UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For
the quarterly period ended
For the transition period from to
Commission
file number:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
(Address of principal executive offices) (Zip Code)
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Exchange Act: None
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).
Indicate by check mark whether the registrant is a large-accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large-accelerated filer”, “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large-accelerated filer | ☐ | Accelerated filer | ☐ | |
| ☒ | Smaller reporting company | |||
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
As of November 22, 2023, the registrant had shares of common stock, $0.001 par value per share, outstanding.
TABLE OF CONTENTS
| 2 |
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
INTERNATIONAL LAND ALLIANCE, INC.
CONSOLIDATED BALANCE SHEETS
| September 30, 2023 | December 31, 2022 | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable | ||||||||
| Prepaid and other current assets | ||||||||
| Total current assets | ||||||||
| Other non-current assets | ||||||||
| Land | ||||||||
| Buildings, net | ||||||||
| Furniture and equipment, net | ||||||||
| Goodwill | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued liabilities | $ | $ | ||||||
| Accounts payable and accrued liabilities related parties | ||||||||
| Deferred revenue | ||||||||
| Accrued interest | ||||||||
| Accrued interest related party | ||||||||
| Contract liability | ||||||||
| Deposits | ||||||||
| Derivative liability | ||||||||
| Convertible notes, net of debt discounts | ||||||||
| Convertible note RCVD acquisition | ||||||||
| Promissory notes, net of debt discounts | ||||||||
| Promissory notes, net discounts – Related Parties | ||||||||
| Other loans | ||||||||
| Total current liabilities | ||||||||
| Promissory notes, net of current portion | ||||||||
| Total liabilities | ||||||||
| Commitments and Contingencies (Note 10) | ||||||||
| Preferred Stock Series B (Temporary Equity) | ||||||||
| Preferred Stock Series C (Temporary Equity) | ||||||||
| Total Temporary Equity | ||||||||
| Stockholders’ Deficit | ||||||||
| Preferred stock; $ par value; shares authorized; Series A shares issued and outstanding as of September 30, 2023 and December 31, 2022 | ||||||||
| Series B shares issued and outstanding as of September 30, 2023 and December 31, 2022 | ||||||||
| Series C shares issued and outstanding as of September 30, 2023 and shares issued and outstanding as of December 31, 2022. | ||||||||
| Common stock; $ par value; shares authorized; and shares issued and outstanding as of September 30, 2023, respectively, and shares issued and outstanding as of December 31, 2022. | ||||||||
| Common stock payable | ||||||||
| Additional paid-in capital | ||||||||
| Treasury stock ( shares as of September 30, 2023) | ( | ) | ||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ deficit | ( | ) | ( | ) | ||||
| Total liabilities and stockholders’ deficit | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| 3 |
INTERNATIONAL LAND ALLIANCE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
| For the three months ended | For the nine months ended | |||||||||||||||
| September 30, 2023 | September 30, 2022 | September 30, 2023 | September 30, 2022 | |||||||||||||
| Net revenues and lease income | $ | $ | $ | $ | ||||||||||||
| Cost of revenues | ||||||||||||||||
| Gross profit (loss) | ||||||||||||||||
| Operating expenses | ||||||||||||||||
| Sales and marketing | ||||||||||||||||
| Impairment loss | ||||||||||||||||
| General and administrative expenses | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense) | ||||||||||||||||
| Loss from debt extinguishment | ( | ) | ( | ) | ||||||||||||
| Loss on acquisition of RCVD | ( | ) | ( | ) | ||||||||||||
| Change in fair value derivative liability | ( | ) | ( | ) | ||||||||||||
| Loss from equity-method investment | ( | ) | ( | ) | ||||||||||||
| Interest income | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total other expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Preferred stock dividends | ||||||||||||||||
| Net loss applicable to common shareholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Loss per common share - basic and diluted | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
| Weighted average common shares outstanding - basic and diluted | ||||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| 4 |
INTERNATIONAL LAND ALLIANCE, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
For the Three and Nine Months Ended September 30, 2023 and 2022
(unaudited)
Activity for the Three and Nine Months Ended September 30, 2023
| Series A Preferred Stock | Series B Preferred Stock | Series C Preferred Stock | Common Stock | Treasury | Additional Paid-in | Common Stock |
Accumulated | Total Stockholders’ | ||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Stock | Capital | Payable | Deficit | Deficit | ||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2022 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||||||||||||||
| Common shares issued from related party acquisition | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||
| Fair value common shares warrants issued from related party acquisition | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||
| Deemed dividend from related party acquisition | - | - | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||
| Reciprocal interest in business acquisition | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued from debt conversion | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for consulting services | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||
| Dividend on Series B Preferred | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2023 | $ | $ | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Common stock issued for warrant exercise | - | - | - | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||
| Warrants issued pursuant to Series C Preferred Stock | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||
| Series C Preferred Stock issued for cash | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||
| Dividend on Series B Preferred | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2023 | $ | $ | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Reclassification of deemed dividend from related party transaction | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||
| Common shares issued for cash | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||
| Common shares issued pursuant to promissory notes | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for consulting services | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued from debt conversion | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||
| Warrants issued pursuant to Series C Preferred Stock | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||
| Settlement of derivative liability | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends on Series B Preferred Stock | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||
| Balance, September 30, 2023 | $ | $ | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||||||
Activity for the Three and Nine Months Ended September 30, 2022
| Series A Preferred Stock | Series B Preferred Stock | Common Stock | Additional Paid-in | Accumulated | Total Stockholders’ | |||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||||||||||||||
| Balance, December 31, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | | |||||||||||||||||||||||||||
| Common shares issued pursuant to promissory notes | - | - | ||||||||||||||||||||||||||||||||||
| Common stock issued for option exercise | - | - | ||||||||||||||||||||||||||||||||||
| Common stock issued for consulting services | - | - | ||||||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | |||||||||||||||||||||||||||||||||
| Warrants issued in connection with debt financing | - | - | - | |||||||||||||||||||||||||||||||||
| Dividend on Series B Preferred | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Balance, March 31, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||
| Common stock issued with Finders’ Fee agreement | - | - | ||||||||||||||||||||||||||||||||||
| Common stock issued for option exercise | - | - | ||||||||||||||||||||||||||||||||||
| Common stock issued for consulting services | - | - | ||||||||||||||||||||||||||||||||||
| Dividend on Series Preferred | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | |||||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Balance, June 30, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||
| Common stock issued for consulting services | - | - | ||||||||||||||||||||||||||||||||||
| Dividend on Series Preferred | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Balance, September 30, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| 5 |
INTERNATIONAL LAND ALLIANCE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| For the nine months ended | ||||||||
| September 30, 2023 | September 30, 2022 | |||||||
| Cash Flows from Operating Activities | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Stock based compensation | ||||||||
| Impairment loss | ||||||||
| Loss on acquisition of RCVD | ||||||||
| Fair value equity securities issued for services | ||||||||
| Penalty on convertible debt | ||||||||
| Loss on debt extinguishment | ||||||||
| Depreciation and amortization | ||||||||
| Loss from equity-method investment | ||||||||
