UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For
the quarterly period ended
For the transition period from ______________ to _______________
Commission
file number:
| (Exact name of registrant as specified in its charter) |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
| (Address of principal executive offices) (Zip Code) |
| (Registrant’s telephone number, including area code) |
Securities registered pursuant to Section 12(b) of the Exchange Act: None
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data
File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Sec.232.405 of this chapter) during the preceding 12
months (or for such shorter period that the registrant was required to submit and post such files).
Indicate by check mark whether the registrant is a large-accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large-accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
| Large-accelerated filer | ☐ | Accelerated filer | ☐ | |
| ☒ | Smaller reporting company | |||
| Emerging growth company |
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
As of August 17, 2021, the registrant had shares of common stock, $0.001 par value per share, outstanding.
TABLE OF CONTENTS
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PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
INTERNATIONAL LAND ALLIANCE, INC.
CONSOLIDATED BALANCE SHEETS
| June 30, 2021 | December 31, 2020 | |||||||
| (unaudited) | (audited) | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash | $ | $ | ||||||
| Prepaid and other current assets | ||||||||
| Total current assets | ||||||||
| Land | ||||||||
| Land Held for Sale | ||||||||
| Buildings, net | ||||||||
| Furniture and equipment, net | - | |||||||
| Construction in Process | ||||||||
| Equity-method investment | - | |||||||
| Other non-current assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued liabilities | $ | $ | ||||||
| Contract liability | ||||||||
| Deposits | ||||||||
| Promissory notes, net of debt discounts | ||||||||
| Promissory notes, net of debt discounts– Related Parties | ||||||||
| Total current liabilities | ||||||||
| Promissory notes, net of current portion | - | |||||||
| Total liabilities | ||||||||
| Commitments and Contingencies (Note 8) | ||||||||
| Preferred Stock Series B (Temporary Equity) | ||||||||
| Stockholders’ equity (deficit) | ||||||||
| Preferred stock; $ par value; shares authorized; Series A shares issued and outstanding as of June 30, 2021, and December 31, 2020. | ||||||||
| Series B shares issued and outstanding as of June 30, 2021, and December 31, 2020. | ||||||||
| Common stock; $ par value; shares authorized; and shares issued and outstanding as of June 30, 2021, and December 31, 2020, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Stock (receivable) payable | ( | ) | ( | ) | ||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity (deficit) | ( | ) | ||||||
| Total liabilities and stockholders’ equity (deficit) | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
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INTERNATIONAL LAND ALLIANCE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
| For the three months ended | For the six months ended | |||||||||||||||
| June 30, 2021 | June 30, 2020 | June 30, 2021 | June 30, 2020 | |||||||||||||
| Revenues, net | $ | $ | $ | $ | ||||||||||||
| Cost of revenues | - | - | - | - | ||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses | ||||||||||||||||
| Sales and marketing | ||||||||||||||||
| General and administrative expenses | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense) | ||||||||||||||||
| Other income (expense) | - | ( | ) | - | ||||||||||||
| Income from equity-method investment | - | - | ||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total other expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Loss per common share - basic and diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average common shares outstanding - basic and diluted | ||||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
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INTERNATIONAL LAND ALLIANCE, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
For the three and six months ended June 30, 2021, and 2020.
