturity)
|
|
|
1,500
|
|
|
|
1,500
|
|
Note payable, secured, 10% interest, due October 2021
|
|
|
-
|
|
|
|
975,000
|
|
Note payable, 15% interest, due December 2020
|
|
|
-
|
|
|
|
50,000
|
|
Note payable, 15% interest, due December 2020
|
|
|
-
|
|
|
|
50,000
|
|
Note payable, 15% interest, due December 2020
|
|
|
-
|
|
|
|
100,000
|
|
Note payable, 15% interest, due December 2020
|
|
|
-
|
|
|
|
100,000
|
|
Note payable, 15% interest, due December 2020
|
|
|
-
|
|
|
|
20,000
|
|
Note payable, 15% interest, due December 2020
|
|
|
-
|
|
|
|
25,000
|
|
Note payable, 13% interest, due December 2021
|
|
|
-
|
|
|
|
128,884
|
|
Note Payable, 12% interest, due June 2021
|
|
|
-
|
|
|
|
166,733
|
|
Note Payable, 15% interest, due March 2021 (past maturity)
|
|
|
76,477
|
|
|
|
126,477
|
|
Note Payable, 12% interest, due February 2021
|
|
|
-
|
|
|
|
10,000
|
|
Note payable, 0% interest, due December 2020
|
|
|
-
|
|
|
|
142,100
|
|
Convertible Note Payable, 12% interest due February 2022
|
|
|
500,000
|
|
|
|
-
|
|
Note payable, 12% interest, due February 2023
|
|
|
1,787,000
|
|
|
|
-
|
|
Total Notes Payable
|
|
$
|
2,397,643
|
|
|
$
|
1,932,300
|
|
Less discounts
|
|
|
(271,561
|
)
|
|
|
(57,136
|
)
|
|
|
|
|
|
|
|
|
|
Total Notes Payable
|
|
|
2,126,082
|
|
|
|
1,875,164
|
|
|
|
|
|
|
|
|
|
|
Less current portion
|
|
|
(423,469
|
)
|
|
|
(1,875,164
|
)
|
|
|
|
|
|
|
|
|
|
Total Notes Payable - long term
|
|
$
|
1,702,613
|
|
|
$
|
-
|
|
Interest
expense including amortization of the associated debt discount for the three months ended March 31, 2021 and 2020 was $231,115 and $97,151,
respectively.
On
January 21, 2021, the Company refinanced its existing first and second mortgage loans on the 80 acres of land and the structure located
at Sycamore Road in Hemet, California for aggregate amount of $1,787,000, carrying coupon at twelve (12) percent, payable in monthly
interest installments of $17,870 starting in September 1st, 2021, and continuing monthly thereafter until maturity on February 1st, 2023,
at which time all sums of principal and interest then remaining unpaid shall be due and payable. The balloon payment promissory note
is secured by deed of trust. Upon execution, the Company paid $53,610 of loan origination fees, presented as debt discount in the consolidated
balance sheets, and prepaid six (6) months of interest only installments totaling $107,220, presented as Prepaid and other current assets
in the consolidated balance sheets. The refinanced amount paid off the first and second mortgage loans with a net funding to the Company
of approximately $387,000, net of finders’fees.
Convertible
Notes
Labrys
Fund LP
On
February 25, 2021, the Company entered into a convertible promissory note pursuant to which it borrowed $500,000, net of an issuance
costs of $25,500 and original issuance discount of $50,000. Interest under the convertible promissory note is 12% per annum, and the
principal and all accrued but unpaid interest is due on February 25, 2022. Additionally, as in incentive to the note holder, the note
includes the issuance of 85,000 commitment shares of common stock with fair value of approximately $131,000 and additional 250,000 shares
that must be returned to the Company if the note is fully repaid and satisfied on or prior to the maturity date. The note is convertible
upon an event of default after the issuance date at the noteholder’s option into shares of our common stock at a fixed conversion
price equal to $1.00, subject to standard anti-dilutive rights. Portion of the proceeds were used to retire an existing convertible note
with Labrys for total amount of approximately $135,000.
Cash
Call
On
February10 2021, the Company accepted a settlement offer from Cash Call to settle its obligation in exchange for total consideration
of nine (9) installments of approximately $3,940 each.