| Amortization of debt discount | ||||||||
| Excess Fair Value of derivative | ||||||||
| Change in fair value of derivative liability | ( | ) | ||||||
| Changes in operating assets and liabilities | ||||||||
| Accounts Receivable | ( | ) | ||||||
| Prepaid and other current assets | ||||||||
| Other non-current assets | ( | ) | ||||||
| Accounts payable and accrued liabilities | ( | ) | ||||||
| Accounts payable and accrued liabilities - related parties | ||||||||
| Deferred revenue | ||||||||
| Accrued interest | ||||||||
| Accrued interest on note receivable | ( | ) | ||||||
| Deposits | ||||||||
| Contract liability | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash Flows from Investing Activities | ||||||||
| Cash acquired from RCVD acquisition | ||||||||
| Proceeds from disposal of fixed assets | ||||||||
| Additional expenditures on land | ( | ) | ||||||
| Building and Construction in Progress payments | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash Flows from Financing Activities | ||||||||
| Common stock issued from options exercise | ||||||||
| Common stock issued for cash | ||||||||
| Series C Preferred Stock issued for cash | ||||||||
| Cash payments on promissory notes- related party | ( | ) | ( | ) | ||||
| Cash payments on promissory notes | ( | ) | ( | ) | ||||
| Cash proceeds from convertible notes | ||||||||
| Cash payments on convertible notes | ( | ) | ||||||
| Cash proceeds other loans | ||||||||
| Cash proceeds from promissory notes | ||||||||
| Cash proceeds from promissory notes- related party | ||||||||
| Net cash provided by financing activities | ||||||||
| Net increase in cash | ||||||||
| Cash, beginning of period | ||||||||
| Cash, end of period | $ | $ | ||||||
| Supplemental disclosure of cash flow information | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income tax | $ | $ | ||||||
| Non-Cash investing and financing transactions | ||||||||
| Dividend on Series B | $ | $ | ||||||
| Dividend on Series C | $ | $ | ||||||
| Common shares issued with convertible debt | $ | $ | ||||||
| Common shares issued with convertible related party | $ | $ | ||||||
| Common stock issued for finder’s fee agreement | $ | $ | ||||||
| Commitment shares issued with convertible note | $ | $ | ||||||
| Debt discount from issuance of new promissory notes | $ | $ | ||||||
| Debt discount from bifurcated derivative | $ | $ | ||||||
| Debt discount created from warrants embedded in financing | $ | $ | ||||||
| Cashless warrant exercise | $ | $ | ||||||
| Corporate expenses paid by related party note payable | $ | $ | ||||||
| Convertible debt exchange for related party note payable | $ | $ | ||||||
| Settlement of derivative liability | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| 6 |
INTERNATIONAL LAND ALLIANCE, INC.
Notes to the Consolidated Financial Statements
September 30, 2023
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.
In
May 2021, the Company acquired a
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 and nine months ended September 30, 2023, are not necessarily indicative of the results that may be expected for the year ending December 31, 2023. For further information, refer to the audited financial statements and notes for the year ended December 31, 2022, included in the Company’s Annual Report on Form 10-K filed with the SEC on July 6, 2023.
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 September 30, 2023, the Company’s current liabilities exceeded its current assets
by approximately $
The Company continues to raise additional capital through the issuance of debt instruments and equity to fund its ongoing operations, which may have the effect of potentially 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 and house construction. 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 September 30, 2023. 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 13 regarding subsequent events).
| 7 |
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, Plaza Bajamar, LLC, incorporated in State of Wyoming, Plaza Valle Divino, LLC, incorporated in the State of Wyoming and Rancho Costa Verde Development, LLC incorporated in State of Nevada.
ILA Fund includes cash as its only assets with minimal expenses as of September 30, 2023. The sole purpose of this entity is strategic funding for the operations of the Company. ILA Mexico has plots held for sale for the Oasis Park Resort, no liabilities, and minimal expenses as of September 30, 2023. As of September 30, 2023, Emerald Grove Estates LLC, Plaza Bajamar LLC, and Plaza Valle Divino LLC have no operations. All intercompany balances and transactions are eliminated in consolidation.
The Company’s consolidated subsidiaries and/or entities were as follows:
| Name of Consolidated Subsidiary or Entity | State or Other Jurisdiction of Incorporation or Organization | Attributable Interest | ||||
| ILA Fund I, LLC | % | |||||
| International Land Alliance, S.A. de C.V. (ILA Mexico) | % | |||||
| Emerald Grove Estates, LLC | % | |||||
| Plaza Bajamar LLC | % | |||||
| Plaza Valle Divino, LLC | % | |||||
| Rancho Costa Verde Development, LLC | % | |||||
On
January 1, 2023, the Company executed a securities purchase agreement pursuant to which the Company acquired all of the issued and outstanding
units of Rancho Costa Verde Development, LLC. for a total contractual consideration of $
Reclassification
Certain numbers from 2022 have been reclassified to conform with the current year presentation.
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 December 31, 2022, management believes the carrying value of its equity method investments was recoverable in all material respects. On January 3, 2023, the Company acquired a controlling financial interest in its previous equity method investment, which resulted in the consolidation pursuant to ASC 805 Business Combinations of such entity on the effective date.
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. |
| 8 |
| ■ | Useful life of buildings. | |
| ■ | Assumptions used in valuing equity instruments. | |
| ■ | Deferred income taxes and related valuation allowances. | |
| ■ | Going concern. | |
| ■ | Assessment of long-lived assets 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 September 30, 2023, and December 31, 2022, 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: uses quoted market prices in active markets for identical assets or liabilities.
Level 2: uses observable market-based inputs or unobservable inputs that are corroborated by market data.
Level 3: uses unobservable inputs that are not corroborated by market data.
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, deferred revenue, other notes 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.
The fair value of the Company’s recorded derivative liability is determined based on unobservable inputs that are not corroborated by market data, which require a Level 3 classification. A Black-Sholes option valuation model was used to determine the fair value. The Company records derivative liability on the consolidated balance sheets at fair value with changes in fair value recorded in the consolidated statements of operation.
The following table presents balances of the liabilities with significant unobservable inputs (Level 3) as of September 30, 2023:
| Fair Value Measurements at September 30, 2023 Using | ||||||||||||||||
| Quoted Prices in Active Markets for Identical Assets | Significant Other Observable Inputs | Significant Unobservable Inputs | ||||||||||||||
| (Level 1) | (Level 2) | (Level 3) | Total | |||||||||||||
| Derivative liability | $ | $ | $ | $ | ||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| 9 |
The following table presents changes of the liabilities with significant unobservable inputs (Level 3) for the three and nine months ended September 30, 2023:
| Derivative | ||||
| Liability | ||||
| Balance December 31, 2022 | $ | |||
| New derivative from convertible notes | ||||
| Settlement by debt extinguishment | ( | ) | ||
| Change in estimated fair value | ||||
| Balance March 31, 2023 | $ | |||
| Change in estimated fair value | ( | ) | ||
| Balance June 30, 2023 | $ | |||
| Settlement by debt extinguishment | ( | ) | ||
| Change in estimated fair value | ||||
| Balance September 30, 2023 | $ | |||
Derivative Liability
As of September 30, 2023, the Company has variable rate convertible promissory notes, which contained variable conversion rates based on unknown future prices of the Company’s common stock. This resulted in the recognition of a derivative liability as the conversion feature failed the scope exception for derivative accounting due to the variability of its conversion price. The Company measures the derivative liability using the Black-Scholes option valuation model using the following assumptions:
| For the Three and Nine Months Ending September 30, | ||||||||
| 2023 | 2022 | |||||||
| Expected term | ||||||||
| Exercise price | $ | - $ | ||||||
| Expected volatility | % | |||||||
| Expected dividends | ||||||||
| Risk-free interest rate | % | |||||||
| Forfeitures | ||||||||
The assumptions used in determining fair value represent management’s best estimates, but these estimates involve inherent uncertainties and the application of management’s judgment. As a result, if factors change, including changes in the market value of the Company’s common stock, managements’ assessment, or significant fluctuations in the volatility of the trading market for the Company’s common stock, the Company’s fair value estimates could be materially different in the future.