(unaudited)
| Series
A Preferred Stock | Series
B Preferred Stock | Common Stock | Additional Paid-in | Stock | Accumulated | Total Stockholders’ | ||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | payable | Deficit | Deficit | |||||||||||||||||||||||||||||||
| Balance, December 31, 2019 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||
| Stock options granted for services | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||
| Common stock issued for warrant exercise | - | - | - | - | - | |||||||||||||||||||||||||||||||||||
| Common stock issued for services | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||
| Common stock to be issued and plots promised for cash | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Balance, March 31, 2020 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||
| Stock issued in connection with debts | - | - | - | - | ( | ) | - | |||||||||||||||||||||||||||||||||
| Common stock and warrants sold for cash | - | - | - | - | ( | ) | - | |||||||||||||||||||||||||||||||||
| Common stock, warrants and plots promised for cash, net | - | - | - | - | ( | ) | - | |||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Balance, June 30, 2020 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||
| Balance, December 31, 2020 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||
| Common stock issued with debt settlement | - | - | - | - | ( | ) | - | |||||||||||||||||||||||||||||||||
| Commitment shares issued | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||
| Common stock issued against accrued interest due to related party | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||
| Common stock to be issued for cash | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||
| Common stock issued from plot sale | - | - | - | - | ( | ) | - | - | ||||||||||||||||||||||||||||||||
| Common stock granted for services | - | - | - | - | - | - | ( | ) | - | - | ||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||
| Dividend on Series Preferred | - | - | - | - | - | - | ( | ) | - | - | ( | ) | ||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Balance, March 31, 2021 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||
| Common stock issued with plot purchase | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||
| Common stock issued for warrant and option exercise | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||
| Common stock issued with equity-method investment | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||
| Common stock issued for cash | - | - | - | - | ( | ) | - | |||||||||||||||||||||||||||||||||
| Common stock issued pursuant to consulting agreements | - | - | - | - | ( | ) | - | |||||||||||||||||||||||||||||||||
| Dividend on Series Preferred | - | - | - | - | - | - | ( | ) | - | - | ( | ) | ||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Balance, June 30, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
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INTERNATIONAL LAND ALLIANCE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| For the six months ended | ||||||||
| June 30, 2021 | June 30, 2020 | |||||||
| Cash Flows from Operating Activities | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Stock based compensation | ||||||||
| Loss on debt extinguishment | - | |||||||
| Depreciation and amortization | ||||||||
| Income from equity-method investment | ( | ) | - | |||||
| Amortization of debt discount | ||||||||
| Expenses paid by related party | - | |||||||
| Changes in assets and liabilities | ||||||||
| Prepaid and other current assets | ( | ) | ||||||
| Accounts payable and accrued liabilities | ||||||||
| Other non-current assets | ( | ) | ( | ) | ||||
| Contract liability | ||||||||
| Deposits | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash Flows from Investing Activities | ||||||||
| Equity-method investee acquisition | ( | ) | - | |||||
| Building and Construction in Progress payments | ( | ) | - | |||||
| Net cash used in investing activities | ( | ) | - | |||||
| Cash Flows from Financing Activities | ||||||||
| Common stock, warrants and options sold for cash | ||||||||
| Common stock, warrants and plots promised for cash, net | ||||||||
| Cash payments on promissory notes- related party | ( | ) | ( | ) | ||||
| Cash payments on promissory notes | ( | ) | ( | ) | ||||
| Cash proceeds from convertible notes | ||||||||
| Cash proceeds from promissory notes- related party | - | |||||||
| Cash proceeds from refinancing | - | |||||||
| Net cash provided by financing activities | ||||||||
| Net increase (decrease) in Cash | ( | ) | ||||||
| Cash, beginning of period | ||||||||
| Cash, end of period | $ | $ | ||||||
| Supplemental disclosure of cash flow information | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income tax | $ | $ | ||||||
| Non-Cash investing and financing transactions | ||||||||
| Dividend on Series B | $ | $ | ||||||
| Original issue discount on note payable | $ | $ | ||||||
| Debt discount issue don note payable | $ | $ | ||||||
| Shares issued with debt modification | $ | $ | ||||||
| Cancellation of previously issued common stock | $ | $ | ||||||
| Interest on notes paid by related party | $ | $ | ||||||
| Construction in progress paid by related party | $ | $ | ||||||
| Common stock issued as consideration for equity-method investee | $ | $ | ||||||
| Commitment shares issued with convertible note | $ | $ | ||||||
| Common stock issued in settlement of related party accrued interest on note | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
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INTERNATIONAL LAND ALLIANCE, INC.
Notes to Financial Statements
June 30, 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
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
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
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 six months ended June 30, 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.
Liquidity and Going Concern
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business.
Management
evaluated all relevant conditions and events that are reasonably known or reasonably knowable, in the aggregate, as of the date the consolidated
financial statements were available to be issued and determined that substantial doubt exists about the Company’s ability to continue
as a going concern. The Company’s ability to continue as a going concern is dependent on the Company’s ability to generate
revenues and raise capital. The Company has faced significant liquidity shortages as shown in the accompanying financial statements.
As of June 30, 2021, the Company’s current liabilities exceeded its current assets by $
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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. Subsequent to June 30, 2021, the Company entered into securities purchase agreements
with institutional and accredited investors for the issuance of an aggregate of shares of common stock with an equivalent
number of warrants for net proceeds of $
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
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management regularly evaluates estimates and assumptions related to the valuation of assets and liabilities. Management bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from management’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected. Significant estimates include:
| ■ | Liability for legal contingencies. |
| ■ | Useful life of building. |
| ■ | Assumptions used in valuing equity instruments. |
| ■ | Deferred income taxes and related valuation allowances. |
| ■ | Going concern. |
| ■ | Assessment of long-term asset for impairment. |
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
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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 cashaccounts payable, accrued liabilities, related party and third-party notes payables approximate fair value due to their relatively short maturities. Equity-method investment is recorded at cost, which approximates its fair value since the consideration transferred includes cash and a non-monetary transaction, in the form of the Company’s common stock, which was valued based on a combination of a market and asset approach.
