UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2018
☐[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to _______________
Commission file number: 333-209484
| INTERNATIONAL LAND ALLIANCE, INC. |
| (Exact name of registrant as specified in its charter) |
| Wyoming | 46-3752361 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
350 10TH Avenue, Suite 1000, San Diego, California 92101 |
| (Address of principal executive offices) (Zip Code) |
| (877) 661-4811 |
| ( |
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. Yes ☒[X] No ☐
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). Yes ☒[X] No ☐
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“large accelerated filer"filer”, "accelerated filer"“accelerated filer” and "smaller“smaller reporting company"company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | Accelerated filer | |||
| Non-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 ☐[ ] No ☒
| Class | Outstanding as of May 15, 2019 | |
| Preferred Stock, $0.001 par value per share | 28,000 shares | |
| Common Stock, $0.001 par value per share | 19,811,101 shares |
Securities registered pursuant to Section 12(b) of the Exchange Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| Common Stock | ILAL | OTCQB |
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| Statements of Cash Flows – for the three months ended March 31, 2019 and 2018 | 6 | |
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| INTERNATIONAL LAND ALLIANCE, INC. | ||||||||
(Unaudited) | ||||||||
March 31, 2018 | December 31, 2017 | |||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash | $ | 11,421 | $ | 13,678 | ||||
| Total Current Assets | $ | 11,421 | $ | 13,678 | ||||
| LIABILITIES & STOCKHOLDERS' DEFICIT | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable | $ | 15,046 | $ | 5,224 | ||||
| Accrued expenses | 335,805 | 378,061 | ||||||
| Total Current Liabilities | 350,851 | 383,285 | ||||||
| Loan Payable - Long Term | $ | 67,524 | - | |||||
| Total Liabilities | $ | 418,375 | 383,285 | |||||
| Commitments and Contingencies (Note 5) | ||||||||
| Stockholders' Deficit | ||||||||
| Preferred Stock, $0.001 par value; 100,000 shares authorized; 28,000 shares issued and outstanding at March 31, 2018 and December 31, 2017, respectively | 28 | 28 | ||||||
| Common Stock, $0.001 par value; 75,000,000 shares authorized; 14,975,901 shares issued and 14,319,901 shares issued and outstanding at March 31, 2018 and December 31, 2017, respectively | 14,976 | 14,320 | ||||||
| Additional paid in capital | 4,508,927 | 4,313,510 | ||||||
| Accumulated deficit | (4,930,885 | ) | (4,697,465 | ) | ||||
| Total Stockholders' Deficit | (406,954 | ) | (369,607 | ) | ||||
| Total Liabilities and Stockholders' Deficit | $ | 11,421 | $ | 13,678 | ||||
INTERNATIONAL LAND ALLIANCE, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
| March 31, 2019 | December 31, 2018 | |||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash | $ | 111,280 | $ | 971 | ||||
| Total Current Assets | 111,280 | 971 | ||||||
| Land (Note3) | 180,470 | - | ||||||
| Building, net (Note3) | 937,658 | - | ||||||
| TOTAL ASSETS | $ | 1,229,408 | $ | 971 | ||||
| LIABILITIES & STOCKHOLDERS’ DEFICIT | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable | $ | 18,694 | $ | 17,198 | ||||
| Accrued expenses | 501,470 | 440,714 | ||||||
| Convertible Debt | 6,420 | 7,000 | ||||||
| Promissory Notes, net | 710,020 | 17,387 | ||||||
| Promissory Notes, net - in default | 30,034 | 15,546 | ||||||
| Total Current Liabilities | 1,266,638 | 497,845 | ||||||
| Long-Term Liabilites: | ||||||||
| Promissory Notes, net long-term | 673,242 | 68,075 | ||||||
| Total Long-Term Liabilites | 673,242 | 68,075 | ||||||
| TOTAL LIABILITIES | 1,939,880 | 565,920 | ||||||
| Commitments and Contingencies (Note 7) | ||||||||
| Stockholders’ Deficit | ||||||||
| Preferred Stock, $0.001 par value; 100,000 shares authorized; 28,000 shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively | 28 | 28 | ||||||
Common Stock, $0.001 par value; 75,000,000 shares authorized; 15,977,901 shares and 15,927,901 shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively | 15,978 | 15,928 | ||||||
| Additional paid in capital | 4,777,992 | 4,762,547 | ||||||
| Stock Payable | 108,920 | 35,420 | ||||||
| Accumulated deficit | (5,613,390 | ) | (5,378,872 | ) | ||||
| TOTAL STOCKHOLDERS’ DEFICIT | (710,472 | ) | (564,949 | ) | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | $ | 1,229,408 | $ | 971 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
| 3 |
| INTERNATIONAL LAND ALLIANCE, INC. | ||||||||
| For the Three Months Ended | ||||||||
March 31, 2018 | March 31, 2017 | |||||||
| Revenue | $ | - | $ | - | ||||
| Cost of revenue | - | - | ||||||
| Gross profit | - | - | ||||||
| Operating Expenses | ||||||||
| General & administrative | 221,078 | 73,055 | ||||||
| Total Operating Expenses | 221,078 | 73,055 | ||||||
| Operating loss | (221,078 | ) | (73,055 | ) | ||||
| Other income (expense) | ||||||||
| Interest Expense | (12,342 | ) | ||||||
| Total Other income (expenses) | (12,342 | ) | - | |||||
| Loss from operations before income tax | (233,420 | ) | (73,055 | ) | ||||
| Provision for income tax | - | |||||||
| Net Loss | $ | (233,420 | ) | $ | (73,055 | ) | ||
| Net loss per share - basic and diluted | $ | (0.02 | ) | $ | (0.01 | ) | ||
| Weighted average number of common shares outstanding - basic and diluted | 14,695,609 | 11,025,778 | ||||||
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
| For the Three Months Ended | ||||||||
| March 31, 2019 | March 31, 2018 | |||||||
| Revenue | $ | - | $ | - | ||||
| Cost of revenue | - | - | ||||||
| Gross profit | - | - | ||||||
| Operating Expenses | ||||||||
| General & administrative | 180,914 | 221,078 | ||||||
| Total Operating Expenses | 180,914 | 221,078 | ||||||
| Operating loss | (180,914 | ) | (221,078 | ) | ||||
| Other income (expense) | ||||||||
| Interest Expense | (53,604 | ) | (12,342 | ) | ||||
| Total Other income (expenses) | (53,604 | ) | (12,342 | ) | ||||
| Loss from operations before income tax | (234,518 | ) | (233,420 | ) | ||||
| Provision for income tax | - | - | ||||||
| Net Loss | $ | (234,518 | ) | $ | (233,420 | ) | ||
| Net loss per share - basic and diluted | $ | (0.01 | ) | $ | (0.02 | ) | ||
| Weighted average number of common shares outstanding - basic and diluted | 15,940,679 | 14,695,609 | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 4 |
| INTERNATIONAL LAND ALLIANCE, INC. | ||||||||
(Unaudited) | ||||||||
| For the Three Months Ended | ||||||||
March 31, 2018 | March 31, 2017 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net loss | $ | (233,420 | ) | $ | (73,055 | ) | ||
| Adjustments to reconcile net loss to net used in operating activities: | ||||||||
| Amortization of debt discount | 24 | - | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts payable | 9,821 | (18,173 | ) | |||||
| Accrued expenses | (97,682 | ) | - | |||||
| Net cash used in operating activities | (321,257 | ) | (91,228 | ) | ||||
| Cash Flows from Investing Activities | ||||||||
| Cash Flows from Financing Activities | ||||||||
| Cash proceeds from sale of common stock and warrants | 48,500 | 12,500 | ||||||