The Company computes the fair value of the derivative liability at each reporting period and the change in the fair value is recorded as non-cash expense or non-cash income. The key component in the value of the derivative liability is the Company’s stock price, which is subject to significant fluctuation and is not under its control, and the assessment of volatility. The resulting effect on net loss is therefore subject to significant fluctuation and will continue to be so until the Company’s variable convertible notes, which the convertible feature is associated with, are converted into common stock or paid in full with cash. Assuming all other fair value inputs remain constant, the Company will record non-cash expense when its stock price increases and non-cash income when its stock price decreases.
| 10 |
Cost Capitalization
The cost of buildings and improvements includes the purchase price of the property, legal fees, and other acquisition costs. Costs directly related to planning, developing, initial leasing and constructing a property are capitalized and classified as Buildings in the consolidated balance sheets. Capitalized development costs include interest, property taxes, insurance, and other direct project costs incurred during the period of development are also capitalized.
A variety of costs are incurred in the acquisition, development, and leasing of properties. After determination is made to capitalize a cost, it is allocated to the specific component of a project that is benefited. Determination of when a development project is substantially complete, and capitalization must cease involves a degree of judgment. Our capitalization policy on development properties is guided by ASC 835-20 Interest – Capitalization of Interest and ASC 970 Real Estate - General. The costs of land and buildings under development include specifically identifiable costs. The capitalized costs include pre-construction costs essential to the development of the property, development costs, construction costs, interest costs, real estate taxes, salaries and related costs and other costs incurred during the period of development. We consider a construction project as substantially completed and held available for occupancy or sale upon the receipt of certificates of occupancy, but no later than one year from cessation of major construction activity. We cease capitalization on the portion (1) substantially completed and (2) occupied or held available for occupancy, and we capitalize only those costs associated with the portion under construction.
Land Held for Sale
The Company considers properties to be assets held for sale when (1) management commits to a plan to sell the property; (2) the property is available for immediate sale in its present condition and (3) the property is actively being marketed for sale at a price that is reasonable given our estimate of current market value. Upon designation of a property as an asset held for sale, we record the property’s value at the lower of its’ carrying value or its estimated net realizable value. The Company fully impaired of the land held for sale as of September 30, 2023.
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
Construction in progress (“CIP”)
A CIP asset reflects the cost of construction work undertaken, but not yet completed on land not currently owned by the Company. For construction in progress assets, no depreciation is recorded until the asset is placed in service. When construction is completed, the assets should be reclassified as building, building improvement, infrastructure or land improvement and should be capitalized and depreciated. The land is currently owned by companies controlled by our Chief Executive Officer. The Company fully impaired the construction in progress on land currently owned by the Companies controlled by our Chief Executive Officer due to the uncertainty in title transfer as of September 30, 2023.
Fixed Assets
Fixed assets are stated at cost, less accumulated depreciation, and amortization. Depreciation is computed using the double declining balance method over the estimated useful lives of the respective assets:
| Classification | Life | |||
| Buildings | ||||
| Furniture and equipment |
| 11 |
Revenue Recognition
The Company determines revenue recognition pursuant to Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers, through the following steps:
| ■ | Identification of the contract, or contracts, with a customer. | |
| ■ | Identification of the performance obligations in the agreement(s) for the sale of plots or house construction. | |
| ■ | Determination of the transaction price. | |
| ■ | Allocation of the transaction price to the performance obligation(s) in the contract. | |
| ■ | Recognition of revenue when, or as the Company satisfies a performance obligation. |
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 house construction with customers. These contracts define each party’s rights, payment terms and other contractual terms and conditions of the sale. 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 which we will expect to receive in exchange for execution of the performance obligation(s).
The Company applies judgment in determining the customer’s ability and intention to pay the consideration to which the Company is entitled to. A performance obligation is a promise in a contract or agreement to transfer a distinct product or item to the customer. 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. Management considers the retention of title as merely a protective right, which would not disallow revenue recognition for the full consideration to which the Company is entitled upon the execution of a contract for deed.
Currently, upon execution of each contract for deed, 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. In addition, the title of the land for the various projects (Bajamar and Divino) is held by an entity that is controlled by the Company’s Chief Executive Officer.
The Company’s principal activities in the real estate development industry which it generates its revenues from are the sale of developed and undeveloped land and house construction.
Rancho Costa Verde Development or RCVD generates revenue from the following sources: (1) lot sales, (2) home construction calculated as a set percentage of builders’ costs, (3) administrative income for loan servicing, (4) interest income resulting from monthly payments from financed loans made to customers on lost sales, (5) resale income as commission for selling homes for owners that have purchased lots at RCVD and (6) utilities revenue from waste water systems and solar systems.
The Company identified the following performance obligations related to the operations of RCVD: (1) subdivision of the developer parcel, (ii) casita free week for each customer allowing them to enjoy a free week to a casita per year. The Company determined that there was a significant financing component in most arrangements with customers, which results in the recognition of interest income.
The
Company recognized $
Advertising costs
The
Company expenses advertising costs when incurred. Advertising costs incurred amounted to $
Debt issuance costs and debt discounts
Debt issuance costs and debt discounts are being amortized over the term of the related financings on a straight-line approach, which approximates the effective interest method. Costs and discounts are presented as a reduction of the related debt in the accompanying consolidated balance sheets.
| 12 |
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.
Stock Options Plan – 2019 Equity Incentive Plan
On February 11, 2019, the Company’s Board of Directors approved the 2019 Equity Incentive Plan (the “2019 Plan”). In order for the 2019 Plan to grant “qualified stock options” to employees, it requires 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 prior to shareholders’ approval will be “non-qualified”. Pursuant to the 2019 Plan, the Company has reserved a total of shares of the Company’s common stock under the Plan. The Company has a total of options issued and outstanding under the 2019 Plan as of September 30, 2023. The Company did not issue any stock options during the three and nine months ended September 30, 2023.
Stock Options Plan – 2020 Equity Incentive Plan
On August 26, 2020, the Company’s Board of Directors approved the 2020 Equity Incentive Plan (the “2020 Plan”). The Company has reserved a total of shares of the Company’s authorized common stock for issuance under the 2020 Plan. The 2020 Plan enables the Company’s board of directors to provide equity-based incentives through grants of awards to the Company’s present and future employees, directors, consultants, and other third-party service providers. The Company has a total of options issued and outstanding under the 2020 Plan as of September 30, 2023.