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.
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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
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; | |
| ● | identification of the performance obligations in the agreement for the sale of plots including delivering title to the property being acquired from ILA; | |
| ● | determination of the transaction price; | |
| ● | allocation of the transaction price to the plots purchased when issued with equity or warrants to purchase equity in the Company; and | |
| ● | recognition of revenue when, or as, we satisfy a performance obligation such as delivering title to plots 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 plot sales or the execution of terms and conditions contracts with third parties and investors. These contracts define each party’s rights, payment terms and other contractual terms and conditions of the sale. Consideration was historically paid prior to transfer of title as stated above and in future land sales, the Company plans to transfer title to buyers at the time consideration has been transferred if the acquisition of the property has been completed by the Company. The Company applies judgment in determining the customer’s ability and intention to pay; however, collection risk is mitigated through collecting payment in advance or through escrow arrangements. A performance obligation is a promise in a contract or agreement to transfer a distinct product or item to the customer, which for us is transfer of title to our buyers. Performance obligations promised in a contract are identified based on the property that will be transferred to the customer that are both capable of being distinct and are distinct in the context of the contract, whereby the transfer of the property is separately identifiable from other promises in the contract. We have concluded the sale of property and delivering title is accounted for as a single performance obligation.
| 10 |
The transaction price of a contract is allocated to each distinct performance obligation and recognized as revenue when or as the customer receives the benefit of the performance obligation. The transaction price is determined based on the consideration to which we will expect to receive in exchange for transferring title to the customer.
The Company recognizes revenue when it satisfies a performance obligation in a contract by transferring control over property to a customer 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 $
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.
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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.
For the six months ended June 30, 2021 | For the six months ended June 30, 2020 | |||||||
| Options | ||||||||
| Warrants | ||||||||
| Total potentially dilutive shares | ||||||||
Concentration of Credit Risk
The Company maintains its cash in bank and financial institution deposits that at times may exceed federally insured limits. The Company has not experienced any losses in such accounts through June 30, 2021.
Investments – Equity Method
The Company accounts for equity method investments at cost, adjusted for the Company’s share of the investee’s earnings or losses, which are reflected in the consolidated statements of operations. The Company periodically reviews the investments for other than temporary declines in fair value below cost and more frequently when events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. As of June 30, 2021, the Company believes the carrying value of its equity method investments were recoverable in all material respects.
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, which is expected to be on December 31, 2021.
In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“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.
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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. The Company does not anticipate the new standard will have an impact since the Company does not currently has leases.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires the Company to measure and recognize expected credit losses for financial assets held and not accounted for at fair value through net income. ASU 2016-13 is intended to replace the incurred loss impairment methodology in current US GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates to improve the quality of information available to financial statement users about expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date.
In April 2019, the FASB issued ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments (“ASU 2019-04”). This amendment clarifies the guidance in ASU 2016-13. The guidance in ASU 2016-13 was further clarified by ASU No. 2019-11, Codification Improvements to Topic 326, Financial Instruments (“ASU 2019-11”) issued in November 2019. ASU 2019-11 provides transition relief such as permitting entities an accounting policy election regarding existing TDRs, among other things. In May 2019, the FASB issued ASU No. 2019-05, Financial Instruments-Credit Losses (Topic 326): Targeted Transition Relief (“ASU 2019-05”). The purpose of this amendment is to provide entities that have certain instruments within the scope of Subtopic 326-20, Financial Instruments-Credit Losses-Measured at Amortized Cost, with an option to irrevocably elect the fair value option in Subtopic 825-10, Financial Instruments-Overall, on an instrument-by-instrument basis. Election of this option is intended to increase comparability of financial statement information and reduce costs for certain entities to comply with ASU 2016-13. For public entities, ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.
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
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Oasis Park Title Transfer
On
June 18, 2019, Baja Residents Club SA de CV (“BRC”), a related party with common ownership and control by our CEO, Robert
Valdes, transferred title to the Company for the Oasis Park property which was part of a previously held land project consisting of
The Company transferred title to individual plots of land to the investors since the Company received this approval of change in transfer of title to ILA. The Company has not recognized any revenue for the three and six months ended June 30, 2021, since the Company did not sell any plots.