| Cash proceeds from sale of common stock, warrants and plots of land promised, net | 203,000 | 30,000 | ||||||
| Cash proceeds from note payable | 67,500 | - | ||||||
| Net cash provided by financing activities | 319,000 | 42,500 | ||||||
| Net (decrease) increase in cash and cash equivalents | (2,257 | ) | (48,728 | ) | ||||
| Cash and cash equivalents, beginning of the period | 13,678 | 58,550 | ||||||
| Cash and cash equivalent, end of the period | $ | 11,421 | $ | 9,822 | ||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid for income taxes | $ | - | $ | - | ||||
| Cash paid for interest | $ | - | $ | - | ||||
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
For the three months ended March 31, 2018
| Preferred Stock | Common Stock | Additional | ||||||||||||||||||||||||||||||
| Number | Par Value | Number | Par Value | Paid-in- Capital | Stock Payable | Accumulated Deficit | Total | |||||||||||||||||||||||||
| Balance - December 31, 2017 | 28,000 | $ | 28 | 14,319,901 | $ | 14,320 | $ | 4,313,510 | $ | - | $ | (4,697,465 | ) | $ | (369,607 | ) | ||||||||||||||||
| Common stock and warrants sold for cash | - | - | 114,000 | 114 | 35,886 | - | - | 36,000 | ||||||||||||||||||||||||
| Common stock, warrants and plots promised for cash, net | - | - | 542,000 | 542 | 159,531 | - | - | 160,073 | ||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | (233,420 | ) | (233,420 | ) | ||||||||||||||||||||||
Balance - March 31, 2018 (unaudited) | 28,000 | $ | 28 | 14,975,901 | $ | 14,976 | $ | 4,508,927 | $ | - | $ | (4,930,885 | ) | $ | (406,954 | ) | ||||||||||||||||
| For the three months ended March 31, 2019 | ||||||||||||||||||||||||||||||||
| Balance - December 31, 2018 | 28,000 | 28 | 15,927,901 | 15,928 | 4,762,547 | 35,420 | (5,378,872 | ) | (564,949 | ) | ||||||||||||||||||||||
| Common stock and warrants sold for cash | - | - | - | - | - | 10,000 | - | 10,000 | ||||||||||||||||||||||||
| Common stock, warrants and plots promised for cash, net | - | - | 50,000 | 50 | 15,445 | 17,500 | - | 32,995 | ||||||||||||||||||||||||
| Common stock issued for warrant exercise | - | - | - | - | - | 46,000 | - | 46,000 | ||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | (234,518 | ) | (234,518 | ) | ||||||||||||||||||||||
| Balance - March 31, 2019 (unaudited) | 28,000 | $ | 28 | 15,977,901 | $ | 15,978 | $ | 4,777,992 | $ | 108,920 | $ | (5,613,390 | ) | $ | (710,472 | ) | ||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 5 |
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| For the Three Months Ended | ||||||||
| March 31, 2019 | March 31, 2018 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net loss | $ | (234,518 | ) | $ | (233,420 | ) | ||
| Adjustments to reconcile net loss to net used in operating activities: | ||||||||
| Share-based compensation | - | 24 | ||||||
| Amortization of debt discount | 488 | - | ||||||
| Depreciate expense | 3,923 | - | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts payable | 1,496 | 9,821 | ||||||
| Accrued expenses | 51,250 | (97,682 | ) | |||||
| Net cash used in operating activities | (177,361 | ) | (321,257 | ) | ||||
| Cash Flows from Investing Activities | ||||||||
| Purchase of property | (517,051 | ) | - | |||||
| Net cash used in investing activities | (517,051 | ) | - | |||||
| Cash Flows from Financing Activities: | ||||||||
| Cash proceeds from sale of common stock and warrants | 10,000 | 48,500 | ||||||
| Cash proceeds from sale of common stock, warrants and plots of land promised, net | 42,500 | 203,000 | ||||||
| Cash proceeds from warrant exercise | 46,000 | - | ||||||
| Cash payments on convertible debt and promissory notes | (3,779 | ) | - | |||||
| Cash proceeds from note payable | 710,000 | 67,500 | ||||||
| Net cash provided by financing activities | 804,721 | 319,000 | ||||||
| Net increase (decrease) in cash | 110,309 | (2,257 | ) | |||||
| Cash, beginning of the period | 971 | 13,678 | ||||||
| Cash, end of the period | $ | 111,280 | $ | 11,421 | ||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid for income taxes | $ | - | $ | - | ||||
| Cash paid for interest | $ | 2,353 | $ | - | ||||
| Acquisition of land and building in asset purchase | $ | (605,000 | ) | $ | ||||
| Mortgage assumed as part of asset purchase | $ | 605,000 | $ | |||||
The accompanying notes are an integral part of these consolidated financial statements.
| 6 |
INTERNATIONAL LAND ALLIANCE, INC.
Notes to Financial Statements
For the Three Months Ended March 31, 2018
NOTE 1 – NATURE OF OPERATIONS AND GOING CONCERN
Nature of Operations
International Land Alliance, Inc. (the "Company"“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.Mexico and southern California. The Company has a 100% equity interest in International Land Alliance, S.A. de C.V., a corporation organized in Mexico. The Company'sCompany’s principal activities are purchasing properties, obtaining zoning and other entitlements required to subdivide the properties into residential and commercial building plots, securing financing for the purchase of the plots, improving the properties infrastructure and amenities, and selling the plots to homebuyers, retirees, investors and commercial developers.
The unaudited financial statements herein have been prepared by the Company pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”). The accompanying interim unaudited financial statements have been prepared under the presumption that users of the interim financial information have either read or have access to the audited financial statements for the latest year ended December 31, 2018. Accordingly, note disclosures which would substantially duplicate the disclosures contained in the December 31, 2018 audited financial statements have been omitted from these interim unaudited financial statements.
Certain information and note disclosures included in the financial statements prepared in accordance with United States general accepted accounting principles (“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, 2019, are not necessarily indicative of the results that may be expected for the year ended December 31, 2019. For further information, refer to the audited financial statements and notes for the year ended December 31, 2018 included in the Company’s Annual Report on Form 10-K filed with the SEC on April 24, 2019.
Going Concern
The Company has faced significant liquidity shortages as shown in the accompanying financial statements. As of March 31, 2019, the Company’s current liabilities exceeded its current assets by $1,155,358 The Company has recorded a going concern basis which assumesnet loss of $234,518 for the three months ended March 31, 2019 and has an accumulated deficit of $5,613,390 as of March 31, 2019. Net cash used in operating activities for the three months ended March 31, 2019 was $177,361. Although the Company has had difficulty in obtaining working lines of credit from financial institutions and trade credit from vendors, management has been able to raise capital from private placements and further expand the Company’s operations geographically to continue its growth. During the three months ended March 31, 2019, the Company initiated Private Placements of its securities, and had warrants exercised receiving cash proceeds of $98,500.