Stock Options Plan – 2022 Equity Incentive Plan
On December 1, 2022, the Company’s Board of Directors approved a 2022 Equity Incentive Plan (the “2022 Plan”). The 2022 Plan enables the Board of Directors to provide equity incentives through grants of awards to the Company’s present and future employees, directors, consultants, and other third-party service providers.
Pursuant to the 2022 Plan, the Company has reserved a total of shares of the Company’s common stock to be available under the 2022 Plan.
The Company did not issue any stock options during the three and nine months ended September 30, 2023. The Company has a total of options issued and outstanding under the 2022 Plan as of September 30, 2023
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.
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.
| 13 |
For the nine months ended September 30, 2023 | For the nine months ended September 30, 2022 | |||||||
| Options | ||||||||
| Warrants | ||||||||
| Total potentially dilutive shares | ||||||||
Concentration of Credit Risk
The Company maintains its cash in bank and financial institution deposits that at times may exceed federally insured limits. The Company has not experienced any losses in such accounts through September 30, 2023.
Impairment of Long-lived Assets
The Company reviews its long-lived assets for impairment whenever events or changes in business circumstances indicate that the carrying amount of assets may not be fully recoverable or that the useful lives of these assets are no longer appropriate. If impairment is indicated, the asset is written down to its estimated fair value. The Company fully impaired its long-lived assets due to the uncertainty in title transfer of the land not currently owned by the Company and the estimated fair value of its construction in progress during the three and nine months ended September 30, 2023.
Convertible Promissory Note
The Company accounts for convertible promissory notes in accordance with ASC 470-20, Debt with Conversion and Other Options. The Company evaluates embedded conversion features within convertible debt to determine whether the embedded conversion feature should be bifurcated from the host instrument and accounted for as a derivative at fair value with changes in fair value recorded in the Income Statement. If the conversion feature does not require recognition of a bifurcated derivative, the convertible debt instrument is evaluated for consideration of any beneficial conversion feature (“BCF”) requiring separate recognition. When the Company records a BCF, the intrinsic value of the BCF is recorded as a debt discount against the face amount of the respective debt instrument with an offset to additional paid-in capital and amortized to interest expense over the life of the debt using the effective interest method.
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. Management is currently evaluating the potential impact of the Update on its financial statements.
| 14 |
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 provides guidance for estimating credit losses on certain types of financial instruments, including trade receivables, by introducing an approach based on expected losses. The expected loss approach will require entities to incorporate considerations of historical information, current information and reasonable and supportable forecasts. The guidance requires a modified retrospective transition method and early adoption is permitted. In November 2019, FASB issued ASU No. 2019-10, Financial Instruments – Credit Losses, Derivatives and Hedging, and Leases (“ASU 2019-10”), which defers the adoption of ASU 2016-13 for smaller reporting companies until periods beginning after December 15, 2022. The Company has not yet adopted ASU 2016-13 and will continue to evaluate the impact of ASU 2016-13 on its consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 provides guidance for estimating credit losses on certain types of financial instruments, including trade receivables, by introducing an approach based on expected losses. The expected loss approach will require entities to incorporate considerations of historical information, current information and reasonable and supportable forecasts. The guidance requires a modified retrospective transition method and early adoption is permitted. In November 2019, FASB issued ASU No. 2019-10, Financial Instruments – Credit Losses, Derivatives and Hedging, and Leases (“ASU 2019-10”), which defers the adoption of ASU 2016-13 for smaller reporting companies until periods beginning after December 15, 2022. The Company has not yet adopted ASU 2016-13 and will continue to evaluate the impact of ASU 2016-13 on its consolidated financial statements.
The Company has evaluated all the recent accounting pronouncements and determined that there are no other accounting pronouncements that will have a material effect on the Company’s consolidated financial statements.
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
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
Oasis Park Title Transfer
On
June 18, 2019, Baja Residents Club SA de CV (“BRC”), a related party with common ownership and control by our CEO, Robert
Valdes, transferred title to the Company for the Oasis Park property which was part of a previously held land project consisting of
The Company transferred title to individual plots of land to the investors since the Company received this approval of change in transfer of title to ILA.
During the three and nine months ended September 30, 2023, the Company did not enter into any new contract to sell plots of land.
| 15 |
On
September 29, 2021, the Company entered into a house construction contract for total consideration of $
During
the year ended December 31, 2021, the Company sold three (3) lots to an affiliate of a related party of the Company for a total purchase
price of $
The
remaining unpaid amount owed to the Company was $
NOTE 4 – LAND, BUILDING, NET AND CONSTRUCTION IN PROCESS
Land, buildings, net and construction in process as of September 30, 2023, and December 31, 2022:
| Useful life | September 30, 2023 | December 31, 2022 | ||||||||
| Land – Emerald Grove | $ | $ | ||||||||
| Land – Rancho Costa Verde Development | $ | $ | ||||||||
| Furniture & equipment, net | $ | $ | ||||||||
| Building | ||||||||||
| Less: Accumulated depreciation | ( | ) | ( | ) | ||||||
| Building, net | $ | $ | ||||||||
Depreciation
expense was approximately $
Valle Divino
The
Valle Divino is the Company’s premier wine country development project in Ensenada, Baja California. This land project consists
of
There
was no activity during the three and nine months ended September 30, 2023. 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 was $
Plaza Bajamar
The Plaza Bajamar community is an 80-unit development located within the internationally renowned Bajamar Ocean Front Hotel and Golf Resort. The Bajamar Ocean Front Golf Resort is an expertly planned, well-guarded, and gated wine and golf community located 45 minutes South of the San Diego-Tijuana Border along the scenic toll road to Ensenada on the Pacific Ocean.
Phase
I will include 22 “Merlot”
The
Company has not yet taken title to this property, which is currently owned by Valdeland, S.A. de C.V. (“Valdeland”), an entity
controlled and
| 16 |
In
November and December 2019, $
Valdeland has completed a two-bedroom model home, an enhanced entrance, and interior roads as well as site preparation for four (4) new homes adjacent to the model home. It has commenced construction on four residential lots following the payment of the required minimum deposits from buyers.
The
Company funded the construction by an additional $
The
balance of construction in process for Plaza Bajamar totaled $
Within the “restricted zone,” a foreigner can purchase the beneficial interest in real property through a bank trust or “fideicomiso.” Indeed, a bank trust must be used when acquiring property within the restricted zone. In this bank trust, the buyer of the property is designated as the “fideicomisario” or the beneficiary of the trust. While legal title is held by the bank, (specifically the trustee of the trust or the “fiduciario,”) the trustee must administer the property in accordance with the instructions of the buyer (the beneficiary of the trust). The property is not an asset of the bank, and the trustee is obligated to follow every lawful instruction given by the beneficiary to perform legal action. The Company has not yet established the bank trust, which is anticipated to occur before the end of the fiscal year 2023.