NOTE 4 – LAND, BUILDING, NET AND CONSTRUCTION IN PROCESS
Land and buildings, net as of June 30, 2021, and December 31, 2020:
| Useful life | June 30, 2021 | December 31, 2020 | ||||||||
| Land – Emerald Grove | $ | $ | ||||||||
| Land held for sale – Oasis Park | $ | $ | ||||||||
| Construction in Process | $ | $ | ||||||||
| Furniture & equipment | $ | $ | ||||||||
| Building – Emerald Grove | ||||||||||
| Less: Accumulated depreciation | ( | ) | ( | ) | ||||||
| Building, net | $ | $ | ||||||||
Depreciation
expense was $
Additionally,
in November and December 2019, $
NOTE 5 – RELATED PARTY TRANSACTIONS
The
Company paid to its Chief Executive Officer salary for services directly related to continued operations of $
The
Company paid to the Company’s Chief Financial Officer salary for services directly related to continued operations in the amount
of $
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 $
In
May 2021, the Company executed an employment agreement with the Company’s new President. The base salary is in the amount of $
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 $
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 $
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Promissory notes to related party consisted of the following at June 30, 2021, and December 31, 2020:
| June 30, 2021 | December 31, 2020 | |||||||
| RAS Real Estate LLC, | $ | $ | ||||||
| Lisa Landau, no maturity date, no coupon | ||||||||
| Six Twenty Management, | ||||||||
| Total Notes Payable | $ | $ | ||||||
| Less discounts | ||||||||
| Total Related Parties Notes Payable | ||||||||
| Less current portion | ( | ) | ( | ) | ||||
| Total Related Parties Notes Payable - long term | $ | $ | ||||||
NOTE 6 – NOTES PAYABLE
Promissory notes consisted of the following at June 30, 2021, and December 31, 2020:
| June 30, 2021 | December 31, 2020 | |||||||
| Note payable, due | $ | $ | ||||||
| Note payable, | ||||||||
| Note payable, secured, | ||||||||
| Note payable, | ||||||||
| Note payable, | ||||||||
| Note payable, | ||||||||
| Note payable, | ||||||||
| Note payable, | ||||||||
| Note payable, | ||||||||
| Note payable, | ||||||||
| Note Payable, | ||||||||
| Note Payable, | ||||||||
| Note Payable, | ||||||||
| Note payable, | ||||||||
| Convertible Note Payable, | ||||||||
| Note payable, | ||||||||
| Total Notes Payable | $ | $ | ||||||
| Less discounts | ( | ) | ( | ) | ||||
| Total Notes Payable | ||||||||
| Less current portion | ( | ) | ( | ) | ||||
| Total Notes Payable - long term | $ | $ | ||||||
Interest
expense including amortization of the associated debt discount for the six months ended June 30, 2021, and 2020 was $
On
January 21, 2021, the Company refinanced its existing first and second mortgage loans on the
Convertible Notes
Labrys Fund LP
On
February 25, 2021, the Company entered into a convertible promissory note pursuant to which it borrowed $
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Cash Call
On
February 10, 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 $
NOTE 7 – EQUITY METHOD INVESTMENT
In
May 2021, the Company acquired a
The investment has been accounted for under the equity method. It was determined that the Company does not have the power to direct the activities that most significantly impact RCV’s economic performance, and therefore, the Company is not the primary beneficiary of RCV and RCV has not been consolidated under the variable interest model.
The
investment was recorded at cost, which was determined to be $
The following represents summarized financial information of RCV for the six months ended June 30, 2021:
| Revenue | $ | |||
| Gross margin | $ | |||
| Loss from continuing operations | $ | ( | ) | |
| Net loss | $ | ( | ) |
Based
on its
NOTE 8 – COMMITMENTS AND CONTINGENCIES
Commitment to Purchase Land – Valle Divino
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 $
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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
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 $
During
the six months ended June 30, 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 plot of vacant land and associated improvements located at the Valle Divino property in Ensenada,
Mexico for a total purchase price of $
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 June 30, 2021 consisted of authorized common shares and authorized preferred shares, both with a par value of $ per share. As of June 30, 2021, and December 31, 2020, there were and shares of common stock issued and outstanding, respectively. As of June 30, 2021, and December 31, 2020, shares of Series A Preferred Stock were issued and outstanding and 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 $, from shares to 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 shares of the authorized common stock for issuance under the 2020 Plan. As of June 30, 2021, ILA has issued options under the 2020 Plan and options were exercised. The Company has not yet amended its articles of incorporation as of June 30, 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 shares of the Company’s common stock to be available under the plan. As of June 30, 2021, ILA has granted options under the 2019 Plan.