Although the Company has not earned any revenues since inception to March 31, 2019, the Company is continuing to focus its efforts on increased marketing campaigns to sell the plots of land. Americans and Canadians can own property in Mexico through a Fideicomiso or Bank Trust. Any foreigner can institute a Fideicomiso (the equivalent to an American beneficial trust) through a Mexican bank (ILA has selected Banco Bajio) in order to purchase real estate anywhere in Mexico, including what is commonly called the Restricted Zone. To do so, the buyer requests a Mexican bank to act as a trustee on his/her behalf. This conveys the same bundle of rights that holding property “fee simple” does in the United States. The property can be willed, leased, sold, rented, or improved in perpetuity and it is irrevocable. This title management system is very in common in Mexico. However, management determined in prior reporting periods that it does not fulfill “ownership”, as title is held by Banco Bajio, pursuant to generally accepted accounting principles in the United States of America (“U.S. GAAP” or “GAAP”). Based on advice from counsel, the Company will be abletaking title to realize its assets and discharge its liabilitiesall 497 acres fee simple in the normal course of business for the foreseeable future. The Company has generated recurring losses and a working capital deficit and anticipates future losses in the developmentname of its business raising substantial doubt aboutwholly-owned subsidiary, International Land Alliance, S.A. de C.V.. Banco Bajio will continue to act as Trustee for all Fideimosos. This will have an impact on the Company's abilityCompany’s financial statements, as management believes it will then allow us to continuerecord the 497-acre Oasis Park Resort on the Company’s balance sheet, record sales (both sales to date and going forward), as a going concern. The ability to continuewell as a going concern is dependent uponconstruction investments. Upon completion of the Oasis Park Resort, the Company generating profitable operationsalso plans to take title fee simple for its Villas del Enologo in Rancho Tecate and Valle Divino in Ensenada, Baja California, while using Banco Bajio for all Fideicomisos.
Management anticipates that the future and/or to obtain the necessary financing to meetCompany’s capital resources will significantly improve if its obligationsplots of land gain wider market recognition and repay its liabilities arising from normal business operations when they come due. Management intends to finance operating costs over the next twelve months with existing cash on hand, loans from directors and/or issuance of common shares. The financial statements do not include any adjustments that might be necessary ifacceptance resulting in increased plot sales. If the Company is unablenot successful with its marketing efforts to continue asincrease sales and weak demand for purchase of plots continues, the Company will experience a going concern.shortfall in cash and it will be necessary to further reduce its operating expenses in a manner or obtain funds through equity or debt financing in sufficient amounts to avoid the need to curtail its future operations subsequent to March 31, 2019. Given the liquidity and credit constraints in the markets, the business may suffer, should the credit markets not improve in the near future. The direct impact of these conditions is not fully known. However, there can be no assurance that the Company would be able to secure additional funds if needed and that if such funds were available on commercially reasonable terms or in the necessary amounts, and whether the terms or conditions would be acceptable to the Company. In such case, the reduction in operating expenses might need to be substantial in order for the Company to generate positive cash flow to sustain the operations of the Company.
Public Listing
On March 5, 2019, the Company received its trading symbol “ILAL” from FINRA. On April 4, 2019, the Company was approved to have its common stock traded on the OTCQB. On April 12, 2019, the Company becameeligible for electronic clearing and settlement through the Depository Trust Company (“DTC”) in the United States. The DTC is a subsidiary of the Depository Trust & Clearing Corporation and manages the electronic clearing and settlement of publicly traded companies. Securities that are eligible to be electronically cleared and settled through DTC are considered “DTC eligible.” This electronic method of clearing securities creates efficiency of the receipt of stock and cash, and thus accelerates the settlement process for investors and brokers, enabling the stock to be traded over a much wider selection of brokerage firms by coming into compliance with their requirements. Being DTC eligible is expected to greatly simplify the process of trading and transferring the Company’s common shares on the OTCQB.
| 7 |
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Company maintains its accounting records on an accrual basis in accordance with generally accepted accounting principles in the United States of America (U.S. GAAP).
These consolidated financial statements are presented in United States dollars. The accompanying audited,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 subsidiarysubsidiaries, 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"Mexico”).; the Company has a 100% equity interest in ILA Mexico. ILA Fund includes cash as it’s only asset with minimal expenses as of March 31, 2019. The sole purpose of this entity is strategic funding for the operations of the Company. ILA Mexico has no assets, no liabilities and minimal expenses as of March 31, 2018.2019. All intercompany balances and transactions are eliminated in consolidation.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP)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. The CompanyManagement regularly evaluates estimates and assumptions related to the valuation of accounts receivables, valuation of long-lived assets accounts payable and accrued liabilities. The CompanyManagement 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 the Company'smanagements estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.
ASC 820, "“Fair Value Measurements and Disclosures"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'sinstrument’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.
| 8 |
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 of March 31, 2019, there are no assets and liabilities that were measured andor recognized at fair value as of March 31, 2018 on a recurring basis:
Acquisitions
Amounts paid for acquisitions are allocated to the assets acquired and liabilities assumed based on their estimated fair value at the date of acquisition. The fair value of identifiable tangible and intangible assets is based on valuations that use information and assumptions provided by management. Identifiable tangible and intangible assets with finite lives are depreciation and amortized over their useful lives. Acquisition-related costs, including, legal, accounting, and other costs, are capitalized in asset acquisitions and for business combinations are expensed in the periods in which the costs are incurred. The results of operations of acquired assets are included in the financial statements from the acquisition date.
Land and Buildings
Land and building are stated at cost. Depreciation is provided by the use of the straight-line and accelerated methods for financial and tax reporting purposes, respectively, over the estimated useful lives of the assets, generally 5 to 10 years. Buildings will have an estimated useful life of 20 years. Land is an indefinite lived asset that is stated at fair value at date of acquisition.
Revenue Recognition
On January 1, 2018, we adopted Accounting Standards Update No. 2014-09, Revenue is derived primarily from saleContracts with Customers (Topic 606), which supersedes the revenue recognition requirements in Accounting Standards Codification (ASC) Topic 605, Revenue Recognition (Topic 605). Results for reporting periods beginning after January 1, 2018 are presented under Topic 606. As the Company has not had any revenue since inception, the impact of residential plots. Revenueadopting the new revenue standard was not material to our financial statements and there was no adjustment to beginning retained earnings on January 1, 2018.
Under Topic 606, revenue is recognized when earned, as reasonably determinablecontrol of the promised goods or services is transferred to our customers, in accordance with ACS 605-15-25, "Revenue Recognition." The Company recognizes revenues whenan amount that reflects the residential plots are deliveredconsideration we expect to the customer and the ownership is transferred. The Company'sbe entitled to in exchange for those goods or services.
We determine revenue recognition policy is based onthrough the revenue recognition criteria established under the SEC's Staff Accounting Bulletin No. 104. The criteria and how the Company satisfies each element is as follows: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred per the terms of the signed contract; (3) the price is fixed and determinable; and (4) collectability is reasonable assured.
| ● | identification of the contract, or contracts, with a customer; |
| ● | identification of the performance obligations in the contract; |
| ● | determination of the transaction price; |
| ● | allocation of the transaction price to the performance obligations in the contract; and |
| ● | recognition of revenue when, or as, we satisfy a performance obligation. |
Income Taxes
The Company accounts for income taxes using the asset and liability method in accordance with ASC 740, "“Income Taxes"Taxes”. The asset and liability method provide that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities, and for operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates and laws. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.
When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. In accordance with the guidance of ASC 740, the benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above should be reflected as a liability for unrecognized tax benefits in the accompanying balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination. Management makes estimates and judgments about our future taxable income that are based on assumptions that are consistent with our plans and estimates. Should the actual amounts differ from our estimates, the amount of our valuation allowance could be materially impacted. Any adjustment to the deferred tax asset valuation allowance would be recorded in the income statement for the periods in which the adjustment is determined to be required. The Company does not believe that it has taken any positions that would require the recording of any additional tax liability nor does it believe that there are any unrealized tax benefits that would either increase or decrease within the next year.
