Notes
to Financial Statements
March
31, 2022
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. The Company
is a residential land development company with target properties located in the Baja California, Northern 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.
Certain
information and note disclosures included in the financial statements prepared in accordance with United States generally accepted accounting
principles (“U.S. GAAP” or “GAAP”) have been condensed or omitted pursuant to such rules and regulations. In
the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the
three months ended March 31, 2022, are not necessarily indicative of the results that may be expected for the year ending December 31,
2022. For further information, refer to the audited financial statements and notes for the year ended December 31, 2021, included in
the Company’s Annual Report on Form 10-K filed with the SEC on April 15, 2022.
Liquidity
and Going Concern
The
accompanying consolidated unaudited financial statements have been prepared in accordance with accounting principles generally accepted
in the United States of America on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities
and commitments in the normal course of business.
Management
evaluated all relevant conditions and events that are reasonably known or reasonably knowable, in the aggregate, as of the date the consolidated
financial statements were available to be issued and determined that substantial doubt exists about the Company’s ability to continue
as a going concern. The Company’s ability to continue as a going concern is dependent on the Company’s ability to generate
revenues and raise capital. The Company has faced significant liquidity shortages as shown in the accompanying financial statements.
As of March 31, 2022, the Company’s current liabilities exceeded its current assets by approximately $3.7 million. The Company
has recorded a net loss of $1,492,722 for the three months ended March 31, 2022, has an accumulated deficit of approximately $16.2 million
as of March 31, 2022. Net cash used in operating activities for the three months ended March 31, 2022, was approximately $345,000. These
factors raise substantial doubt about the Company’s ability to continue as a going concern.
The Company continues to raise additional
capital through debt and equity in order to fund its operations, which may have the effect of diluting the holdings of existing shareholders.
Management
anticipates that the Company’s capital resources will significantly improve if its plots of land gain wider market recognition
and acceptance resulting in increased plot sales. If the Company is not successful with its marketing efforts to increase sales, the
Company will continue to experience a shortfall in cash, and it will be necessary to obtain funds through equity or debt financing in
sufficient amounts or to further reduce its operating expenses in a manner to avoid the need to curtail its future operations subsequent
to March 31, 2022. The direct impact of these conditions is not fully known.
However,
there can be no assurance that the Company would be able to secure additional funds if needed and that if such funds were available on
commercially reasonable terms or in the necessary amounts, and whether the terms or conditions would be acceptable to the Company. In
such case, the reduction in operating expenses might need to be substantial in order for the Company to generate positive cash flow to
sustain the operations of the Company. (See Note 11 regarding subsequent events).
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, International Land Alliance, S.A. de C.V., a company incorporated
in Mexico (“ILA Mexico”), and Emerald Grove Estates LLC, incorporated in the State of California. ILA Fund includes cash
as its only assets with minimal expenses as of March 31, 2022. The sole purpose of this entity is strategic funding for the operations
of the Company. ILA Mexico has lots held for sale for the Oasis Park Resort, no liabilities, and minimal expenses as of March 31, 2022.
All intercompany balances and transactions are eliminated in consolidation.
The
Company’s consolidated subsidiaries and/or entities were as follows:
SCHEDULE
OF CONSOLIDATED SUBSIDIARIES AND ENTITY
Name of Consolidated Subsidiary or Entity | |
State or Other Jurisdiction of Incorporation or Organization | |
Attributable Interest | |
ILA Fund I, LLC | |
Wyoming | |
| 100 | % |
International Land Alliance, S.A. de C.V. (ILA Mexico) | |
Mexico | |
| 100 | % |
Emerald Grove Estates, LLC | |
California | |
| 100 | % |
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 March 31, 2022, Management believes the carrying value of its equity method investments were recoverable
in all material respects.
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 buildings. |
|
● |
Assumptions
used in valuing equity instruments. |
|
● |
Deferred
income taxes and related valuation allowances. |
|
● |
Going
concern. |
|
● |
Assessment
of long-lived asset for impairment. |
|
● |
Significant
influence or control over the Company’s investee. |
|
● |
Revenue
recognition |
Segment
Reporting
The
Company operates as one reportable segment under ASC 280, Segment Reporting. The Chief Operating Decision Maker (“CODM”)
regularly reviews the financial information of the Company at a consolidated level in deciding how to allocate resources and in assessing
performances.
Cash
and Cash Equivalents
The
Company considers all highly liquid instruments with maturity of three months or less at the time of issuance to be cash equivalents.
The Company did not have any cash equivalents as of March 31, 2022, and December 31, 2021, respectively.
Fair
Value of Financial Instruments and Fair Value Measurements
Accounting
Standards Codification (“ASC”) 820 Fair Value Measurements and Disclosures, requires an entity to maximize the use
of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy
based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s
categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
ASC 820 prioritizes the inputs into three levels that may be used to measure fair value:
Level
1
Level
1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level
2
Level
2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability
such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets
with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are
observable or can be derived principally from, or corroborated by, observable market data. If the asset or liability has a specified
(contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability.
Level
3
Level
3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement
of the fair value of the assets or liabilities.
As
defined by ASC 820, the fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction
between willing parties, other than in a forced or liquidation sale, which was further clarified as the price that would be received
to sell an asset or paid to transfer a liability (“an exit price”) in an orderly transaction between market participants
at the measurement date.
The
reported fair values for financial instruments that use Level 2 and Level 3 inputs to determine fair value are based on a variety of
factors and assumptions. Accordingly, certain fair values may not represent actual values of the Company’s financial instruments
that could have been realized as of any balance sheet dates presented or that will be recognized in the future, and do not include expenses
that could be incurred in an actual settlement.