NOTE
7 – COMMITMENTS AND CONTINGENCIES
Commitment
to Purchase Land – Valle Divino
This
is one land project consisting of 20 acres to be acquired and developed into Valle Divino resort in Ensenada, which is subject to approval
by the Mexican government in Baja, California. The Company has promised to transfer title to the plots of land to the investors who have
invested in the Company once the Company receives an approval of change in transfer of title to the Company. The Company has promised
to transfer title to the plots of land to the investors who have invested in the Company once the Company receives an approval of change
in transfer of title to the Company. As of March 31, 2021, the Company entered into one (1) contract for deed agreements to sell two
(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 March 31, 2021, 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. The Company received additional principal payments
in the aggregate amount of $149,980 in the three months ending March 31, 2021. Upon an event of default in which case the payment is
non-refundable, and the Company no longer has any obligation to provide access to the land. The interest payments will be recognized
monthly as lease income. During the three months ended March 31, 2021 and 2020, the Company recognized $9,219 and $10,540 in lease income,
respectively. Lease income is presented as revenue, net in the consolidated statements of operations.
During the three months ended March 31, 2021,
the Company entered into a contract for deed agreement with a third-party investor. Under the contract the Company agreed to the
sale of 2 lots of vacant land and associated improvements located at the Valle Divino property in Ensenada, Mexico for a total purchase
price of $50,000, paid upon execution. The total cash proceeds of $50,000 was allocated to the two (2) promised plots of land. No shares
of common stock were included in the contract for deed.
Litigation
Costs and Contingencies
From
time to time, the Company may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business.
Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may
harm business. Management is currently not aware of any such legal proceedings or claims that could have, individually or in the aggregate,
a material adverse effect on our business, financial condition, or operating results.
NOTE
8 – STOCKHOLDERS’ EQUITY
The
Company’s equity at March 31, 2021 consisted of 75,000,000 authorized common shares and 2,000,000 authorized preferred shares,
both with a par value of $0.001 per share. As of March 31, 2021, and December 31, 2020, there were 23,563,381 and 23,230,654 shares of
common stock issued and outstanding, respectively. As of March 31, 2021, and December 31, 2020, 28,000 shares of Series A Preferred Stock
were issued and outstanding and 1,000 shares of Series B Preferred Stock were issued and outstanding, respectively.
On
August 26, 2020, the Company’s shareholders of record approved the increase of the Company’s authorized common stock, par
value $0.001, from 75,000,000 shares to 100,000,000 shares and the holders of a majority of the Company’s outstanding voting securities
approved the Company’s 2020 Equity Incentive Plan (the “2020 Plan”). The Company has reserved a total of 3,000,000
shares of the authorized common stock for issuance under the 2020 Plan. As of March 31, 2021, ILA has issued 1,700,000 options under
the 2020 Plan. The Company has not yet amended its articles of incorporation as of March 31, 2021.
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 March 31, 2021, ILA has granted
1,200,000 options under the 2019 Plan.
Common
Stock Issued for Services
On
March 3, 2021, the Company committed to issue 200,000 shares per a consulting agreement valued at $280,000. As of March 31, 2021, the
shares had not been issued and were recorded as stock payable.
Common
Stock Issued for Cash
On
February 22, 2021, the Company received cash of $45,000 for 100,000 shares of common stock. As of March 31, 2021, the shares had not
been issued and were recorded as stock payable.
Common
Stock sold with a Promise to Deliver Title to Plot of Land and Warrants
On
December 8, 2020, the Company received cash proceeds of $20,000 for 50,000 shares of common stock to be issued to a third-party investor.
In conjunction with this sale of shares, the Company also attached one (1) plot of land. The total cash proceeds of $20,000 was allocated
based upon the relative fair value of the shares and one (1) promised plot of land in the following amounts: shares were valued at $11,890;
and plot of land was valued at $8,110. The shares were issued on March 1, 2021.
On
December 31, 2020, the Company received cash proceeds of $30,000 for 50,000 shares of common stock to be issued to a third-party investor.
In conjunction with this sale of shares, the Company also attached one (1) plot of land. The total cash proceeds of $30,000 was allocated
based upon the relative fair value of the shares and one (1) promised plot of land in the following amounts: shares were valued at $20,622;
and plot of land was valued at $9,378. The shares were issued on March 1, 2021.
Common
Stock Issued for debt settlement.
On
December 31, 2020, the Company executed amendments to promissory notes with six (6) existing investors to extend the maturity date for
the issuance of an aggregate of 23,000 shares of common stock with a fair value of approximately $10,000. These shares were issued on
January 1, 2021.
On
January 1, 2021, the Company issued an aggregate of 95,000 shares of common stock in conjunction with previously executed promissory
notes. These shares were previously recorded as stock payable for aggregate fair value of approximately $75,600.
On
January 1, 2021, the Company issued an aggregate of 23,000 shares of common stock in conjunction with executed amendments to previously
executed promissory notes. These shares were issued with an estimated fair value of $8,970.