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Earnings (Loss)Loss Per Share
The Company computes net earnings (loss)loss per share in accordance with ASC 260, "“Earnings per Share"Share”. ASC 260 requires presentation of both basic and diluted net earnings per share ("EPS"(“EPS”) on the face of the statementstatements of operations. Basic EPS is computed by dividing earnings (loss)loss available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive. At March 31, 20182019 and December 31, 2017,2018, total warrants issued and outstanding convertible into common stock amounted to 984,000291,200 shares and 848,0001,075,200 shares, respectively.
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, 2018 and December 31, 2017. The Company's bank balance did not exceed FDIC insured amounts at March 31, 2018 or at December 31, 2017, respectively.
Recent Accounting Pronouncements
Business Combinations (Topic 805): Clarifying the Definition of a Business, which clarifies the definition of a business to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The standard will be effective for the Company in the first quarter of 2018. Early adoption is permitted. The Company is currently evaluating the impact of adopting this ASU on its consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, "“Leases(Topic (Topic 842)."” The objective of this update is to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those annual periods and is to be applied utilizing a modified retrospective approach. The Company is currently evaluating this guidance to determinehas no leases, therefore, there was no impact on the impact it may have on its financial statements.
9NOTE 3 – EMERALD GROVE ASSET PURCHASE
The Company has included all allowed acquisition costs of $22,050 in the value of the capitalized assets. The building and land asset values were assigned using a purchase price allocation based on the appraised land values. The total of the consideration plus acquisition costs assets of $1,122,050 will be allocated to land and building in the following amounts: $180,470 - Land; $941,581 - Building. The land is an indefinite long-lived asset that were assessed for impairment as a grouped asset with the building on a periodic basis. The building has an estimated useful life of 20 years and were depreciated on a straight-line basis.
NOTE 4 – LAND AND BUILDING
Land and buildings, net as of March 31, 2019 and December 31, 2018:
| Useful life | March 31, 2019 | December 31, 2018 | ||||||||
| Land | $ | 180,470 | $ | - | ||||||
| Building | 20 years | 941,581 | - | |||||||
| Less: Accumulated depreciation | (3,923 | ) | - | |||||||
| - | ||||||||||
| Building, net | $ | 937,658 | $ | - | ||||||
Depreciation expense was $3,923 for the three months ended March 31, 2019.
NOTE 35 – ACCRUED EXPENSES
Accrued expenses for the three months endedas of March 31, 20182019 and December 31, 20172018 is summarized as follows:follows.
| March 31, 2019 | December 31, 2018 | |||||||
| Relative fair value of plots of land sold | $ | 444,620 | $ | 435,155 | ||||
| Accrued interest | 56,850 | 5,599 | ||||||
| Total Accrued Expense | $ | 501,470 | $ | 440,714 | ||||
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| Balance | Balance | |||||||
March 31, 2018 | December 31, 2017 | |||||||
| Relative fair market value of plots of land sold | $ | 335,805 | $ | 278,061 | ||||
| Payable to an investor/shareholder | 0 | 100,000 | ||||||
| Total Accrued Expense | $ | 335,805 | $ | 378,061 | ||||
On September 1, 2016, the Company issued 250,000 shares of common stock to a third-party investor for cash proceeds of $187,500. In conjunction with this sale of shares, the Company also attached five (5) plots of land (the title to which not currently owned by the Company as its promise to transfer title to the investor once the Company owns the land) and issued 250,000 warrants at an exercise price of $0.75 per share, exercisable over a term of one year from the date of issuance (Note 6)8). The total cash proceeds of $187,500 was allocated based upon the relative fair market value of the shares, warrants and five (5) plots of land in the following amounts: shares were valued at $115,091; warrants were valued at $26,372, and five (5) plots of land was valued at $46,037.
On October 2, 2017, the Company entered into an agreement with this third-party investor and agreed to buy back the 5 (five) plots of land for an agreed sale price of $206,250 due by February 28, 2018. The Company has recorded a loss of $160,213 on the purchase of these 5 (five) plots of land, in the accompany financial statements for the year ended December 31, 2017. The Company has paid $106,250 of the purchase price as of December 31, 2017 and $100,000 remained payable and recorded as accrued expense as of December 31, 2017 (Note 8)9). The remaining balance of $100,000 was paid during the three months ended March 31, 2018 leaving a $0 balance at March 31,fully repaid in 2018.
The Company recorded as accrued expensesexpense the relative fair market value of plots of land sold by the Company to investors in conjunction with the sale of common stock to raise capital (Note 6)8). Total accrued expenses were $335,805 and $378,061 as of March 31, 2018 and December 31, 2017, respectively.
NOTE 46 – RELATED PARTY TRANSACTIONS
The Company paid to its Chief Executive Officer consulting fees for services directly related to continued operations of $10,000$3,000 and $227,000 ($102,000 in cash and 250,000 shares of common stock valued at$40,805 for the its fair market value of $125,000) for three months ended March 31, 20182019 and the year ended December 31, 2017 respectively (Note 6).2018, respectively. The Company paid to its Chief Financial Officer consulting fees of $21,361$31,360 and $264,987 ($139,987 in cash and 250,000 shares of common stock valued at its fair market value of $125,000)$138,079 for the three months ended March 31, 20182019 and the year ended December 31, 2017 respectively (Note 6).
The Company paid to its Secretary consulting fees for services directly related to continued operations of $7,000$- and $155,505 ($30,505 in cash and 250,000 shares of common stock valued at its fair market value of $125,000)$33,706 for the three months ended March 31, 20182019 and the year ended December 31, 2017, respectively (Note 6).
NOTE 57 – COMMITMENTS AND CONTINGENCIES
Commitment to purchase land
The two land projects consisting of 497 acres and 20 acres to be acquired and developed into Oasis Park resort near San Felipe, Baja and Valle Divino resort in Ensenada, isare 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.
On October 2, 2017, the Company entered into an agreement to purchase five (5) plots of land for $206,250 that it originally sold to a third-party investor on September 1, 2016 (Note 3)5). The Company has paid the remaining balance $100,000 owed to this third-party investor on February 28,during 2018 (Note 8)10).
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. Other than as set forth below, managementManagement is currently not aware of any such legal proceedings or claims that could have, individually or in the aggregate, a material adverse effect on our business, financial condition, or operating results.
In the normal course of business, the Company incurs costs to hire and retain external legal counsel to advise it on regulatory, litigation and other matters. The Company expenses these costs as the related services are received. If a loss is considered probable and the amount can be reasonable estimated, the Company recognizes an expense for the estimated loss.
NOTE 68 – STOCKHOLDERS'STOCKHOLDERS’ EQUITY
The Company'sCompany’s capitalization at March 31, 20182019 was 75,000,000 authorized common shares and 100,000 authorized preferred shares, both with a par value of $0.001 per share.
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Common Stock
For Three Months Ended March 31, 20182019
Common Stock sold with Warrants
On January 9, 2018,March 29, 2019, the Company issuedreceived cash proceeds of $10,000 for 20,000 shares of common stock to be issued to a third-party investor for cash proceeds of $5,000.investor. In conjunction with this sale of shares, the Company also attached and issued 20,000 warrants at an exercise price of $0.10$0.50 per share, exercisable over a term of one year from the date of issuance. The fair market value of $4,365$7,573 of the warrants was calculated using a Black-Scholes option pricing model with the following assumptions: stock price $0.10,$0.50, expected term of one year, expected volatility of 250%232%, and discount rate of 1.78%. The total cash proceeds of $5,000 was allocated based upon the relative fair market value of the shares and warrants in the following amounts: shares were valued at $2,670; and warrants were valued at $2,330.