Common Stock Issued for Services
On
March 3, 2021, the Company committed to issue shares per a consulting agreement valued at $
During the three months ended June 30, 2021, the Company issued shares to the Company’s President in accordance with an executed employment agreement valued at $.
During the three months ended June 30, 2021, the Company issued an aggregate of shares to two consultants in accordance with executed consulting and real estate sales agreements valued at $.
During the three months ended June 30, 2021, the Company issued shares per advisory agreement with registered broker-dealer valued at $.
Common Stock Issued for Cash
On
February 22, 2021, the Company received cash of $
On
May 7, 2021, the Company received cash of $
Common Stock Issued from warrants and options exercise.
During
the three months ended June 30, 2021, the Company issued shares of common stock for total consideration of $
During
the three months ended June 30, 2021, the Company issued shares of common stock from option exercise for total consideration
of $
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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 $
On
December 31, 2020, the Company received cash proceeds of $
On
April 22, 2021, the Company received cash proceeds of $
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 shares of common stock with a fair value of approximately $. These shares were issued on January 1, 2021.
On January 1, 2021, the Company issued an aggregate of 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 $.
On January 1, 2021, the Company issued an aggregate of shares of common stock in conjunction with executed amendments to previously executed promissory notes. These shares were issued with an estimated fair value of $.
On February 25, 2021, the Company issued 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 $.
All shares of common stock issued during the three and six months ended June 30, 2021, were unregistered.
Common Stock Issued for equity-method investment.
On
May 14, 2021, the Company issued shares of common stock with a fair value of $
Preferred Stock
On
November 6, 2019, the Company authorized and issued shares of Series B Preferred Stock (“Series B”) and shares
of common stock to Cleanspark Inc. in a private equity offering for $
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Warrants
A summary of the Company’s warrant activity during the six months ended June 30, 2021, is presented below:
| Weighted | Weighted Contract | ||||||||||||
Number of Warrants | Average Exercise Price | Term (Year) | |||||||||||
| Outstanding at December 31, 2020 | $ | ||||||||||||
| Granted | - | ||||||||||||
| Exercised | ( | ) | |||||||||||
| Forfeited-Canceled | ( | ) | - | ||||||||||
| Outstanding at June 30, 2021 | $ | ||||||||||||
| Exercisable at June 30, 2021 | |||||||||||||
The aggregate intrinsic value as of June 30, 2021, and December 31, 2020, was approximately $ and $, respectively.
Options
| Weighted | Weighted Contract |
| ||||||||||
Number of Options |
| Average Exercise Price |
| Term (Year) |
| |||||||
| Outstanding at December 31, 2020 | $ | |||||||||||
| Granted | ||||||||||||
| Exercised | ( | ) | ( | ) | ( | ) | ||||||
| Forfeited-Canceled | - | |||||||||||
| Outstanding at June 30, 2021 | $ | |||||||||||
| Exercisable at June 30, 2021 | ||||||||||||
Options
outstanding as of June 30, 2021, and December 31, 2020, had aggregate intrinsic value of $ and $, respectively. As of
June 30, 2021, the total unrecognized deferred share-based compensation expected to be recognized over the remaining weighted average
vesting periods of years for outstanding grants was approximately $
NOTE 10 – SUBSEQUENT EVENTS
The Company has evaluated subsequent events for adjustment to or disclosure in its consolidated financial statements through the date of this report, and has not identified any recordable or disclosable events, not otherwise reported in these consolidated financial statements or the notes thereto, except for the following:
Subsequent
to June 30, 2021, the Company entered into a securities purchase agreement with certain institutional and accredited investors for the
issuance and sale of
| 19 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Overview of Our Company
International Land Alliance, Inc. (the “Company”) was incorporated pursuant to the laws of the State of Wyoming on September 26, 2013. We are based in San Diego, California. We are a residential land development company with target properties located primarily in the Baja California Norte region of Mexico and Southern California. Our principal activities are purchasing properties, obtaining zoning and other entitlements required to subdivide the properties into residential and commercial building plots, securing financing for the purchase of the plots, improving the properties’ infrastructure and amenities, and selling thep lots to homebuyers, retirees, investors and commercial developers. We offer the option of financing (i.e. taking a promissory note from the buyer for all or part of the purchase price) with a guaranteed acceptance on any purchase for every customer.