On
February 25, 2021, the Company issued 85,000 shares of common stock as commitment shares in accordance with the terms of one of its senior
secured self-amortization convertible note with aggregate fair value of $130,900.
All
shares of common stock issued during the three months ended March 31, 2021, were unregistered.
Preferred
Stock
On
November 6, 2019, the Company authorized and issued 1,000 shares of Series B Preferred Stock (“Series B”) and 350,000 shares
of common stock to Cleanspark Inc. in a private equity offering for $500,000. Management determined that the Series B should not be classified
as liability per the guidance in ASC 480 Distinguishing Liabilities from Equity upon issuance, even though the conversion would require
the issuance of variable number of shares since such obligation is not unconditional. As of March 31, 2021, Management recorded the value
attributable to the Series B of $293,500 as temporary equity on the consolidated balance sheet since the instrument is contingently redeemable
at the option of the holder. The Company recognized the beneficial conversion feature (“BCF”) that arises from a contingent
conversion feature, since the instrument reached maturity during the year ended December 31, 2020. The Company recognized such BCF as
a discount on the convertible preferred stock. The amortization of the discount created by a BCF recognized as a result of the resolution
of the contingency is treated as a deemed dividend that reduced net income in arriving at income available to common stockholders.
Warrants
A
summary of the Company’s warrant activity during the three months ended March 31, 2021 is presented below:
|
|
|
|
|
Weighted
|
|
|
Weighted
Average
Remaining
Contract
|
|
|
|
Number of
Warrants
|
|
|
Average
Exercise Price
|
|
|
Term
(Year)
|
|
Outstanding at December 31, 2020
|
|
|
460,000
|
|
|
$
|
0.38
|
|
|
|
0.70
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited-Canceled
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding at March 31, 2021
|
|
|
460,000
|
|
|
$
|
0.38
|
|
|
|
0.45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2021
|
|
|
460,000
|
|
|
|
|
|
|
|
|
|
The
aggregate intrinsic value as of March 31, 2021 and December 31, 2020 was approximately $458,000 and $4,600, respectively.
Options
A
summary of the Company’s option activity during the three months ended March 31, 2021 is presented below:
|
|
|
|
|
Weighted
|
|
|
Weighted
Average
Remaining
Contract
|
|
|
|
Number of
Options
|
|
|
Average
Exercise Price
|
|
|
Term
(Year)
|
|
Outstanding at December 31, 2020
|
|
|
2,900,000
|
|
|
$
|
0.43
|
|
|
|
3.35
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited-Canceled
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding at March 31, 2021
|
|
|
2,900,000
|
|
|
$
|
0.43
|
|
|
|
3.10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2021
|
|
|
931,250
|
|
|
|
|
|
|
|
|
|
Options
outstanding as of March 31, 2021 and December 31, 2020 had aggregate intrinsic value of $2,729,400 and $158,000, respectively. As of
March 31, 2021, the total unrecognized deferred share-based compensation expected to be recognized over the remaining weighted average
vesting periods of 0.87 years for outstanding grants was approximately $0.4 million.
NOTE
9 – SUBSEQUENT EVENTS
The
Company has evaluated subsequent events for adjustment to or disclosure in its consolidated financial statements through the date of
this report, and has not identified any recordable or disclosable events, not otherwise reported in these consolidated financial statements
or the notes thereto, except for the following:
On
May 10, 2021, the Company executed a membership interest purchase agreement with Rancho Costa Verde Development, LLC (“RCV”),
a developer of a 1,100 acre, 1,200-lot master planned community in Baja California. The Company purchased a total of 25,000
membership interest, representing 25% interest in RCV for a total purchase price of $4,000,000, comprised of 3,000,000 shares of the
Company at $1.30 per share and $100,000 in cash.
Concurrently,
the Company appointed Frank Ingrande, as President of the Company. Mr Ingrande joins the Company from RCV.
Subsequent to March 31, 2021, the Company
received $20,000 of cash from the issuance of 40,000 shares of common stock.
Subsequent to March 31, 2021, the Company
received $25,000 of cash from the exercise of 60,000 warrants.
Subsequent to March 31, 2021, the Company
entered into a contract for deed agreement with a third-party investor. Under the contract the Company agreed to the sale of 1 lot1 of
vacant land and associated improvements located at the Valle Divino property in Ensenada, Mexico for a total purchase price of $35,000,
and 70,000 shares of common stock.
Subsequent to March 31, 2021, the Company
issued 100,000 shares of common stock, which were paid but not issued as of March 31, 2021.
Subsequent to March 31, 2021, the Company
issued 245,946 shares of common stock, in relation to executed agreements.