The
carrying amounts of the Company’s financial assets and liabilities, such as cash, accounts receivable, prepaid and other current
assets, accounts payable and accrued liabilities, contracts liability, deposits, promissory notes, net of debt discounts and promissory
notes related party 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.
Land
Held for Sale
The
Company considers properties to be assets held for sale when (1) management commits to a plan to sell the property; (2) the property
is available for immediate sale in its present condition and (3) the property is actively being marketed for sale at a price that is
reasonable given our estimate of current market value. Upon designation of a property as an asset held for sale, we record the property’s
value at the lower of its carrying value or its estimated net realizable value.
Land
and Buildings
Land
and buildings are stated at cost. Depreciation is provided by the use of the straight-line and accelerated methods for financial and
tax reporting purposes, respectively, over the estimated useful lives of the assets. Buildings will have an estimated useful life of
20 years. Land is an indefinite lived asset that is stated at fair value at date of acquisition.
Revenue
Recognition
Under
ASC 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. Currently, upon execution of each contract, the Company has not developed
sufficient controls and procedures to provide reasonable assurance that collection of the consideration, which the Company is entitled
to, is probable. As such, the Company has not yet recognized any revenue from the seller’s financed contracts for deed in the three
months ended March 31, 2022. The Company currently retains title of the underlying asset under each contract until the customer pays
the consideration in full. Management considers the retention of title as merely a protective right, which would potentially not disallow
revenue recognition for the full consideration to which the Company is entitled.
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 $0 and $16,900 for the three months ended March
31, 2022, and 2021, respectively.
Debt
issuance costs and debt discounts
Debt
issuance costs and debt discounts are being amortized over the lives of the related financings on a basis that approximates the effective
interest method. Costs and discounts are presented as a reduction of the related debt in the accompanying consolidated balance sheets.
Stock-Based
Compensation
The
fair value of stock options is estimated on the grant date using the Black-Scholes option pricing model, based on weighted average assumptions.
Expected volatility is based on historical volatility of our common stock. The Company has elected to use the simplified method described
in the Securities and Exchange Commission Staff Accounting Bulletin Topic 14C to estimate the expected term of employee stock options.
The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant. The value of 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. Any compensation cost previously recognized for an unvested award that is forfeited because of a failure to satisfy a
service condition is reversed in the period of the forfeiture. Compensation expense is recognized on a straight-line basis over the requisite
service period of the award. Stock-based compensation includes the fair value of options, warrants and restricted stocks issued to employees,
directors, and non-employees.
Income
Taxes
The
Company accounts for income taxes using the asset and liability method in accordance with ASC 740, Income Taxes. The asset and
liability method provide that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary
differences between the financial reporting and tax basis of assets and liabilities, and for operating loss and tax credit carry forwards.
Deferred tax assets and liabilities are measured using the currently enacted tax rates and laws. The Company records a valuation allowance
to reduce deferred tax assets to the amount that is believed more likely than not to be realized.
When
tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities,
while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately
sustained. In accordance with the guidance of ASC 740, the benefit of a tax position is recognized in the financial statements in the
period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained
upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated
with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax
benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the
benefits associated with tax positions taken that exceeds the amount measured as described above should be reflected as a liability for
unrecognized tax benefits in the accompanying balance sheets along with any associated interest and penalties that would be payable to
the taxing authorities upon examination. Management makes estimates and judgments about our future taxable income that are based on assumptions
that are consistent with our plans and estimates. Should the actual amounts differ from our estimates, the amount of our valuation allowance
could be materially impacted. Any adjustment to the deferred tax asset valuation allowance would be recorded in the income statement
for the periods in which the adjustment is determined to be required. Management does not believe that it has taken any positions that
would require the recording of any additional tax liability, nor does it believe that there are any unrealized tax benefits that would
either increase or decrease within the next year.
Loss
Per Share
The
Company computes loss per share in accordance with ASC 260 – Earnings per Share. ASC 260 requires presentation of both basic
and diluted earnings per share (“EPS”) on the face of the consolidated statements of operations. Basic EPS is computed by
dividing net loss available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during
the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method
and convertible notes payable using the if-converted method. Diluted EPS excludes all dilutive potential shares if their effect is antidilutive.
During periods of net loss, all common stock equivalents are excluded from the diluted EPS calculation because they are antidilutive.
A beneficial conversion feature that arises from a contingent conversion feature has no accounting impact until the contingency occurs.
Management 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. Management determined
that a beneficial conversion feature existed, and recognized the beneficial conversion feature, creating a discount on the convertible
preferred stock instrument. This discount was amortized in accordance with ASC 470-20-35-7. The amortization of the discount created
by a beneficial conversion feature, which is recognized as a result of the resolution of a contingency, is treated as a dividend that
reduced net income in arriving at income available to common stockholders.
Securities
that are excluded from the calculation of weighted average dilutive common shares because their inclusion would have been antidilutive
are:
SCHEDULE
OF POTENTIALLY DILUTIVE SHARES
| |
For the three months ended March 31, 2022 | | |
For the three months ended March 31, 2021 | |
| |
| | |
| |
Options | |
| 3,850,000 | | |
| 2,900,000 | |
Warrants | |
| 3,867.500 | | |
| 460,000 | |
Total potentially dilutive shares | |
| 7,717,500 | | |
| 3,360,000 | |
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, 2022.
Reclassification
Certain
reclassifications have been made to prior year’s data to confirm to the current year’s presentation. Such reclassifications
had no impact on the Company’s financial condition, operating results, cash flows or stockholders’ deficit.