Warrant Exercise
On February 13, 2018,January 28, 2019, the Company issued 30,000received cash proceeds of $40,000 for 400,000 shares of common stock to be issued in a warrant exercise to a third-party investor forinvestor. As of March 31, 2019, the funds received were included in equity as stock payable until the shares were eventually issued subsequent to the period end.
On March 13, 2019, the Company received cash proceeds of $15,000. In conjunction with this sale$6,000 for 48,000 shares of shares,common stock to be issued in a warrant exercise to two (2) third-party investors. As of March 31, 2019, the Company also attached and issued 30,000 warrants at an exercise price of $0.25 per share, exercisable over a term of one year from the date of issuance. The fair market value of $8,731 of the warrants was calculated using a Black-Scholes option pricing model with the following assumptions:funds received were included in equity as stock price $0.25, expected term of one year, expected volatility of 250%, and discount rate of 1.95%. The total cash proceeds of $15,000 was allocated based upon the relative fair market value ofpayable until the shares and warrants inwere eventually issued subsequent to the following amounts: shares were valued at $10,750; and warrants were valued at $4,250.
On January 5, 2018 and March 26, 2018,February 27, 2019, the Company issued 60,000 shares and 22,000received cash proceeds of $17,500 for 35,000 shares of common stock to a third-party investor for cash proceeds of $20,500. In conjunction with this sale of shares, the Company also attached one (1) plot of land (the title to which not currently owned by the Company as its promise to transfer title to the investor once the Company owns the land) andbe issued 82,000 warrants at an exercise price of $0.10 per share, exercisable over a term of one year from the date of issuance. The fair market value of $18,107 of the warrants was calculated using a Black-Scholes option pricing model with the following assumptions: stock price $0.25, expected term of one year, expected volatility of 250%, and discount rate of 1.83%. The total cash proceeds of $20,500 was allocated based upon the relative fair market value of the shares, warrants and one (1) promised plot of land in the following amounts: shares were valued at $7,839; warrants were valued at $6,924, and plot of land was valued at $5,736.
On February 23, 2018 and March 20, 2018,8, 2019, the Company issued 200,000 shares and 25,000 shares of common stock to a third-party investor for cash proceeds of $112,500. In conjunction with this sale of shares, the Company also attached three (3) plots of land (the title to which not currently owned by the Company as its promise to transfer title to the investor once the Company owns the land). The total cash proceeds of $112,500 was allocated based upon the relative fair market value of the shares, and three (3) promised plots of land in the following amounts: shares were valued at $80,357 and plots of land were valued at $32,143.
The Preferred Stock may be issued from time to time in one or more series. The Board of Directors is authorized to fix the number of shares of any series of Preferred Stock and to determine the designation of any such series. The Board of Directors is also authorized to determine or alter the rights, preferences, privileges, and restrictions granted to or imposed upon any wholly unissued series of Preferred Stock and, within the limits and restrictions stated in any resolution or resolutions of the Board of Directors originally fixing the number of shares constituting any series, to increase or decrease (but not below the number of shares of such series than outstanding) the number of shares of any such series subsequent to the issue of shares of that series.
On October 1, 2013, the Company authorized and issued 28,000 shares of Series A Preferred Stock to Grupo Valcas, (aa related party)party which provides consulting services on project development, in exchange for services. Grupo Valcas is master planner and real estate development firm owned by the Valdes family. Roberto Valdes, the Company President and Chief Executive Officer, was a minority owner of Valcas until December 2018 when he left the family company to focus 100% on International Land Alliance. The 28,000 shares grant the holder to have the right to vote on all shareholder matters equal to 100 votes per share. The Series A shares were valued according to the additional voting rights assigned. The value assigned to the voting rights was derived from a model utilizing control premiums to value the voting control of the preferred stock which was prepared by an independent valuation specialist. The value assigned to the Series A Preferred Stock was $2,260,496 and was recorded on the grant date as stock-based compensation.
At March 31, 20182019 and December 31, 2017,2018, 28,000 shares of Series A Preferred Stock were issued and outstanding.
Warrants
A summary of the Company'sCompany’s warrant activity during the three months ended March 31, 2018 and year ended December 31, 20172019 is presented below.
Number of Warrants | Weighted Average Exercise Price | Weighted Average Remaining Contract Term (Year) | ||||||||||
| Outstanding at December 31, 2018 | 1,075,200 | $ | 0.27 | 0.60 | ||||||||
| Granted | 70,000 | 0.50 | 0.97 | |||||||||
| Exercised | (448,000 | ) | 0.34 | - | ||||||||
| Forfeit/Canceled | (406,000 | ) | 0.19 | - | ||||||||
| Outstanding at March 31, 2019 | 291,200 | $ | 0.47 | 0.65 | ||||||||
| Exercisable at March 31, 2019 | 291,200 | |||||||||||
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Number of Warrants | Weighted Average Exercise Price | Weighted Average Remaining Contract Term (Year) | Aggregate Intrinsic Value | |||||||||||||
| Outstanding at December 31, 2016 | 1,617,333 | $ | 0.53 | 0.54 | $ | 206,586 | ||||||||||
| Granted | 848,000 | 0.27 | - | - | ||||||||||||
| Exercised | - | - | - | - | ||||||||||||
| Forfeit/Canceled | (1,617,333 | ) | 0.53 | - | - | |||||||||||
| Outstanding at December 31, 2017 | 848,000 | $ | 0.27 | 0.60 | $ | 132,548 | ||||||||||
| Exercisable at December 31, 2017 | 848,000 | |||||||||||||||
| Granted | 356,000 | 0.27 | - | - | ||||||||||||
| Exercised | - | - | - | - | ||||||||||||
| Forfeit/Canceled | (220,000 | ) | 0.21 | - | - | |||||||||||
| Outstanding at March 31, 2018 | 984,000 | $ | 0.24 | 0.60 | $ | 141,696 | ||||||||||
At March 31, 2018, 984,000 warrants were exercisable into common stock. The exercise price of warrants to convert into common stock ranged from $0.17 to $0.25 per warrant, and term of exercise of warrants was one year from the date of issuance.
NOTE 79 – INCOME TAX
Income tax expense for the yearsthree months ended DecemberMarch 31, 20172019 and March 31, 2018 is summarized as follows:
December 31, 2017 | March 31, 2018 | |||||||
| Deferred: | ||||||||
| Federal | $ | (355,164 | ) | $ | (404,177 | ) | ||
| State | - | - | ||||||
| Change in valuation allowance | 355,164 | 404,177 | ||||||
| Income tax expense (benefit) | $ | — | $ | — | ||||
December 31, 2017 | March 31, 2018 | |||||||
| Book Income (loss) | 21 | % | 21 | % | ||||
| State taxes | - | % | - | % | ||||
| Total | 21 | % | 21 | % | ||||
| Valuation allowance | -21 | % | -21 | % | ||||
| Tax expense at actual rate | — | — | ||||||
| March 31, 2019 | March 31, 2018 | |||||||
| Deferred: | ||||||||
| Federal | $ | (49,249 | ) | $ | (404,177 | ) | ||
| State | — | |||||||
| Change in valuation allowance | 49,249 | 404,177 | ||||||
| Income tax expense (benefit) | $ | — | $ | — | ||||
The tax effects of temporary differences that gave rise to significant portions of deferred tax assets and liabilities at DecemberMarch 31, 20172019 and MarchDecember 31, 2018 are as follows:
December 31, 2017 | March 31, 2018 | |||||||
| Deferred tax assets: | ||||||||
| Net operating loss carry forward | $ | 1,691,257 | $ | 1,924,653 | ||||
| Total gross deferred tax assets | 1,691,257 | 1,924,653 | ||||||
| Less - valuation allowance | (1,691,257 | ) | (1,924,653 | ) | ||||
| Net deferred tax assets | $ | — | $ | — | ||||
| March 31, 2019 | December 31, 2018 | |||||||
| Deferred tax assets: | ||||||||
| Net operating loss carry forward | $ | 541,370 | $ | 492,121 | ||||
| Total gross deferred tax assets | 541,370 | 492,121 | ||||||
| Less - valuation allowance | (541,370 | ) | (492,121 | ) | ||||
| Net deferred tax assets | $ | — | $ | — | ||||
Deferred income taxes are provided for the tax effects of transactions reported in the financial statements and consist of deferred taxes related primarily to differences between the bases of certain assets and liabilities for financial and tax reporting. The deferred taxes represent the future tax return consequences of those differences, which will either be deductible or taxable when the assets and liabilities are recovered or settled.