As
of September 30, 2023, Valdeland sold six (6) house constructions on residential lots for estimated price of $
Rancho Costa Verde Development (“RCVD”)
RCVD
is a
NOTE 5 – RELATED PARTY TRANSACTIONS
Chief Executive Officer – Roberto Valdes
Effective January 1, 2020, the Company executed an employment agreement with its Chief Executive Officer.
The
Company has not paid any salary to its Chief Executive Officer for the three and nine months ended September 30, 2023. The Company has
accrued $
As
of September 30, 2023, the Company funded an aggregate amount of
During
the nine months ended September 30, 2023, the Company funded an aggregate amount of approximately $
On
December 1, 2022, the Company issued stock options under the 2022 Plan with a strike price of $, vesting
| 17 |
Chief Financial Officer – Jason Sunstein
Effective January 1, 2020, the Company executed an employment agreement with its Chief Financial Officer.
The
Company has not paid any salary to its Chief Financial Officer for the three and nine months ended September 30, 2023. The Company has
accrued $
On
December 1, 2022, the Company issued stock options under the 2022 Plan with a strike price of $, vesting
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 8).
The Company’s Chief Financial Officer also facilitated the Emerald Grove asset purchase as described in Note 3.
President – Frank Ingrande
In May 2021, the Company executed an employment agreement with its President.
The
Company has not paid any salary to its President for the three and nine months ended September 30, 2023. The Company has accrued $
Frank
Ingrande was the co-founder and owner of
On
December 1, 2022, the Company issued stock options under the 2022 Plan with a strike price of $, vesting
International Real Estate Development, LLC. (“IRED”)
Frank
Ingrande was an owner of
On
January 1, 2023, the Company issued a convertible promissory note pursuant to the acquisition of RCVD for a total principal of $
NOTE 6 – PROMISSORY NOTES
Promissory notes consisted of the following at September 30, 2023, and December 31, 2022:
| September 30, 2023 | December 31, 2022 | |||||||
| Cash Call note payable, due | $ | $ | ||||||
| Elder note payable, | ||||||||
| Elder note Payable, | ||||||||
| Griffith note Payable, | ||||||||
| Banker note Payable, | ||||||||
| Robles note Payable, | ||||||||
| Redwood Trust note payable, | ||||||||
| Total Notes Payable | $ | $ | ||||||
| Less discounts | ( | ) | ||||||
| Total Promissory notes, net of discount | ||||||||
| Less current portion | ( | ) | ( | ) | ||||
| Total Promissory notes, net of discount - long term | $ | $ | ||||||
Interest
expense related to the amortization of the associated debt discount was $
| 18 |
Redwood Trust
On
January 21, 2021, the Company refinanced its existing first and second mortgage loans on the
Cash Call, Inc. – In default
On
March 19, 2018, the Company issued a promissory note to CashCall, Inc. for $
On
August 2, 2022, the Company and Cash Call settled for an aggregate principal of $
As
of September 30, 2023 and December 31, 2022, the remaining principal balance was $
Christopher Elder – In default
On
December 15, 2020, the Company entered into a promissory note pursuant to which the Company borrowed $
There
was no activity during the three and nine months ended September 30, 2023 and 2022, respectively. As of September 30, 2023 and December
31, 2022, the remaining principal balance was $
The
Company incurred approximately $
Bobbie Allen Griffith – In default
On
September 5, 2023, the Company entered into a promissory note pursuant to which the Company borrowed $
The
Company began to repay the note during the three and nine months ended September 30, 2023 for a total of $
The
Company incurred approximately $
The Company initially recognized a debt discount and
stock payable on this note of $
George Banker
On
August 11, 2023, the Company entered into a promissory note pursuant to which the Company borrowed $
There
was no activity during the three and nine months ended September 30, 2023. As of September 30, 2023, the remaining principal balance
was $
The
Company incurred approximately $
The Company initially recognized a debt discount and
stock payable on this note of $
George Robles
On
September 1, 2023, the Company entered into a promissory note pursuant to which the Company borrowed $
There
was no activity during the three and nine months ended September 30, 2023. As of September 30, 2023, the remaining principal balance
was $
The
Company incurred approximately $
The Company initially recognized a debt discount and
stock payable on this note of $
NOTE 7 – CONVERTIBLE NOTES
Convertible notes consisted of the following at September 30, 2023 and December 31, 2022:
| September 30, 2023 | December 31, 2022 | |||||||
| 1800 Diagonal convertible note #1, | ||||||||
| 1800 Diagonal convertible note#2, | ||||||||
| 1800 Diagonal convertible note #3, | ||||||||
| 1800 Diagonal convertible note #4, | ||||||||
| 1800 Diagonal convertible note #5, | ||||||||
| 1800 Diagonal convertible note #6, | ||||||||
| Mast Hill convertible note, | ||||||||
| Blue Lake convertible note, | ||||||||
| International Real Estate Development, | ||||||||
| Total convertible notes | $ | $ | ||||||
| Less discounts | ( | ) | ( | ) | ||||
| Total convertible notes, net of discount | ||||||||
| Less current portion | ( | ) | ( | ) | ||||
| Total convertible notes, net of discount - long term | $ | $ | ||||||
| 19 |
Mast Hill Fund, L.P (“Mast note”) - In default
On
March 23, 2022, the Company issued a convertible promissory note pursuant to which it borrowed gross proceeds of $
Additionally,
as an incentive to the note holder, the securities purchase agreement also provided for the issuance of shares of common stock
with fair value of approximately $
During
the nine months ended September 30, 2023, the Company converted approximately $
The
principal balance owed to Mast Hill Fund was $
The
Company is in default as the Company (i) consummated a variable rate transaction with another lender and (ii) failed to make the required
installment payment as required under the terms of the agreement. Upon event of default, the Company is required to pay the outstanding
principal plus accrued interest and a default penalty which is equal to
As
of September 30, 2023 and December 31, 2022, the default penalty was $
The
Company initially recognized $
The
balance of the unamortized debt discount was $
Blue Lake Partners LLC (“Blue Lake note”) – In default
On
March 28, 2022, the Company issued a convertible promissory note pursuant to which it borrowed gross proceeds of $
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 $
The
principal balance owed to Blue Lake was $
The
Company is in default of the note as the Company (i) consummated a variable rate transaction with another lender and (ii) failed to make
the required installment payment as required under the terms of the agreement. The Company has not yet received any default notice from
the investor. Upon event of default, the Company is required to pay the outstanding principal plus accrued interest and a default penalty
which is equal to
| 20 |
As
of September 30, 2023 and December 31, 2022, the Company accrued $
The
Company initially recognized $
The
balance of the unamortized debt discount was $
1800 Diagonal Lending Inc. (“Diagonal note”)
Diagonal note #1
On
July 28, 2022, the Company issued a convertible promissory note pursuant to which it borrowed gross proceeds of $
During
the nine months ended September 30, 2023, the Company converted $
The
principal balance of Diagonal note #1was $
The
Company initially recognized $
Diagonal note #2
On
September 2, 2022, the Company issued a convertible promissory note pursuant to which it borrowed gross proceeds of $
The
Company repaid $
The
principal balance owed to Diagonal was $
The
Company amortized $
Diagonal note #3
On
October 17, 2022, the Company issued a convertible promissory note pursuant to which it borrowed gross proceeds of $
The
maturity date of the note is
| 21 |
The
Company incurred approximately $
During
the nine months ended September 30, 2023, the Company repaid $
The
Company initially recognized $
The
balance of the Diagonal note #3 was $