Recent
Accounting Pronouncements
In
August 2020, the FASB issued ASU No. 2020-06 (“ASU 2020-06”) “Debt-Debt with Conversion and Other Options (Subtopic
470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments
and Contracts in an Entity’s Own Equity.” ASU 2020-06 simplifies the accounting for convertible instruments by reducing the
number of accounting models for convertible debt instruments and convertible preferred stock. Limiting the accounting models results
in fewer embedded conversion features being separately recognized from the host contract as compared with current GAAP. Convertible instruments
that continue to be subject to separation models are (1) those with embedded conversion features that are not clearly and closely related
to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting
and (2) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in capital. In addition,
ASU 2020-06 amends the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based
accounting conclusions. The amendments also affects the diluted EPS calculation for instruments that may be settled in cash or shares
and for convertible instruments. The amendments are effective for public entities excluding smaller reporting companies for fiscal years
beginning after December 15, 2021, including interim periods within those fiscal years. For all other entities, the amendments are effective
for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted,
but no earlier than fiscal years beginning after December 15, 2020, including interim periods. The Company adopted the new standard on
January 1, 2022, which did not result in a material impact on the Company’s consolidated results of operations, financial position,
and cash flows.
In
February 2016, the FASB issued ASU 2016-02 (Topic 842), Leases, and issued subsequent amendments to the initial guidance or implementation
guidance including ASU 2017-13, 2018-01, 2018-10, 2018-11, 2018-20 and 2019-01 (collectively, including ASU 2016-02, “ASC 842”),
which supersedes the guidance in topic ASC 840, Leases. The new standard requires lessees to classify leases as either finance or operating
based on whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether related
expenses are recognized based on the effective interest method or on a straight-line basis over the term of the lease. For any leases
with a term of greater than 12 months, ASU 2016-02 requires lessees to recognize a lease liability for the obligation to make the lease
payments arising from a lease, and a right-of-use asset for the right to use the underlying asset for the lease term. An election can
be made to account for leases with a term of 12 months or less similar to existing guidance for operating leases under ASC 840.
The
new standard will also require new disclosures, including qualitative and quantitative requirements, providing additional information
about the amounts recorded in the financial statements. For emerging growth companies such as the Company, ASU No. 2016-02 is effective
for financial statements issued for fiscal years beginning after December 15, 2021. Early adoption is permitted.
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 adopted the new
standard on January 1, 2022, which did not result in a material impact on the Company’s consolidated results of operations, financial
position, and cash flows, as the Company has no material leases.
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 ) to acquire real property
located in Hemet, California, which included approximately 80 acres of land and a structure for $1.1 million from an unrelated seller.
The property includes the main parcel of land with an existing structure along with three additional parcels of land which are vacant
plots to be used for the purpose of development “vacant plots”. The purpose of the transaction was as an investment in real
property to be assigned to the Company subsequent to acquisition. The property was acquired by Mr. Sunstein since it was required that
the seller transfer the property for consideration to an individual versus a separate legal entity. On March 18, 2019, Mr. Sunstein assigned
the deed of the property to the Company. The total of the consideration plus acquisition costs assets of $1,122,050 was allocated to
land and building in the following amounts: $271,225 – Land; $850,826 – Building. The land is an indefinite long-lived asset
that was assessed for impairment as a grouped asset with the building on a periodic basis. The Company completed the refinancing of its
existing first and second mortgage loans on the 80 acres of land and existing structure of its Emerald Grove property for aggregate principal
amount of $1,787,000, which provided a net funding of approximately $387,000 during the first fiscal quarter of 2021.
On
September 30, 2019, the Company entered into a contract for deed agreement with IntegraGreen whose principal is also a creditor. Under
the agreement the Company agreed to the sale of 20 acres of vacant land and associated improvements located at the Emerald Grove property
in Hemet, California for a total purchase price of $630,000. $63,000 was paid upon execution and the balance is payable in a balloon
payment on October 1, 2026, with interest only payments of $3,780 due on the 1st of each month beginning April 1, 2020. During the duration
of the agreement the Company retains title and is allowed to encumber the property with a mortgage at its discretion, however IntegraGreen
has the right to use the property. The Company may also evict IntegraGreen from the premises in the case of default under the agreement.
During
the year ended December 31, 2021, the Company received an additional $149,980 related to the purchase and recognized $496,797 of revenue
related to the sale of 20 acres of vacant land and associated improvements located at the Emerald Grove property in Hemet, California,
to IntegraGreen.
During
the three months ended March 31, 2022, the Company recognized $15,000 of interest income from the financing component of the lot sale
to Integragreen as well as the coupon on the financed amount. Such amount is reported as interest income in the Company’s consolidated
statement of operations for the three months ended March 31, 2022.
Oasis
Park Title Transfer
On
June 18, 2019, Baja Residents Club SA de CV (“BRC”), a related party with common ownership and control by our CEO, Robert
Valdes, transferred title to the Company for the Oasis Park property which was part of a previously held land project consisting of 497
acres to be acquired and developed into Oasis Park resort near San Felipe, Baja. ILA recorded the property held for sale on its balance
sheet in the amount of $670,000 and accordingly reduced the value as plots are sold. As of March 31, 2022, the Company reported a balance
for assets held for sale of $647,399.
The
Company transferred title to individual plots of land to the investors since the Company received this approval of change in transfer
of title to ILA.
During
the three months ended March 31, 2022, the Company did not enter into any new contract to sell plots of land.