Overview
As of June 30, 2021, we had:
| ● | The Company executed residential plot sales agreements for its Valle Divino project and accepted reservations for home sales for its Plaza Bajamar project. To avoid paying multiple title transfer fees and the extended time for each recording, the seller for both parcels, Valdeland, S.A. de C.V. is in the process of creating a master bank trust. This will provide the Company through its Mexico subsidiary, International Land Alliance, S.A. de C.V., the rights, and interest to each property, including buildings and improvements. As demonstrated from the Company’s Oasis Park Resort, this will also potentially allow the Company to record revenue from Valle Divino and Plaza Bajamar projects, as sales are made, and individual trusts are established for each buyer, pending further review of Mexican trust law. The Company expects to have this trust established by the end of our fourth fiscal quarter.
| |
| ● | Continued our research and marketing efforts to identify potential home buyers in the United States, Canada, Europe, and Asia. Through the formation of a partnership with a similar development company in the Baja California Norte Region of Mexico, we have been able to leverage additional resources with the use of their established and proven marketing plan which can help us with sophisticated execution and the desired results for residential plot sales and development. | |
| ● | Continued the development of our interactive website for visitors to view condominium and villa options and allow customization. | |
| ● | Title of the Oasis Park Resort in San Felipe was assumed during 2019. As progress continues on the development of the Oasis Park Resort, we are expecting the transfer of title on the Villas del Enologo in Rancho Tecate, Valle Divino in Ensenada, Baja California and Costa Bajamar in Ensenada, Baja California during the Company fourth fiscal quarter of 2021, as it continues to follow the necessary steps to complete this legal process. | |
| ● | Continued our efforts to secure the proper financing and capital by exploring various options that will help achieve our goals of advanced development and additional investment opportunities. |
| ● | Completed the refinancing of our existing first and second mortgage loans on the 80 acres of land and existing structure of our Emerald Grove property for aggregate principal amount of $1,787,000, and net funding of approximately $387,000. |
Results of Operations for the Three Months Ended June 30, 2021, compared to the Three Months Ended June 30, 2020
Revenues
Our total revenue reported for the three months ended June 30, 2021, was $8,340, compared with $10,749 for the three months ended June 30, 2020. The change, which is not deemed to be material.
Cost of Revenues
Our total cost of revenues was $0 for the three months ended June 30, 2021, and 2020.
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Operating Expenses
Operating expenses increased to $1,847,699 for the three months ended June 30,2021 from to $376,653 for the three months ended June 30, 2020. The detail by major category is reflected in the table below.
| Three Months Ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| Sales and marketing | $ | 1,198,300 | $ | 58,223 | ||||
| General and administrative | 649,398 | 318,430 | ||||||
| Total Operating Expenses | $ | 1,847,698 | $ | 376,653 | ||||
Sales and marketing costs increased by $1,140,077, to $1,198,300 in the three months ended June 30, 2021, from $58,223 in the three months ended June 30, 2020, primarily due to the fair value of options, which were granted pursuant to a consulting and real estate sales agreement in the three months ended June 30, 2021.
General and administrative costs increased by $330,968 for the three months ended June 30, 2021, primarily due to an increase in share-based compensation expense related to consulting agreements.
Net Loss
We finished the three months ended June 30, 2021, with a net loss of $1,974,830, as compared to a net loss of $463,527 for the three months ended June 30, 2020. Such increase in the Company’s net loss is primarily the result of increased sales and marketing related to the issuance of stock-based payments from consulting and real-estate sales agreement, increased general and administrative costs, specifically stock-based payments from consulting services.
The factors that will most significantly affect future operating results will be:
| ● | The acquisition of land with plots for sale; | |
| ● | The sale price of future plots, compared to the sale price of plots in other resorts in Mexico; | |
| ● | The cost to construct a home on the plots to be transferred, and the quality of construction; | |
| ● | The quality of our amenities; | |
| ● | The global economy and the demand for vacation homes; and | |
| ● | The on-going effects of COVID-19 on the US and global economy and specifically in our target market. |
Other than the foregoing we do not know of any trends, events or uncertainties that have had, or are reasonably expected to have, a material impact on our revenues or expenses.
Results of Operations for the Six Months Ended June 30, 2021, compared to the Six Months Ended June 30, 2020
Revenues
Our total revenue reported for the six months ended June 30, 2021, was $17,559, compared with $25,832 for the six months ended June 30, 2020. The change, which is not deemed to be material is a result of rental income activities that the Company had not engaged in during the six months ended June 30, 2021.
Cost of Revenues
Our total cost of revenues was $0 for the six months ended June 30, 2021, and 2020.
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Operating Expenses
Operating expenses increased to $2,635,445 for the six months ended June 30,2021, from to $1,141,367 for the six months ended June 30, 2020. The detail by major category is reflected in the table below.
| Six Months Ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| Sales and marketing | $ | 1,215,200 | $ | 416,822 | ||||
| General and administrative | 1,420,245 | 724,545 | ||||||
| Total Operating Expenses | $ | 2,635,445 | $ | 1,141,367 | ||||
Sales and marketing costs increased by $798,378 for the six months ended June 30, 2021, primarily due to the fair value of options issued pursuant to a consulting and real estate sales agreement, which were granted in the six months ended June 30, 2021.