On December 22, 2017, the Tax Cuts and Jobs Act (the Tax Act) was enacted, significantly altering U.S. corporate income tax law. The SEC issued Staff Accounting Bulletin 118, which allows companies to record reasonable estimates of enactment impacts where all of the underlying analysis and calculations are not yet complete. The provisional estimates must be finalized within a one-year measurement period. The Company reduced its net domestic deferred tax asset balance by $219,863 due to the reduction in corporate tax rate from 34% to 21%. These adjustments are fully offset by a change in the Company’s U.S. valuation allowance.
At March 31, 2019, the Company had accumulated deficit of approximately $5,600,000 for U.S. federal and Wyoming income tax purposes, such net operating losses (NOLs) are available to offset future taxable income expiring on various dates through 2035. Due to changes in our ownership through common stock issuances, the utilization of NOLs may be subject to annual limitations and discounts under provisions of the Internal Revenue Code. We have not conducted a complete analysis to determine the extent of these limitations or any future limitation. Such limitations could result in the permanent loss of a significant portion of the NOLs. The Company has recorded a 100% valuation allowance on the deferred tax assets due to the uncertainty of its realization. The net change in the valuation allowance for the three months ended March 31, 2019 and 2018 was an increase of $49,249 and $404,177, respectively.
In the normal course of business, the Company'sCompany’s income tax returns are subject to examination by various taxing authorities. Such examinations may result in future tax and interest assessment by these taxing authorities. Accordingly, the Company believes that it is more likely than not that it will realize the benefits of tax positions it has taken in its tax returns or for the amount of any tax benefit that exceeds the cumulative probability threshold in accordance with FASB ASC 740. Differences between the estimated and actual amounts determined upon ultimate resolution, individually or in the aggregate, are not expected to have a material adverse effect on the company'scompany’s financial position. The Company believes its tax positions are all highly certain of being upheld upon examination. As such, the Company has not recorded a liability for unrecognized tax benefits. As of DecemberMarch 31, 2017,2019, tax years 2014, 2015, 2016, 2017 and 20172018 remain open for examination by the IRS and California. The Company has received no notice of audit from the Internal Revenue Service or California for any of the open tax years.
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NOTE 810 – DEBT
Promissory Notes - long-term
Cash Call, Inc.
On March 19, 2018 the Company issued a promissory note to CashCall, Inc. for $75,000 of cash consideration. The note bears interest at 94%, matures on May 1, 2028. The Company also recorded a $7,500 debt discount due to origination fees due at the beginning of the note. During the three months ended March 31, 2019 and 2018, the companyCompany amortized $188 and $24, respectively, of the debt discount into interest expense leaving a remaining total debt discount on the note of $6,731 and $7,476 as of March 31, 2019 and December 31, 2018, respectively. There was accrued interest of $5,874 and $5,599 at March 31, 2019 and December 31, 2018, respectively. There were no payments due on the note during the three months ended March 31, 2019 as the note was deferred until April 8, 2019 when payments would re-commence. As of March 31, 2019, the remaining principal balance was $74,993 with a current portion due of $21.
PrideCo
As discussed in Note 3, in March 2019, the Company assumed liabilities related to the assigned deeded property in Note 4. The liabilities include a mortgage entered into with PrideCo Private Mortgage Loan Fund, LP for $605,000 with prepaid interest of $2,353 on the date of closing, March 18, 2019. The mortgage loan was not assigned to the Company by the lender, however the lender acknowledged that the transfer of the property to the Company did not trigger an event of default. Mr. Sunstein remains a guarantor on the mortgage. The amount has been prorated for the days remaining in the month. The mortgage bears interest monthly on the unpaid principal at 10% with interest only payments commencing on May 1, 2019 and applied to interest due prior to any additional principal payments. Any late payments will include an additional 10% based on the principal plus unpaid interest accrued at the time. The loan matures on April 1, 2020 and is secured by the property acquired. There is no prepayment penalty on this loan after the first sixty days and any remaining principal at the maturity of the loan is due in full. As of March 31, 2019, the balance on the mortgage payable totaled $605,000. For the three months ended March 31, 2019, there was interest expense of $7,395 with accrued interest of $5,042 as of March 31, 2019.
Promissory Notes - Currently in default
Yellowstone
On August 9, 2018, the Company issued a promissory note to Yellowstone for $12,325 of cash consideration. The note bears interest at 25%, matured on December 9, 2018. The Company also recorded a $4,540 debt discount due to origination fees due at the beginning of the note. As of March 31, 2019, there is no remaining debt discount on the note. This note is currently in default and is being paid down through a debt settlement agency hired by the Company. As of March 31, 2019, the principle balance plus interest and fees is $3,533 which is was settled in April 2019 (see Note 11).
EBF
On August 10, 2018, the Company issued a promissory note to EBF for $21,750 of cash consideration. The note bears interest at 15%, matures on December 10, 2018. The Company also recorded a $7,475 debt discount due to origination fees due at the beginning of the note. As of March 31, 2019, there is no remaining debt discount on the note. This note is currently in default and is being paid down through a debt settlement agency hired by the Company and is paying $1,644 a month to settle the outstanding balance of the loan until paid in full. The remaining balance of principal and interest is $11,397 as of March 31, 2019.
On Deck
On April 4, 2018, the Company issued a promissory note to On Deck for $35,000 of cash consideration. The note bears interest at 94%, matured on January 6, 2019. The Company also recorded a $14,140 debt discount due to origination fees due at the beginning of the note. During the three months ended March 31, 2019, the company amortized $52 of the debt discount into interest expense leaving a remaining total debt discount on the note of $0 as of March 31, 2019. This note is currently in default and is being paid down through a debt settlement agency hired by the Company. As of March 31, 2019, the principle balance plus interest and fees is $14,162 which was settled in April 2019. (see Note 11).
Last Chance Funding
On October 10, 2018, the Company issued a promissory note to Last Chance Funding for $7,450 of cash consideration. The note bears interest at 15% and matured on January 5, 2019. The Company also recorded a $2,795 debt discount due to origination fees due at the beginning of the note. During the three months ended March 31, 2019, the Company amortized $248 of the debt discount into interest expense leaving a remaining total debt discount on the note of $0 as of March 31, 2019. This note is currently in default and is being paid down through a debt settlement agency hired by the Company. As of March 31, 2019, the principle balance plus interest and fees is $4,291 which was settled in April 2019 (see Note 11).
Convertible Notes
Sylva International
On September 18, 2018, the Company issued a convertible note to Sylva International for $25,000 of cash consideration. The notes are convertible into common stock at a fixed price of $0.50 per share. The note bears interest at 24%, matured on December 19, 2018. The Company evaluated the convertible note and determined that the shares issuable pursuant to the conversion option were determinate due to the fixed conversion price. The Company paid $18,000 leaving a remaining balance of $6,420 at March 31, 2019 and December 31, 2018, respectively. Payment on this note is currently being deferred until June 2019. The accrued interest balance is $420 as of March 31, 2019.