Diagonal note #4
On
March 3, 2023, the Company issued a convertible promissory note pursuant to which it borrowed gross proceeds of $
The
maturity date of the note is
During
the nine months ended September 30, 2023, the Company repaid $
The
Company initially recognized $
The
balance of the Diagonal note #4 was $
Diagonal note #5
On
September 13, 2023, the Company issued a convertible promissory note pursuant to which it borrowed gross proceeds of $
The
maturity date of the note is
The
Company incurred approximately $
The
Company initially recognized $
The
balance of the Diagonal note #5 was $
Diagonal note #6
On
September 6, 2023, the Company issued a convertible promissory note pursuant to which it borrowed gross proceeds of $
The
maturity date of the note is
The
Company incurred approximately $
The
Company initially recognized $
The
balance of the Diagonal note #6 was $
International Real Estate Development, LLC. - In default
On
January 1, 2023, the Company issued a convertible promissory note pursuant to the acquisition of RCVD for a total principal of $
The
Company incurred $
NOTE 8 – PROMISSORY NOTES – RELATED PARTY
Related party promissory notes consisted of the following at September 30, 2023, and December 31, 2022:
| September 30, 2023 | December 31, 2022 | |||||||
| RAS Real Estate LLC | $ | $ | ||||||
| Six-Twenty Management LLC – On demand | ||||||||
| Frank Ingrande | ||||||||
| Lisa Landau – On demand | ||||||||
| Total On demand notes, net of discount | $ | $ | ||||||
Six Twenty Management LLC (“Six-Twenty”) – Manager is the Company’s Chief Financial Officer
Jason
Sunstein, the Company’s Chief Financial Officer is also the managing member and
On
March 31, 2021, the Company executed a non-convertible promissory note with Six Twenty for an initial amount funded of $
During
the nine months ended September 30, 2023, Six Twenty funded an additional $
As
of September 30, 2023 and December 31, 2022, the principal balance owed to Six-Twenty was $
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The
Company incurred approximately $
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 $
During
the nine months ended September 30, 2023, the Company paid $
During
the nine months ended September 30, 2023, the Company incurred $
Lisa Landau
Lisa
Landau is a relative of the Company’s Chief Financial Officer. During the nine months ended September 30, 2023, Lisa Landau advanced
$
The
principal balance was $
NOTE 9 – BUSINESS ACQUISITION IN STAGES
On
January 3, 2023, the Company completed the acquisition in stages of International Real Estate Development, LLC (“IRED”
or the “seller”), for the purchase of the remaining seventy five percent (
Prior
to the acquisition of a controlling financial interest in RCVD, the Company held a twenty five percent (
As
outlined in the letter of intent with IRED and RCVD dated April 2021, in addition to various communications with both parties, the
Company had strategized and intended to acquire the remaining
The Company has accounted for this transaction as a business combination in stages under ASC 805 Business Combinations as the Company took control of RCVD in January 2023. Accordingly, and as of January 3, 2023, the assets acquired, and the liabilities assumed were recorded at their estimated fair value as of the closing date of the acquisition. The Company is in the process of finalizing the purchase price allocation and it is to be completed in January 2023.
The
secured convertible promissory note has a principal amount of $
RCVD
was originally formed in the State of Nevada. RCVD is a
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The acquisition-date fair value of the consideration transferred is as follows:
| January 3, 2023 | ||||
| Fair value of common stock | $ | |||
| Fair value of common stock warrants | ||||
| Promissory notes | $ | |||
| Fair value of consideration transferred | $ | |||
The following is a provisional purchase price allocation as of the January 3, 2023, acquisition date:
| January 3, 2023 | ||||
| Cash | $ | |||
| Accounts receivable | ||||
| Other current assets | ||||
| Fixed Assets | ||||
| Accounts payable and accrued expenses | ( | ) | ||
| Mortgage loans | ( | ) | ||
| Related party notes | ( | ) | ||
| Deferred revenue | ( | ) | ||
| Net Assets Acquired | $ | ( | ) | |
| Goodwill | ||||
| Total consideration | $ | |||
In addition, for the business combination
achieved in stages, the Company must remeasure its previously held equity interest in RCVD at its acquisition-date fair value and
recognize the resulting gain or loss, if any, in earnings. As of September 30, 2023, the Company was still completing its purchase
price allocation and finalizing their valuation for the remeasurement of the previously held equity interest of $
Pro Forma Financial Information
The following unaudited pro forma consolidated results of operations for the nine months ended September 30, 2023 and 2022 assume the acquisition was completed on January 1, 2022:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Pro forma net revenues | ||||||||||||||||
| Pro forma net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Pro forma data does not purport to be indicative of the results that would have been obtained had these events actually occurred at the beginning of the periods presented and is not intended to be a projection of future results.
Common Stock warrants
At acquisition date, the Company measures the fair value of the common stock warrant using the Black-Scholes option valuation model using the following assumptions:
| For the Nine Months Ending September 30, | ||||||||
| 2023 | 2022 | |||||||
| Expected term | ||||||||
| Exercise price | $ | |||||||
| Expected volatility | % | |||||||
| Risk-free interest rate | % | |||||||
| Forfeitures | ||||||||
The assumptions used in determining fair value represent management’s best estimates, but these estimates involve inherent uncertainties and the application of management’s judgment. As a result, if factors change, including changes in the market value of the Company’s common stock, managements’ assessment, or significant fluctuations in the volatility of the trading market for the Company’s common stock, the Company’s fair value estimates could be materially different in the future.
The Company computes the fair value of the common stock warrants at the acquisition date, which does not have to be updated at each reporting period.
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NOTE 10 – EQUITY METHOD INVESTMENT
In
May 2021, the Company acquired a
The investment has been accounted for under the equity method. It was determined that the Company does not have the power to direct the activities that most significantly impact RCVD’s economic performance, and therefore, the Company is not the primary beneficiary of RCVD and RCVD has not been consolidated under the variable interest model.
The
investment was initially recorded at cost, which was determined to be $
On
January 3, 2023, the Company executed a securities purchase agreement with International Real Estate Development, LLC, for the purchase
of the remaining seventy five percent (
The
Company acquired a controlling financial interest and accounted for this transaction as a business combination in stages under ASC
805 (refer to note 9). Upon the acquisition of such controlling interest, the Company re-measured the previously held equity method
interest to fair value and has recognized the provisional difference between the fair value and the carrying value of $
NOTE 11 – COMMITMENTS AND CONTINGENCIES
Commitment to Purchase Land (Valle Divino)
The
land project consisting of
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 $
The
total budget was established at approximately $
Commitment to Sell Land (IntegraGreen)
On
September 30, 2019, the Company entered into a contract for deed agreement “Agreement” with IntegraGreen whose principal,
Christopher Elder, is also a creditor. Under the agreement the Company agreed to the sale of
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The Company fully impaired the carrying balance of its account receivable owed by IntegraGreen as of September 30, 2023 and December 31, 2022.