During
the year ended December 31, 2021, the Company sold three (3) lots to an affiliate related party of the Company for a total purchase price
of $120,000, of which $19,500 was funded as of December 31, 2021. The affiliate funded an additional $7,500 in the three months ended
March 31, 2022, for aggregate amount funded since inception of $27,000 or 22.5% of the purchase price as of March 31, 2022. The amount
funded was recorded and reported under contract liability in the Company’s consolidated financial statements as of March 31, 2022,
as the collectability terms were not sufficiently satisfied to qualify for recognition of revenue pursuant to ASC 606.
NOTE
4 – LAND, BUILDING, NET AND CONSTRUCTION IN PROCESS
Land,
buildings, net and construction in process as of March 31, 2022, and December 31, 2021:
SCHEDULE
OF LAND, BUILDING, NET AND CONSTRUCTION IN PROCESS
| |
Useful life | |
March 31, 2022 | | |
December 31, 2021 | |
Land – Emerald Grove | |
| |
$ | 203,419 | | |
$ | 203,419 | |
| |
| |
| | | |
| | |
Land held for sale – Oasis Park | |
| |
$ | 647,399 | | |
$ | 647,399 | |
| |
| |
| | | |
| | |
Construction in Process (Divino – Bajamar) | |
| |
$ | 961,020 | | |
$ | 852,020 | |
| |
| |
| | | |
| | |
Furniture & equipment | |
5 years | |
$ | 2,682 | | |
$ | 2,682 | |
| |
| |
| | | |
| | |
Building – Emerald Grove | |
20 years | |
$ | 1,048,138 | | |
$ | 1,048,138 | |
Less: Accumulated depreciation | |
| |
| (145,356 | ) | |
| (132,254 | ) |
| |
| |
| | | |
| | |
Building, net | |
| |
$ | 902,782 | | |
$ | 915,884 | |
Depreciation
expense was $13,102 and $11,597 for the three months ended March 31, 2022, and 2021, respectively.
Valle
Divino
The
Valle Divino is the Company’s premier wine country development project in Ensenada, Baja California. This land project consists
of 20 acres to be acquired from Baja Residents Club, a Company controlled by our Chief Executive Officer and developed into Valle Divino
resort. The acquisition of title to the land for this project is subject to approval from the Mexican government in Baja, California.
The Company broke ground of the Valle Divino development in July 2020 and has commenced site preparation for two model homes including
a 1-bedroom and 2- bedroom option. The first Phase of the development includes 187 homes. This development will also have innovative
microgrid solutions by our partner to power the model home and amenities.
The
Company funded the construction by an additional $67,000 during the three months ended March 31, 2022. The construction contractor is
also an entity controlled by our Chief Executive Officer. Construction began during the year ended December 31, 2020. The balance of
construction in process for Valle Divino totaled $423,275 and $356,275 as of March 31, 2022, and December 31, 2021, respectively.
As
of March 31, 2022, the Company almost completed construction of the club house, the wine tasting room and sales office in anticipation
of beginning site tours . As of March 31, 2022, the Company has presold 13 units, proceeds of which were recorded under contract
liability in the Company’s consolidated financial statements, since the Company has not met the criteria for the existence of a
contract pursuant to ASC 606.
Plaza
Bajamar
This
project is located within the internationally renowned Bajamar Ocean Front Hotel and golf resort. The Company partnered with CleanSpark
to provide sustainable, advanced solar-plus-storage power solutions. The Company has completed a 2BR/2BA model home, an enhanced entrance,
and interior roads as well as site preparation for four (4) new homes adjacent to the model home. The Company is moving to the next stage,
which will provide all units in the property with solar microgrid installations.
In
November and December 2019, $250,000 was paid to the Company’s Chief Executive Officer, Roberto Valdes, $150,000 for constructing
two model Villas at our planned Plaza Bajamar development. The Company has not yet taken title to this property, which is currently owned
by Valdeland, S.A. de C.V., an entity controlled by Roberto Valdes. The Company intends to purchase the land from this entity and has
paid $100,000 to Roberto Valdes as a down payment for this purchase. The $150,000 is the total construction cost budget that is intended
to cover the construction contractor. For the year ended December 31, 2020, the Company has issued the 250,000 shares of the Company’s
common stock for total amount of $150,000 reported under Prepaid and other current assets in the consolidated balance sheets.
The
Company funded the construction by an additional $18,000 during the three months ended March 31, 2022. The construction contractor is
also an entity controlled by Roberto Valdes. Construction began during the year ended December 31, 2020. The balance of construction
in process for Plaza Bajamar totaled $437,147 and $419,147 as of March 31, 2022, and December 31, 2021, respectively.
NOTE
5 – RELATED PARTY TRANSACTIONS
Chief
Executive Officer
Effective
January 1, 2020, the Company executed an employment agreement with its Chief Executive Officer.
The
Company has paid $11,561 of salary to its Chief Executive Officer for the three months ended March 31, 2022. The Company has accrued
$33,038 of compensation costs in relation to the employment agreement for the three months ended March 31, 2022. The balance owed is
$286,940 and $265,463 as of March 31, 2022, and December 31, 2021, respectively.
On
October 2, 2021, the Company issued 500,000 stock options under the 2019 Plan with an exercise price of $0.50, vesting six months after
issuance with a term of 5 years for estimated fair value of $270,000. These options have fully vested as of March 31, 2022. The Company
recognized approximately $135,000 of stock-based compensation related to these stock options during the three months ended March 31,
2022.
Chief
Financial Officer
Effective
January 1, 2020, the Company executed an employment agreement with its Chief Financial Officer.
The
Company paid its Chief Financial Officer salary compensation for services directly related to continued operations of $15,000 for the
three months ended March 31, 2022. The Company has accrued $33,038 of compensation cost in relation to the employment agreement for the
three months ended March 31, 2022. The balance owed is $192,243 and $174,205 as of March 31, 2022, and December 31, 2021, respectively.