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Promissory Note - short-term
Loans from shareholders
InMarch 2019, the Company entered into short term notes payable with six existing shareholders of Contents
NOTE 911 – SUBSEQUENT EVENTS
Management has evaluated the subsequent events through May 11, 2018, the date whichthis financial information was filed with the financial statements were available to be issued noting no items that would impact the accounting for events or transactions in theCompany’s current period or require additional disclosures.
Common Stock sold with Warrants
On April 6, 2018,9, 2019, the Company issued 10,000 shares of common stock to a promissory notethird-party investor for cash proceeds of $2,500. In conjunction with this sale of shares, the Company also attached and issued 10,000 warrants at an exercise price of $0.25 per share, exercisable over a term of one year from the date of issuance. The fair value of $2,478 of the warrants was calculated using a Black-Scholes option pricing model with the following assumptions: stock price $0.50, expected term of one year, expected volatility of 232%, and discount rate of 2.72%. The total cash proceeds of $2,500 was allocated based upon the relative fair value of the shares and warrants in the following amounts: shares were valued at $1,261; and warrants were valued at $1,239.
Warrant Exercise
On April 4, 2019, the Company issued 95,000 shares of common stock in a warrant exercise to a third-party investor for cash proceeds of $9,500.
On Deck CapitalApril 9, 2019, the Company issued 45,000 shares of common stock in a warrant exercise to a third-party investor for $35,000cash proceeds of cash consideration.
Common stocks sold with a promise to deliver title to Plot of Land and Warrants
On April 20, 2018,8, 2019, the Company issued 14,000100,000 shares of common stock to a third-party investor for cash proceeds of $7,000.
Common stock
In April 2019, the Board approved the issuance of 2,363,200 shares of common stock to a third-party investor for cash, proceedsservices, warrants, and plots promised for cash or services with a value of $37,500.
Settlement of debt
On April 30, 2018,5, 2019 the Company issued 75,000 sharessettled the promissory note with Yellowstone for the remaining total balance with fees of common stock to$4,000 (see Note 10). The note was satisfied in full with cash on that date with a third-party investor for cash proceeds of $37,500.
On April 30, 2018,17, 2019 the Company issued 75,000 sharessettled the promissory note with Last Chance Funding with a remaining total balance of common stock to$4,375 for $3,000 (see Note 10). The note was satisfied in full with cash on that date with a third-party investor for cash proceeds of $37,500.
On May 3, 2018,April 25, 2019 the Company issued 14,000 sharessettled the promissory note with On Deck with a remaining total balance of common stock to a third-party investor$11,622 for cash proceeds of $7,000.$11,600 in six monthly payments (see Note 10). This note was still considered in default until paid in full. The Company made the first settlement payment on April 29, 2019 for $1,944.
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Item 2. Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations.
Overview of Our Company
International Land Alliance, Inc. (the "Company"“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.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 lots, securing financing for the purchase of the lots, improving the properties'properties’ infrastructure and amenities, and selling the 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 March 31, 2018,2019 we had:
| ● | Conducted market research to identify potential home buyers in the United States, Canada, Europe, and Asia. Developed marketing materials in print media and online; |
| ● | Developed an interactive website for visitors to view condominium and villa options and allow customization; |
| Estimated | |||||||
| Months to | |||||||
| Activity | Estimated Cost | Complete (1) | |||||
| Create website search engine optimization and search engine marketing campaigns. Create online help center with live chat functionality. | $ | 5,000 | One | ||||
| Submit a formal subdivision application to local government authority | $ | 50,000 | Three | ||||
| Create all technical and engineering drawings for review and approval | $ | 25,000 | Twelve | ||||
| Acquire title and then have all lots formally created with Tax I.D. numbers, obtain required | |||||||
| construction bonds | $ | 50,000 | Four | ||||
| Construction of unpaid interior roads on future property | Six | ||||||
| Continue sale of promises to provide lots | Commissions only, no cost to Company | N/A | |||||
| Construction of model home | $ | 200,000 | Three | ||||
| Construction of marina including docks, clubhouse and storage | $ | 200,000 | Four | ||||
We did not record any revenues for the three months ended March 31, 20182019 and three months ended March 31, 2017.2018. Total operating expenses recorded for the three months ended March 31, 20182019 were $221,078$180,914 compared to $73,055$221,078 for the three months ended March 31, 2017.2018. We had a net loss during the three months ended March 31, 2018,2019, of $(233,420)$(234,518); and a net loss of $(73,055)$(233,420) during the three months ended March 31, 2017.
The factors that will most significantly affect future operating results will be:
| ● | The acquisition of land with lots for sale; |
| ● | The sale price of future lots, compared to the sale price of lots in other resorts in Mexico; |
| ● | The cost to construct a home on the lots to be transferred, and the quality of construction; |
| ● | The quality of our amenities; and |
| ● | The global economy and the demand for vacation homes. |
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 $111,280 and cash equivalents were $11,576 and $9,822$971 at March 31, 20182019 and MarchDecember 31, 2017,2018, respectively. As shown in the accompanying financial statements, we recorded a loss of $233,420$234,518 and $73,055$233,420 for the three months ended March 31, 20182019 and three months ended March 31, 2017,2018, respectively. Our working capital deficit at March 31, 20182019 was $406,954$1,155,358 and net cash flows used in operating activities for three months ended March 31, 20182019 were $(321,257)$(177,361). These factors and our ability to raise additional capital to accomplish our objectives, raises 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 and the development of our current business operations. We anticipate generating only minimal revenues over the next twelve months. Consequently, we are dependent on the proceeds from future debt or equity investments to sustain our operations and implement our business plan. If we are unable to raise sufficient capital, we will be required to delay or forego some portion of our business plan, which would have a material adverse effect on our anticipated results from operations and financial condition. There is no assurance that we will be able to obtain necessary amounts of capital or that our estimates of our capital requirements will prove to be accurate.
We presently do not have any significant credit available, bank financing or other external sources of liquidity. Due to our operating losses, our operations have not been a source of liquidity. We will need to acquire other profitable entities or obtain additional capital in order to expand operations and become profitable. In order to obtain capital, we may need to sell additional shares of our common stock or borrow funds from private lenders. There can be no assurance that we will be successful in obtaining additional funding.
To the extent that we raise additional capital through the sale of equity or convertible debt securities, the issuance of such securities may result in dilution to existing stockholders. If additional funds are raised through the issuance of debt securities, these securities may have rights, preferences and privileges senior to holders of common stock and the terms of such debt could impose restrictions on our operations. Regardless of whether our cash assets prove to be inadequate to meet our operational needs, we may seek to compensate providers of services by issuance of stock in lieu of cash, which may also result in dilution to existing shareholders. Even if we are able to raise the funds required, it is possible that we could incur unexpected costs and expenses, fail to collect significant amounts owed to us, or experience unexpected cash requirements that would force us to seek alternative financing.