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. Contractor also commenced phase II construction including the waterfront clubhouse,
casitas, and model homes. The total budget was established at approximately $
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 12 – STOCKHOLDERS’ DEFICIT
The Company’s equity at September 30, 2023 consisted of authorized common shares and authorized preferred shares, all with a par value of $ per share. As of September 30, 2023, there were shares issued and shares outstanding. As of December 31, 2022, there were shares issued and outstanding.
As of September 30, 2023, and December 31, 2022, there were shares of Series A Preferred Stock issued and outstanding, shares of Series B Preferred Stock issued and outstanding, and shares of Series C Preferred Stock issued and outstanding as of September 30, 2023.
Equity Incentive Plans
2022 Equity Incentive Plan
On December 1, 2022, the Company’s Board of Directors approved a 2022 Equity Incentive Plan (the “2022 Plan”). Pursuant to the 2022 Plan, the Company has reserved a total of shares of the Company’s common stock to be available under the 2022 Plan. The 2022 Plan was never approved by the stockholders. Therefore, any options granted under the 2022 Plan prior to stockholder approval will be “non-qualified”. The Company granted options during the year ended December 31, 2022. There was no activity during the nine months ended September 30, 2023. The Company has options issued and outstanding under the 2022 Plan as of September 30, 2023.
2020 Equity Incentive Plan
On August 26, 2020, the Company’s Board of Directors approved the 2020 Equity Incentive Plan (the “2020 Plan”). The Company has reserved a total of shares of the authorized common stock for issuance under the 2020 Plan. There was no activity during the nine months ended September 30, 2023. The Company has options issued and outstanding under the 2020 Plan as of September 30, 2023 and December 31, 2022.
2019 Equity Incentive Plan
On February 11, 2019, the Company’s Board of Directors approved a 2019 Equity Incentive Plan (the “2019 Plan”). In order for the 2019 Plan to grant “qualified stock options” to employees, it required approval by the Corporation’s shareholders within 12 months from the date of the 2019 Plan. The 2019 Plan was never approved by the shareholders. Therefore, any options granted under the 2019 Plan prior to shareholder approval will be “non-qualified”. Pursuant to the 2019 Plan, the Company has reserved a total of shares of the Company’s common stock to be available under the 2019 Plan. No options under the 2019 Plan were issued, cancelled, forfeited, or exercised during the nine months ended September 30, 2023. The Company has options issued and outstanding under the 2019 Plan as of September 30, 2023 and December 31, 2022.
Activity during the nine months ended September 30, 2023
During
the nine months ended September 30, 2023, the Company issued shares of common stock pursuant to consulting agreements for a
total fair value of approximately $
During
the nine months ended September 30, 2023, the Company issued shares of common stock pursuant to a business acquisition with
a fair value of
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During the nine months ended September 30, 2023, the Company issued shares of common stock pursuant to the conversion of convertible notes and notes payable.
During the nine months ended September 30, 2023, the Company issued shares of common stock pursuant to a cashless exercise of warrants.
During
the nine months ended September 30, 2023, the Company issued shares of common stock for $
Activity during the three months ended September 30, 2022
During the nine months ended September 30, 2022, the Company issued an aggregate of commitment shares pursuant to securities purchase agreements with two accredited investors (see note 6) for a total fair value of approximately $.
During
the nine months ended September 30, 2022, the Company issued shares of common stock from option exercise for total cash consideration
of $
During
the nine months ended September 30, 2022, the Company issued shares of common stock pursuant to consulting agreements for total
fair value of approximately $
During
the nine months ended September 30, 2022, the Company issued shares of common stock pursuant to a finders’ fee agreement
with respect to the financing in the Company’s first fiscal quarter for total fair value of approximately $
Preferred Stock
On
November 6, 2019, the Company authorized and issued shares of Series B Preferred Stock (“Series B”) and shares
of common stock to CleanSpark Inc. in a private equity offering for $
The
terms and conditions of the Series B include an in-kind accrual feature, which provides for a cumulative accrual at a rate of
The Company did not issue any shares of Series A or Series B preferred stock during the nine months ended September 30, 2023.
On
June 2, 2023, the Company authorized and issued and shares, respectively, of Series C Preferred Stock (“Series C”)
to Bigger Capital Fund, LP in a private equity offering for $
The
terms and conditions of the Series C include an in-kind accrual feature, which provides for a cumulative accrual at a rate of
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The Securities Purchase Agreement (“SPA”) states that the in-kind accrual rate should be increased by 8% per annum upon each occurrence of an event of default.
Concurrently
with this SPA, the Company entered into a Warrant Inducement Agreement (“Inducement”). Previously, on July 26, 2021, the
Company entered into a Warrant Purchase Agreement with Bigger Capital Fund, LP where the Company issued common stock purchase warrants
at an exercise price of $
Warrants
A summary of the Company’s warrant activity during the nine months ended September 30, 2023, is presented below:
| Number of Warrants | Weighted Average Exercise Price | Weighted Average Remaining Contract Term (Year) | ||||||||||
| Outstanding at December 31, 2022 | $ | |||||||||||
| Granted | ||||||||||||
| Exercised | - | |||||||||||
| Forfeited-Canceled | - | |||||||||||
| Outstanding at September 30, 2023 | $ | |||||||||||
| Exercisable at September 30, 2023 | ||||||||||||
During the nine months ended September 30, 2023, the Company issued warrants, convertible into an equivalent number of shares of common stock, following the acquisition of Rancho Costa Verde Development, LLC (See note 9).
As noted above, during the nine months ended September 30, 2023, the Company issued additional warrants, convertible into an equivalent number of shares of common stock, following the issuance of the Series C Preferred Stock private offering.
The aggregate intrinsic value as of September 30, 2023 and December 31, 2022, was $ and , respectively.
Options
| Weighted | Weighted Average Remaining Contract | |||||||||||
Number of Options | Average Exercise Price | Term (Year) | ||||||||||
| Outstanding at December 31, 2022 | $ | |||||||||||
| Granted | - | |||||||||||
| Exercised | - | |||||||||||
| Forfeited-Canceled | - | |||||||||||
| Outstanding at September 30, 2023 | $ | |||||||||||
| Exercisable at September 30, 2023 | ||||||||||||
Options outstanding as of September 30, 2023, and December 31, 2022, had aggregate intrinsic value of $ and $, respectively.
NOTE 13 – 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 those noted below.
In October 2023, the Company issued an additional shares of common stock to Bigger Capital Fund, LP related to a Series C Preferred Stock dividend.
In
October 2023, the Company filed and adopted a Certificate of Designations, Preferences and Rights of the Series D Convertible Preferred
Stock (the “Certificate of Designations”) with the Wyoming Secretary of State, authorizing the issuance of up to shares
of Series D Convertible Preferred Stock, par value $ per share (the “Series D Preferred Stock”), each having a stated
value equal to $
The Series D Preferred Stock ranks senior with respect to the preferences as to dividends, distributions and payments upon the liquidation, dissolution and winding up of the Company to all other shares of capital stock of the Company, including all other outstanding shares of preferred stock as of the filing date of the Certificate of Designations, except, however, the Series D Preferred Stock is subordinate to the series of preferred stock of the Company designated as “Series C Convertible Preferred Stock.” The Company shall be permitted to issue capital stock, including preferred stock, that is junior in rank to the Series D Preferred Stock with respect to the preferences as to dividends, distributions and payments upon the liquidation, dissolution and winding up of the Company.