On
October 2, 2021, the Company issued 500,000 stock options under the 2019 Plan with an exercise price of $0.50, vesting six months after
issuance with a term of 5 years for estimated fair value of $270,000. These options have fully vested as of March 31, 2022. The Company
recognized approximately $135,000 of stock-based compensation related to these stock options during the three months ended March 31,
2022.
The
Company’s Chief Financial Officer is also the managing member of Six Twenty Management LLC, an entity that has been providing ongoing
capital support to the Company (See Note 7).
The
Company’s Chief Financial Officer also facilitated the Emerald Grove asset purchase as described in Note 3.
President
The
Company paid its President salary compensation for services directly related to continued operations of $15,000 for the three months
ended March 31, 2022. The Company has accrued $33,038 of compensation cost in relation to the employment agreement for the three months
ended March 31, 2022. The balance owed is $79,769 and $61,731 as of March 31, 2022, and December 31, 2021, respectively.
Frank
Ingrande is the co-founder and owner of 25% of the Company’s equity-method investee RCVD.
NOTE
6 – NOTES PAYABLE
Promissory
notes consisted of the following at March 31, 2022, and December 31, 2021:
SCHEDULE
OF PROMISSORY NOTES
| |
March 31, 2022 | | |
December 31, 2021 | |
Note payable, due August 2020 - past maturity/settled | |
$ | 24,785 | | |
$ | 24,785 | |
Note payable, 18% interest, due March 2020 - past maturity | |
| 1,500 | | |
| 1,500 | |
Note Payable, 15% interest, due March 2021 - past maturity | |
| 76,477 | | |
| 76,477 | |
Note payable, 12% interest, due February 2023 | |
| 1,787,000 | | |
| 1,787,000 | |
Note payable, 10% interest, due February 2023 | |
| 104,580 | | |
| - | |
Note payable, 12% interest, due March 2023 | |
| 250,000 | | |
| - | |
Note payable, 12% interest, due March 2023 | |
| 250,000 | | |
| - | |
Total Notes Payable | |
$ | 2,494,342 | | |
$ | 1,889,762 | |
Less discounts | |
| (487,860 | ) | |
| (51,462 | ) |
| |
| | | |
| | |
Total Notes Payable | |
| 2,006,482 | | |
| 1,838,300 | |
| |
| | | |
| | |
Less current portion | |
| (2,006,482 | ) | |
| (102,762 | ) |
| |
| | | |
| | |
Total Notes Payable - long term | |
$ | - | | |
$ | 1,735,538 | |
Interest
expense including amortization of the associated debt discount for the three months ended March 31, 2022, and 2021, was $104,367 and
$231,115, respectively.
Convertible
Notes
Sixth
Street Lending LLC
On
February 2, 2022, the Company issued a convertible promissory note pursuant to which it borrowed gross proceeds of $116,200 for net proceeds
of $100,000, net of issuance costs of $3,750 and original issuance discount of $12,450. Interest under the convertible promissory note
is 10% per year, and the principal and all accrued but unpaid interest is due on February 2, 2023. The note requires ten (10) mandatory
monthly installments of $12,782 starting in March 2022.
The
note is convertible upon an event of default at the noteholder’s option into shares of our common stock at the greater of a fixed
conversion price or 25% to the trading price of the Company’s common stock, subject to standard anti-dilutive rights. During the
three months ended March 31, 2022, the Company paid its first required installment of $12,782, consisting of $11,620 of principal and
$1,162 applied against accrued interest.
The
balance owed to Sixth Street Lending LLC is $104,580 as of March 31, 2022. Accrued interest totaled $589 as of March 31, 2022.
Mast
Hill Fund, L.P (“Mast note”)
On
March 23, 2022, the Company issued a convertible promissory note pursuant to which it borrowed gross proceeds of $250,000 for net proceeds
of $211,250, net of issuance costs of $13,750 and original issuance discount of $25,000. Interest under the convertible promissory note
is 12% per year, and the principal and all accrued but unpaid interest is due on March 23, 2023. The note requires eight (8) mandatory
monthly installments of $35,000 starting in July 2022. Additionally, as an incentive to the note holder, the securities purchase agreement
also provided for the issuance of 225,000 shares of common stock with fair value of approximately $101,000 fully earned at issuance,
and 343,750 warrants to purchase an equivalent number of shares of common stock at an exercise price of $0.80 and a term of five years.
The
note is convertible upon an event of default at the noteholder’s option into shares of our common stock at a fixed conversion price
of $0.35, subject to standard anti-dilutive rights.
During
the three months ended March 31, 2022, the Company did not pay any principal or interest on the Mast note.
The
principal balance owed to Mast Hill Fund is $250,000 as of March 31, 2022. Accrued interest totaled approximately $600 as of March 31,
2022.
Blue
Lake Partners LLC (“Blue Lake note”)
On
March 28, 2022, the Company issued a convertible promissory note pursuant to which it borrowed gross proceeds of $250,000 for net proceeds
of $211,250, net of issuance costs of $13,750 and original issuance discount of $25,000. Interest under the convertible promissory note
is 12% per year, and the principal and all accrued but unpaid interest is due on March 28, 2023. The note requires eight (8) mandatory
monthly installments of $35,000 starting in July 2022. Additionally, as an incentive to the note holder, the securities purchase agreement
provided for the issuance of 225,000 shares of common stock with fair value of approximately $101,000 fully earned at issuance, and 343,750
warrants for the purchase of an equivalent number of shares of common stock at an exercise price of $0.80 and a term of five years.
The
note is convertible upon an event of default at the noteholder’s option into shares of our common stock at a fixed conversion price
of $0.35, subject to standard anti-dilutive rights.