General and administrative costs increased by $695,700 for the six months ended June 30, 2021, primarily due to an increase in share-based compensation for consulting services and investor relations fees.
Net Loss
We finished the six months ended June 30, 2021, with a net loss of $2,965,313, as compared to a net loss of $1,309,660 for the six months ended June 30, 2020. Such increase in the Company’s net loss is primarily the result of increased sales and marketing expenses from the issuance of stock-based compensation under consulting agreement, increased general and administrative costs, specifically stock-based payments from consulting services and investor relations fees.
The factors that will most significantly affect future operating results will be:
| ● | The acquisition of land with plots for sale; | |
| ● | The sale price of future plots, compared to the sale price of plots in other resorts in Mexico; | |
| ● | The cost to construct a home on the plots to be transferred, and the quality of construction; | |
| ● | The quality of our amenities; | |
| ● | The global economy and the demand for vacation homes; and | |
| ● | The on-going effects of COVID-19 on the US and global economy and specifically in our target market. |
Other than the foregoing we do not know of any trends, events or uncertainties that have had, or are reasonably expected to have, a material impact on our revenues or expenses.
Capital Resources and Liquidity
Cash was $16,841 and $13,171 as of June 30, 2021, and December 31, 2020, respectively. As shown in the accompanying financial statements, we recorded a loss of $2,965,313 for the six months ended June 30, 2021. Our working capital deficit as of June 30, 2021, was $2,439,469 and net cash flows used in operating activities for the six months ended June 30, 2021, were $365,054. These factors and our ability to raise additional capital to accomplish our objectives, raises substantial doubt about our ability to continue as a going concern. We expect our expenses will continue to increase during the foreseeable future as a result of increased operations, increased construction activity and the development of current and future projects which include our current business operations.
We anticipate generating continued revenues over the next twelve months, as we continue to market the sale of plots held for sale at our Oasis Park Resort and we obtain title of our other projects. Consequently, we are dependent on the proceeds from future debt or equity investments to sustain our operations and implement our business plan. Subsequent to June 30, 2021, the Company entered into a securities purchase agreement with institutional and accredited investors for the issuance of an aggregate of 3,000,000 shares of common stock with an equivalent number of warrants for net proceeds of $1.9 million.
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Operating Activities
Net cash flows used in operating activities for the six months ended June 30, 2021, was $365,054 which resulted primarily due to the loss of $2,965,313 offset by non-cash share-based compensation of $1,922,536, and an increase in accounts payable of $215,444.
Investing Activities
Net cash flows used in investing activities was $271,259 for the six months ended June 30, 2021. The funds were used for the acquisition and development of the Emerald Grove and Costa Bajamar properties.
Financing Activities
Net cash flows provided by financing activities for the six months ended June 30, 2021, was $639,983 primarily from cash proceeds from issuance of promissory notes for aggregate amount of $563,112, net funding from refinancing of approximately $368,736, sale of common stocks of $65,000, exercise of warrants and options for $100,000, and offset by repayment on a promissory note of $745,739.
As a result of these activities, we experienced an increase in cash and cash equivalents of $3,670 for the six months ended June 30, 2021.
Our ability to continue as a going concern is still dependent on our success in obtaining additional financing from investors or from sale of our common shares.
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Critical Accounting Polices
In December 2001, the SEC requested that all registrants list their most “critical accounting polices” in the Management Discussion and Analysis. The SEC indicated that a “critical accounting policy” is one which is both important to the portrayal of a company’s financial condition and results, and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.
There have been no material changes to our critical accounting policies, with the exception of the Company’s new equity-method investment, as compared to the critical accounting policies and significant judgments and estimates disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on April 2, 2021. The accounting of the Company’s equity-method investment requires judgement by management to determine whether these is significant influence or control over the Company’s investee. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over these policies.
Contingencies
For a discussion of contingencies, see Note 8, Commitments and Contingencies, to the Notes to the Consolidated Financial Statements in “Part I, Item 1. Consolidated Financial Statements (Unaudited)” of the Quarterly Report.
Off-balance Sheet Arrangements
During the period ended June 30, 2021, we have not engaged in any off-balance sheet arrangements.