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No assurance can be given that sources of financing will be available to us and/or that demand for our equity/debt instruments will be sufficient to meet our capital needs, or that financing will be available on terms favorable to us. If funding is insufficient at any time in the future, we may not be able to take advantage of business opportunities or respond to competitive pressures or may be required to reduce the scope of our planned development, any of which could have a negative impact on our business and operating results. In addition, insufficient funding may have a material adverse effect on our financial condition, which could require us to:
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| ● | Curtail our operations significantly, or | |
| ● | Seek arrangements with strategic partners or other parties that may require us to relinquish significant rights to our development of resorts and correlated services, or | |
| ● | Explore other strategic alternatives including a merger or sale of our Company. |
Operating Activities
Net cash flows used in operating activities for the three months ended March 31, 2019 was ($177,361) which resulted primarily due to the loss of $234,518 offset by an increase in accrued expenses of $60,755. Net cash flows used in operating activities for the three months ended March 31, 2018 was $(321,257) which resulted primarily due G&A expenses of $233,420 and increase in accrued expenses of $97,682.
Investing Activities
Net cash flows used in operatinginvesting activities was ($517,051) for the three months ended March 31, 2019. The funds were used for the acquisition of an investment property. There were no investment cash activities for the three months ended March 31, 2017 was $(91,228) which resulted due to the loss of $73,055, decrease in accounts payable of $18,173.
Financing Activities
Net cash flows provided by financing activities for the three months ended March 31, 2019 was $804,721 primarily from cash proceeds from sale of common stocks and warrants of $10,000 and cash proceeds from sale of common stock, warrants and plots of land promised to investors, net of expenses of $42,500, cash proceeds from a warrant exercise of $46,000, and cash proceeds from notes payable of $710,000. Net cash flows provided by financing activities for the three months ended March 31, 2018 was $319,000 primarily from cash proceeds from sale of common stocks and warrants of $48,500, and cash proceeds from sale of common stock, warrants and plots of land promised to investors, net of expenses of $203,000 and cash proceeds from note payable of $67,500. Net
As a result of these activities, we experienced an increase in cash flows provided by financing activitiesand cash equivalents of $110,309 for the three months ended March 31, 2017 was $42,500 primarily form cash proceeds from sale of common stock2019, and warrants of $12,500, and cash proceeds from sale of common stock, warrants and plots of land promised to investors, net of expenses of $30,000.
We have no agreements in place with our shareholders, officers and directors or with any third parties to fund operations. We have not negotiated nor has available to us any other third-party sources of liquidity. Other than the acquisition development of future resort properties in Mexico, we do not anticipate any material capital requirements for the next twelve months ending December 31, 2018.
Off-balance Sheet Arrangements
Since our inception through March 31, 2018,2019, we have not engaged in any off-balance sheet arrangements.
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We have adopted all applicable recently issued accounting pronouncements. The adoption of the accounting pronouncements did not have a material effect on our operations.
As a "smaller“smaller reporting company"company”, we are not required to provide the information required by this Item.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) and 15d - 15(f) under the Securities Exchange Act of Disclosure Controls1934). Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of our financial reporting and Procedures
Because of its inherent limitations, internal control over financial reporting, however well designed and operated, can provide only reasonable, and not absolute, assurance that the controls will prevent or detect misstatements. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events. Because of these and other inherent limitations of control systems, there is only the reasonable assurance that our controls will succeed in achieving their goals under all potential future conditions.
Management, under the supervision and with the participation of our management, includingChief Executive Officer and our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of the end of the period covered in this report, our disclosure controls and procedures were not effective to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the required time periods and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
a) We have a lack of segregation of duties due to the small size of the Company.
b) The Company did not maintain reasonable control over records underlying transactions necessary to permit preparation of the Company’s financial statements.
c) Lack of controls that provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposal of the Company’s assets that could have a material effect on the financial statements.
d) Lack of a formal fulltime CFO position who can devote significant attention to financial reporting resulted in multiple audit adjustments.
e) Lack of a functioning audit committee, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures. Management believes the lack of a functioning audit committee results in ineffective oversight in the establishment and monitoring of required internal controls and procedures, which could result in a material misstatement in our financial statements in future period.
Changes in Internal Control over Financial Reporting
With continued efforts to increase oversight and to remediate any underlying control issues, the Company has engaged the services of a third-party consulting firm to implement adequate processes and procedures to strengthen controls. The goal is of the Company is to build an established finance and accounting department as the Company continues to increase operations. Other than with respect to the ongoing plan for improved internal controls, there has been no change to our internal control over financial reporting during our most recent fiscal quarter that has materially affected, or that areis reasonably likely to materially affect, the Company'sour internal control over financial reporting.
Management expects to strengthen internal control further during 2019 which is subject to available financial resources by developing stronger business and financial processes for accounting for transactions such as warrant/stock issuances, which will enhance internal control for the Company.
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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.
There are not requiredno updates to providerisk factors previously discussed in our Form 10-K Annual Report for the information required by this Item.
Common Stock sold with Warrants
On March 29, 2019, the Company received cash proceeds of equity securities during$10,000 for 20,000 shares of common stock to be issued to a third-party investor. In conjunction with this sale of shares, the quarter endedCompany also attached and issued 20,000 warrants at an exercise price of $0.50 per share, exercisable over a term of one year from the date of issuance. The fair value of $7,573 of the warrants was calculated using a Black-Scholes option pricing model with the following assumptions: stock price $0.50, expected term of one year, expected volatility of 232%, and discount rate of 2.72%. The total cash proceeds of $10,000 was allocated to equity. As of March 31, 2018.
Warrant Exercise
On January 28, 2019, the Company received cash proceeds of $40,000 for 400,000 shares of common stock to be issued in a warrant exercise to a third-party investor. As of March 31, 2019, the funds received were included in equity as stock payable until the shares were eventually issued subsequent to the period end.
On March 13, 2019, the Company received cash proceeds of $6,000 for 48,000 shares of common stock to be issued in a warrant exercise to two (2) third-party investors. As of March 31, 2019, the funds received were included in equity as stock payable until the shares were eventually issued subsequent to the period end.
Common stocks sold with a promise to deliver title to Plot of Land and Warrants
On February 27, 2019, the Company received cash proceeds of $17,500 for 35,000 shares of common stock to be issued to a third-party investor. In conjunction with this sale of shares, the Company also attached one (1) plot of land (the title to which not currently owned by the Company as its promise to transfer title to the investor once the Company owns the land). The total cash proceeds of $17,500 was allocated based upon the relative fair value of the shares and one (1) promised plot of land in the following amounts: shares were valued at $9,875; and plot of land was valued at $7,625. As of March 31, 2019, the funds received were included in equity as stock payable until the shares were eventually issued subsequent to the period end.
On March 8, 2019, the Company issued 50,000 shares of common stock to a third-party investor for cash proceeds of $25,000. In conjunction with this sale of shares, the Company also attached one (1) plot of land (the title to which not currently owned by the Company as its promise to transfer title to the investor once the Company owns the land) and issued 50,000 warrants at an exercise price of $0.50 per share, exercisable over a term of one year from the date of issuance. The fair market value of $18,932 of the warrants was calculated using a Black-Scholes option pricing model with the following assumptions: stock price $0.50, expected term of one year, expected volatility of 232%, and discount rate of 2.72%. The total cash proceeds of $25,000 was allocated based upon the relative fair market value of the shares, warrants and one (1) promised plot of land in the following amounts: shares were valued at $9,446; warrants were valued at $8,750, and plot of land was valued at $6,804.
All of the securities set forth above were sold pursuant to exemptions from registration under Section 4(2) and/or Reg. S of the Securities Act of 1933, as amended, as transactions by an issuer not involving any public offering. 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.
None.
Not Applicable.
None.
| Exhibit No. | Description | |
| 32.2 | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 101 | The following materials from the |
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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: | May | International Land Alliance, Inc. | ||
| By: | /s/ Roberto Jesus Valdes | |||
| | President, Principal Executive Officer and a Director | |||
| By: | ||||
| Principal Financial and Accounting Officer | ||||