During
the three months ended March 31, 2022, the Company did not pay any principal or interest on the Blue Lake note. The principal balance
owed to Blue Lake Partners is $250,000 as of March 31, 2022. Accrued interest totaled approximately $200 as of March 31, 2022.
NOTE
7 – PROMISSORY NOTES – RELATED PARTIES
Related
party promissory notes consisted of the following at March 31, 2022, and December 31, 2021:
SCHEDULE
OF RELATED PARTY TRANSACTIONS
| |
March 31, 2022 | | |
December 31, 2021 | |
RAS Real Estate LLC – Past maturity | |
$ | 335,089 | | |
$ | 365,590 | |
Six-Twenty Management LLC – On demand | |
| 559,933 | | |
| 447,317 | |
Lisa Landau – On demand | |
| 19,110 | | |
| 22,077 | |
Total On demand notes, net of discount | |
$ | 914,132 | | |
$ | 834,984 | |
Six
Twenty Management LLC (“Six-Twenty”)
On
March 31, 2021, the Company executed a non-convertible promissory note with a related party for an initial amount funded of $288,611
and carrying a coupon of eight percent (8%) and a maturity of twelve months.
During
the three months ended March 31, 2022, Six-Twenty funded the Company for additional cash of $144,200.
During
the three months ended March 31, 2022, the Company paid $31,584 in cash towards the non-convertible promissory note. As of March 31,
2022, the balance owed to Six-Twenty totals $559,933 and accrued interest amounts to $35,399. As of December 31, 2021, the balance owed
to Six-Twenty totals $447,317 and accrued interest amounts to $24,354.
RAS,
LLC (past maturity)
On
October 25, 2019, the Company issued a promissory note to RAS, LLC, a company controlled by an employee, who is a relative of the Company’s
Chief Financial Officer for $440,803. The proceeds of the note were largely used to repay shareholder loans and other liabilities. The
loan bears interest at 10%, and also carries a default coupon rate of 18%. The loan matured on April 25, 2020, is secured by 2,500,000
common shares and a Second Deed of Trust for property in Hemet, CA (Emerald Grove). During the three months ended March 31, 2022, the
Company paid $30,500 towards the promissory note. The outstanding balance is $335,089 and $365,590 as of March 31, 2022, and December
31, 2021, respectively.
During
the three months ended March 31, 2022, the Company paid $8,800 in interest and incurred approximately $15,000 of interest. As of March
31, 2022, and December 31, 2021, the accrued interest balance owed to RAS, LLC totals approximately $21,300 and $15,200, respectively.
Lisa
Landau
Lisa
Landau is a relative of the Company’s Chief Financial Officer. Lisa Landau advanced approximately $25,900 to the Company during
the three months ended March 31, 2022. The Company repaid $28,870 in cash during the three months ended March 31, 2022, which leaves
a principal balance of $19,110 as of March 31, 2022. The advances are on demand but do not bear any interest.
NOTE
8 – EQUITY METHOD INVESTMENT
In
May 2021, the Company acquired a 25% investment in Rancho Costa Verde Development, LLC (“RCV”) in exchange for 3,000,000
shares of the Company’s common stock at a determined fair value of $0.86 per share and $100,000 in cash for total consideration
of $2,680,000. The fair value of the non-monetary exchange was determined based on a valuation report obtained from an independent third-party
valuation firm. The fair value of the Company’s common stock was determined based on weighted combination of market approach and
asset approach. The market approach estimates fair value based on a weighted average between the listed price of the Company’s
common shares and the Company’s recent private transaction adjusted for a lack of marketability discount.
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 $2,680,000.
The
following represents summarized financial information of RCV as of and for the three months ended March 31, 2022:
SUMMARIZED
FINANCIAL INFORMATION OF RCVD
Income statement | |
March 31, 2022 | |
Revenue | |
$ | 389,488 | |
Cost of goods sold | |
| (175,059 | ) |
Gross margin | |
| 214,429 | |
Operating expenses | |
| (461,389 | ) |
Other Income | |
| 82,542 | |
Net loss | |
$ | (164,418 | ) |
| |
| | |
Balance sheet | |
| | |
Current assets | |
$ | 2,129,585 | |
Non-current assets | |
$ | 4,821,055 | |
Current liabilities | |
$ | 9,564,784 | |
Non-Current liabilities | |
$ | 5,627,903 | |
Based
on its 25% equity investment, the Company has recorded a loss from equity investment of $41,104 for the three months ended March 31,
2022, which has decreased the carrying value of the investment as of March 31, 2022, to $2,470,726.
NOTE
9 – COMMITMENTS AND CONTINGENCIES
Commitment
to Purchase Land (Valle Divino)
The
land project consisting of 20 acres to be acquired from Baja Residents Club (a Company controlled by our CEO Roberto Valdes) and developed
into Valle Divino resort in Ensenada, Baja California, the acquisition of title to the land for this project is subject to approval from
the Mexican government in Baja, California. Although management believes that the transfer of title to the land will be approved before
the end of the Company’s third fiscal quarter of 2022, there is no assurance that such transfer of title will be approved in that
time frame or at all. The Company has promised to transfer title to the plots of land to the investors who have invested in the Company
once the Company receives an approval of change in transfer of title to the Company. As of March 31, 2022, and December 31, 2021, the
Company has entered into thirteen (13) contracts for deed agreements to sell lots of land. The proceeds are presented under contract
liability in the consolidated balance sheets as of March 31, 2022, and December 31, 2021.
Land
purchase- Plaza Bajamar.