Recent Accounting Pronouncements
For a listing of our new and recently adopted accounting standards, See Note 2, Summary of Significant Accounting Policies, to the note to the consolidated financial statements in “Part I, Item 1. Consolidated Financial Statements (Unaudited)” of this Quarterly Report.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not required under Regulation S-K for “smaller reporting companies.”
Item 4. Controls and Procedures
The Company’s Principal Executive Officer and Principal Financial Officer (the Certifying Officers) are responsible for establishing and maintaining disclosure controls and procedures for the Company. An evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934) was carried out by us under the supervision and with the participation of our Certifying Officers. Based upon that evaluation, our Certifying Officers have concluded that as of June 30, 2021, our disclosure controls and procedures, that are designed to ensure (i) that information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and (ii) that such information is accumulated and communicated to management, including our Certifying Officers, in order to allow timely decisions regarding required disclosure, were not effective.
As of June 30, 2021, based on evaluation of these disclosure controls and procedures, management concluded that our disclosure controls and procedures were not effective. We will be required to expend time and resources hiring and engaging additional staff and outside consultants with the appropriate experience to remedy the weaknesses described below. We cannot assure you that management will be successful in locating and retaining appropriate candidates or that newly engaged staff or outside consultants will be successful in remedying material weaknesses thus far identified or identifying material weaknesses in the future.
A material weakness is a control deficiency (within the meaning of the Public Company Accounting Oversight Board (PCAOB) Auditing Standard No. 2) or combination of control deficiencies that result in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. Management has identified the following two material weaknesses which have caused management to conclude that as of June 30, 2021, our disclosure controls and procedures were not effective at the reasonable assurance level:
| ■ | inadequate internal controls relating to the authorization, recognition, capture, and review of transactions, facts, circumstances, and events that could have a material impact on the Company’s financial reporting process. | |
| ■ | inadequate controls over maintenance of records. |
Changes in Internal Control over Financial Reporting
There has been no change to our internal control over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II — OTHER INFORMATION
Item 1. Legal Proceedings
We are not a party to any pending legal proceeding. We are not aware of any pending legal proceeding to which any of our officers, directors, or any beneficial holders of 5% or more of our voting securities are adverse to us or have a material interest adverse to us.
Item 1A. Risk Factors
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
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. These shares were issued on May 19, 2021.
During the three months ended June 30, 2021, the Company issued 50,000 shares to the Company’s President in accordance with an executed employment agreement valued at $66,000.
During the three months ended June 30, 2021, the Company issued an aggregate of 100,000 shares to two consultants in accordance with executed consulting and real estate sales agreements valued at $132,000.
During the three months ended June 30, 2021, the Company issued 45,946 shares per advisory agreement with registered broker-dealer valued at $61,108.
Common Stock Issued for Cash
On February 22, 2021, the Company received cash of $45,000 for 100,000 shares of common stock. These shares were issued on April 1, 2021
On May 7, 2021, the Company received cash of $20,000 for 40,000 shares of common stock.
Common Stock Issued from warrants and options exercise.
During the three months ended June 30, 2021, the Company issued 160,000 shares of common stock for total consideration of $50,000 from warrants exercise.
During the three months ended June 30, 2021, the Company issued 1,000,000 shares of common stock from option exercise for total consideration of $50,000.
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.
On April 22, 2021, the Company received cash proceeds of $35,000 for 70,000 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 $35,000 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 $29,521; and plot of land was valued at $5,479.
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.
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Common Stock Issued for equity-method investment.
On May 14, 2021, the Company issued 3,000,000 shares of common stock with a fair value of $2,580,000 for the acquisition of 25% of the membership interest of Rancho Costa Verde Development
All of the securities set forth above were sold pursuant to exemptions from registration under Regulation D and/or Section 4(a)(2) of the Securities Act of 1933, as amended, as transactions by an issuer not involving any public offering and/ or under Regulation S, as promulgated under the Securities Act of 1933. No general advertising or solicitation was used. And the investors were purchasing the Shares for investment purposes only, without a view to resale. All issued securities were affixed with appropriate legends restricting sales and transfers.
Item 3. Defaults upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not Applicable.
Item 5. Other Information
None.
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Item 6. Exhibits
| Exhibit No. | Description | |
| 31.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 31.2 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 32.1 | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 32.2 | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 101 | The following materials from the Company’s Quarterly report for the period ended June 30, 2021, formatted in Extensible Business Reporting Language (XBRL). |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Dated: | August 23, 2021 | International Land Alliance, Inc. | ||
| By: | /s/ Roberto Jesus Valdes | |||
| President, Principal Executive Officer and a Director | ||||
| By: | /s/ Jason Sunstein | |||
| Principal Financial and Accounting Officer and a Director | ||||
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