On
September 25, 2019, the Company, entered into a definitive Land Purchase Agreement with Valdeland, S.A. de C.V., a Company controlled
by our CEO Roberto Valdes, to acquire approximately one acre of land with plans and permits to build 34 units at the Bajamar Ocean Front
Golf Resort located in Ensenada, Baja California. Pursuant to the terms of the agreement, the total purchase price is $1,000,000, payable
in a combination of preferred stock ($600,000); common stock ($250,000/250,000 common shares at $1.00/share); a promissory note ($150,000);
and an initial construction budget of $150,000 payable upon closing. A recent appraisal valued the land “as is” for $1,150,000.
The closing is subject to obtaining the necessary approval by the City of Ensenada and transfer of title, which includes the formation
of a wholly owned Mexican subsidiary. As of March 31, 2022, and December 31, 2021, the agreement has not yet closed.
Commitment
to Sell Land (IntegraGreen)
On
September 30, 2019, the Company entered into a contract for deed agreement with IntegraGreen whose principal is also a creditor. Under
the agreement the Company agreed to the sale of 20 acres of vacant land and associated improvements located at the Emerald Grove property
in Hemet, California for a total purchase price of $630,000. $63,000 was paid upon execution and the balance is payable in a balloon
payment on October 1, 2026, with interest only payments of $3,780 due on the 1st of each month beginning April 1, 2020. During the duration
of the agreement the Company retains title and is allowed to encumber the property with a mortgage at its discretion, however IntegraGreen
has the right to use the property. The Company may also evict IntegraGreen from the premises in the case of default under the agreement.
Due
to the nature of the agreement, the Company’s management deemed that there was an embedded lease feature in the agreement in accordance
with ASC 842. As a result, the initial payment of $63,000 was classified as a deposit. Upon an event of default the payment is non-refundable,
and the Company no longer has any obligation to provide access to the land. The interest payments will be recognized monthly as lease
income. During the three months ended March 31, 2022, and 2021, the Company recognized $0 and $9,219 in revenues and lease income, respectively.
Effective
on October 1, 2021, management determined that the agreement met the definition of a contract pursuant to the guidance in ASU 2014-09
Revenue from Contracts with Customers (Topic 606). During the three months ended March 31, 2022, the Company recognized $8,340 of interest
income related to the seller carryback financing and approximately $6,700 as interest income related to the financing component of the
consideration exchange pursuant to ASU 2014-09.
Oasis
Park Resort construction budget
During
the year ended December 31, 2021, the Company engaged a general contractor to complete phase I of the project including the two-mile
access road and the community entrance structure. The contractor also commenced phase II construction including the waterfront clubhouse,
casitas and model homes. The total budget was established at approximately $512,000, of which $100,500 has been paid, leaving a firm
commitment of approximately $411,500 as of March 31, 2022.
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
10 – STOCKHOLDERS’ EQUITY
The
Company’s equity at March 31, 2022, consisted of 75,000,000
authorized shares of common stock and 2,000,000
authorized shares of preferred stock, both with
a par value of $0.001 per
share. As of March 31, 2022, and December 31, 2021, there were 33,714,041
and 31,849,327
shares of common stock issued and outstanding,
respectively. As of March 31, 2022, and December 31, 2021, 28,000
shares of Series A Preferred Stock were issued
and outstanding and 1,000
shares of Series B Preferred Stock were issued
and outstanding, respectively.
On
August 26, 2020, the Company’s shareholders approved an increase of the Company’s authorized common stock from 75,000,000
shares to 100,000,000 shares and the holders of a majority of the Company’s outstanding voting securities approved the Company’s
2020 Equity Plan. On October 14, 2021, the Board of Directors approved an amendment to the Company’s articles of incorporation
to increase the Company’s authorized common stock from 75,000,000 shares to 150,000,000 and to effect a reverse split in a ratio
of not less than 1 for 2 and not more than 1 for 12. The Company has not yet amended its articles of incorporation at March 31, 2022,
pending definitive terms of a contemplated financing transaction. The Company has not effected any reverse split as of March 31, 2022.
The
Company has reserved a total of 3,000,000 shares of the authorized common stock for issuance under the 2020 Plan. During the three months
ended March 31, 2022, the Company has granted 600,000 options under the 2020 Plan and 600,000 options were exercised, leaving a balance
of 1,700,000 options issued and outstanding as of March 31, 2022.
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 Company’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 will be “non-qualified”. Pursuant to the 2019 Plan, the Company has reserved a total of 3,000,000 shares
of the Company’s common stock to be available under the 2019 Plan. No options under the 2019 Plan were issued, cancelled, forfeited,
or exercised during the three months ended March 31, 2022. The Company has 2,150,000 options issued and outstanding under the 2019 Plan
as of March 31, 2022, and December 31, 2021.
All
shares of common stock issued during the three months ended March 31, 2022, and 2021, were unregistered.
Activity
during the three months ended March 31, 2022
During
the three months ended March 31, 2022, the Company issued an aggregate of 450,000 commitment shares pursuant to securities purchase agreements
with two accredited investors (See note 6) for a total fair value of approximately $202,000.
During
the three months ended March 31, 2022, the Company issued 600,000 shares of common stock from option exercise for total cash consideration
of $600.
During
the three months ended March 31, 2022, the Company issued 814,714 shares of common stock pursuant to a consulting agreement for total
fair value of approximately $447,300.
Activity
during the three months ended March 31, 2021
During
the three months ended March 31, 2021, the Company agreed to issue 200,000 shares of common stock per a consulting agreement valued at
$280,000. As of March 31, 2021, the shares had not been issued and were recorded as stock payable.
During
the three months ended March 31, 2021, the Company received cash of $45,000 for 100,000 shares of common stock. As of March 31, 2021,
the shares had not been issued and were recorded as stock payable.
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 a senior secured
self-amortization convertible note with aggregate fair value of $130,900.
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.
Preferred
Stock
On
November 6, 2019, the Company authorized and issued 1,000 shares of Series B Preferred Stock (“Series B”) and 350,000 shares
of common stock to CleanSpark Inc. in a private equity offering for $500,000. Management determined that the Series B should not be classified
as liability per the guidance in ASC 480 Distinguishing Liabilities from Equity as of December 31, 2019, even though the conversion would
require the issuance of variable number of shares since such obligation is not unconditional. As of March 31, 2022, and December 31,
2021, Management recorded the value attributable to the Series B of $293,500 as temporary equity on the consolidated balance sheet since
the instrument is contingently redeemable at the option of the holder. The Company recognized the beneficial conversion feature (“BCF”)
that arises from a contingent conversion feature, since the instrument reached maturity during the year ended December 31, 2020. The
Company recognized such BCF as a discount on the convertible preferred stock. The amortization of the discount created by a BCF recognized
as a result of the resolution of the contingency is treated as a deemed dividend that reduced net income in arriving at income available
to common stockholders. The holder can convert the Series B into shares of common stock at a discount of 35% to the market price.
The
terms and conditions of the Series B include an in-kind accrual feature, which provides for a cumulative accrual at a rate of 12% per
year of the face amount of the Series B. The Company has recognized $15,000 of dividend on Series B during the three months ended March
31, 2022. Such amount has been reported in Additional Paid In Capital on the Company’s consolidated balance sheets.
The
Securities Purchase Agreement (“SPA”) states that the in-kind accrual rate should be increased by10% per year upon each occurrence
of an event of default. In addition, the SPA further states that the conversion price initially set at a discount of 35% to the market
price should be further increased by additional 10% upon each occurrence of an event of default. At the date of this Quarterly Report,
CleanSpark claims that the Company was in default in three instances triggering further discount to the market price for the conversion
feature and additional accrual rate. The Company believes that it has never been in default of any covenant pursuant to the terms of
the Securities Purchase Agreement. The Company has not been served with any notice of default stating the specific default events. As
of the date of the filing of this Quarterly Report, the parties are cooperating to resolve this matter.
The
Company did not issue any share of preferred stock during the three months ended March 31, 2022.
Warrants
A
summary of the Company’s warrant activity during the three months ended March 31, 2022, is presented below:
SCHEDULE OF WARRANTS ACTIVITY
| |
| | |
Weighted | | |
Weighted Average Remaining Contract | |
| |
Number of Warrants | | |
Average Exercise Price | | |
Term (Year) | |
Outstanding at December 31, 2021 | |
| 3,180,000 | | |
$ | 0.69 | | |
| 5.08 | |
Granted | |
| 687,500 | | |
| 0.80 | | |
| 4.99 | |
Exercised | |
| - | | |
| - | | |
| - | |
Forfeited-Canceled | |
| - | | |
| - | | |
| - | |
Outstanding at March 31, 2022 | |
| 3,867,500 | | |
$ | 0.71 | | |
| 4.86 | |
| |
| | | |
| | | |
| | |
Exercisable at March 31, 2022 | |
| 3,867,500 | | |
| | | |
| | |
During
the three months ended March 31, 2022, the Company issued 687,500 warrants, convertible into an equivalent number of shares of common
stock, following the issuance of two convertible promissory notes to two accredited investors (note 6).
The
warrants have an exercise price of $0.80 per share, provided that if the Company consummates an up listing offering on or before June
28, 2022, the exercise price will equal 125% of the offering price per share of common stock, are immediately exercisable and expire
five and a half years from the issuance date.
The
aggregate intrinsic value as of March 31, 2022, and December 31, 2021, was $0.
The
Company used the following assumptions to value the warrants issued during the three months ended March 31, 2022:
SCHEDULE OF ASSUMPTIONS TO VALUE WARRANTS
| |
March 2022 | |
| |
Warrants | |
| |
| |
Risk free rate | |
| 0.23 | % |
Market price per share | |
$ | 0.45 | |
Life of instrument in years | |
| 2.50 years | |
Volatility | |
| 132.2 | % |
Dividend yield | |
| 0 | % |
Options
A
summary of the Company’s option activity during the three months ended March 31, 2022, is presented below:
SCHEDULE OF OPTION ACTIVITY
| |
| | |
Weighted | | |
Weighted Average Remaining Contract | |
| |
Number of Options | | |
Average Exercise Price | | |
Term (Year) | |
Outstanding at December 31, 2021 | |
| 3,850,000 | | |
$ | 0.41 | | |
| 4.30 | |
Granted | |
| 600,000 | | |
| 0.001 | | |
| 5.00 | |
Exercised | |
| (600,000 | ) | |
| (0.001 | ) | |
| (5.00 | ) |
Forfeited-Canceled | |
| - | | |
| - | | |
| - | |
Outstanding at March 31, 2022 | |
| 3,850,000 | | |
$ | 0.41 | | |
| 4.06 | |
| |
| | | |
| | | |
| | |
Exercisable at March 31, 2022 | |
| 2,000,000 | | |
| | | |
| | |
Options
outstanding as of March 31, 2022, and December 31, 2021, had aggregate intrinsic value of $227,500 and $716,000, respectively.
NOTE
11 – 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 March 31, 2022, the Company issued
805,000 shares of Common Stock pursuant to advertising and marketing consulting agreements with an estimated fair value of $322,000.
Subsequent to March 31, 2022, the Company issued
88,988 shares of Common Stock pursuant to existing finder’s fee agreement with an estimated fair value of approximately $40,500.