At any time after the earlier of (i) a Qualified Offering (as defined below) or (ii) the date that is 18 months from the date the first share of Series D Preferred Stock is issued to any holder thereof, each holder of Series D Preferred Stock shall be entitled to convert any portion of the outstanding Series D Preferred Stock, including any Additional Amount, held by such holder into shares of common stock at the Conversion Price (as defined below) by following the mechanics of conversion set forth in the Certificate of Designations.
The amount of shares of common stock issuable upon a conversion for each Series D Preferred Stock shall be the Stated Value of such share plus the Additional Amount divided by the Conversion Price (as defined below). The “Conversion Price” for each Series D Preferred Stock is, the lower of the price per share at which a Qualified Offering (as defined below) is made (the “Qualified Offering Price”) or 80% of the average of the closing sale price for the 10 consecutive trading days immediately preceding, but not including, the effective date of the applicable conversion notice. A “Qualified Offering” means an offering of common stock (or units consisting of common stock and warrants to purchase common stock) resulting in the listing for trading of the common stock on the NYSE American, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market or the New York Stock Exchange (or any successors to any of the foregoing).
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Overview of Our Company
The Company was incorporated pursuant to the laws of the State of Wyoming on September 26, 2013. We are based in San Diego, California. We are a residential land development company with target properties located primarily in the Baja California Norte region of Mexico and Southern California. Our principal activities are purchasing properties, obtaining zoning and other entitlements required to subdivide the properties into residential and commercial building plots, securing financing for the purchase of the plots, improving the properties’ infrastructure and amenities, and selling 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
The real estate market in Northern Baja California has continued to significantly improve and has fully recover from the negative impact of Covid-19. The housing prices has continued to rise in the Southwest U.S., and inventory has remained severely low, which generated additional attraction from home buyers seeking second homes or vacation homes.
The Company’s current portfolio includes residential, resort and commercial properties comprising the following projects:
| ■ | Oasis Park Resort is a 497-acres master planned real estate community including 1,344 residential home sites, south of San Felipe, Baja California, which offers a 180-degree sea and mountain views. In addition to the residential lots, there is a planned boutique hotel, a spacious commercial center, and a nautical center.
The Company recently allowed prospective homeowners and existing lot holders to tour the property again. 75 of the 1,344 planned residential lots were pre-sold to initial shareholders. The Company has made significant progress on the project, which included the completion of the two-mile access road and the community entrance structure. The Company also started construction of the waterfront clubhouse, and model homes.
There has been no activity during the nine months ended September 30, 2023. | |
| ■ | Valle Divino is a self-contained solar 650-home site project in Ensenada, Baja California, with test vineyard at the property. This resort includes 137 residential lots and 3 commercial lots on 20 acres of land. This represents an estimated $60 million in gross sales opportunity. There has been no activity during the nine months ended September 30, 2023. | |
| ■ | Plaza Bajamar Resort is an 80-unit project located at the internationally renowned Bajamar Ocean front hotel and golf resort. The Bajamar oceanfront golf resort is a master planned golf community located 45 minutes south of the San Diego-Tijuana border along the scenic toll road to Ensenada. The first Phase will include 22 “Merlot” 1,150 square-foot single-family homes that features two bedrooms and two baths. The home includes two primary bedroom suites - one on the first floor and one upstairs, as well as fairway and ocean views from a rooftop terrace. The Merlot villas will come with the installation of solar packages. | |
| ■ | Emerald Grove Estates is the Company’s newly renovated Southern California property, used for organized events at this 8,000 square foot event venue. | |
| ■ | Rancho Costa Verde (“RCVD”) is a 1,100-acre master planned second home, retirement home and vacation home real estate community located on the east coast of Baja California. RCVD is a self-sustained solar powered green community that takes advantage of the advances in solar and other green technology. In May 2021, the Company acquired a 25% investment in RCVD in exchange for $100,000 and 3,000,000 shares of the Company’s common stock, and such investment was initially recorded as an equity-method investment in the Company’s condensed consolidated financial statements. On January 3, 2023, the Company acquired the remaining 75% membership interest in RCVD for a contractual consideration of $13.5 million, paid through $8,900,000 secured convertible note, 20,000,000 shares of common stock and 33,000,000 common stock warrants. Such transaction was recorded pursuant to ASC 805 Business Combinations. |
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Summary of key operational and financial events:
| ■ | During the nine months ended September 30, 2023, the Company collected an aggregate amount of $312,175 from house construction at the Plaza Bajamar project, which was initially recorded and presented as contract liability in the consolidated balance sheets. However, the Company offset the balance with the additional cash funded for the construction of amenities at Bajamar, with the net balance presented as impairment loss in the consolidated statement of operations for the nine months ended September 30, 2023. | |
| ■ | Continued our research and marketing efforts to identify potential home buyers in the United States, Canada, Europe, and Asia. Through the formation of a partnership with a similar development company in the Baja California Norte Region of Mexico, we have been able to leverage additional resources with the use of their established and proven marketing plan which can help us with sophisticated execution and the desired results for residential plot sales and development. | |
| ■ | Title of Oasis Park Resort in San Felipe was assumed during 2019. We are expecting the transfer of title on Valle Divino in Ensenada, Baja California and Plaza Bajamar in Ensenada, Baja California before the end of our fiscal year 2023, as we continue to follow the necessary steps to complete this legal process. However, there is no assurance that such transfer of title will occur on above timeframe or at all. |
Results of Operations for the Three Months Ended September 30, 2023, compared to the Three Months Ended September 30, 2022
| For the three months ended | ||||||||
| September 30, 2023 | September 30, 2022 | |||||||
| Revenue, net | $ | 358,129 | $ | 16,973 | ||||
| Cost of revenue | 296,680 | - | ||||||
| Gross profit | 61,449 | 16,973 | ||||||
| Operating expenses | ||||||||
| Sales and marketing | 12,000 | 100,600 | ||||||
| General and administrative expenses | 1,007,030 | 432,434 | ||||||
| Total operating expenses | 1,019,030 | 533,034 | ||||||
| Loss from operations | (957,581 | ) | (516,061 | ) | ||||
| Other income (expense) | ||||||||
| Loss on acquisition of RCVD | (2,995,000 | ) | - | |||||
| Loss from equity-method investment | - | (49,752 | ) | |||||
| Loss from debt extinguishment | (1,091,117 | ) | - | |||||
| Change in fair value of derivative | (588,314 | ) | 219,069 | |||||
| Interest expense | (708,356 | ) | (631,308 | ) | ||||
| Total other expense | (5,382,787 | ) | (461,991 | ) | ||||
| Net loss | $ | (6,340,368 | ) | $ | (978,052 | ) | ||
Revenue
Revenue increased by $341,156 to $358,129 for the three months ended September 30, 2023, from $16,973 for the three months ended September 30, 2022. The revenue recognized during the three months ended September 30, 2023 includes real estate sales, interest from financed sales, financing fees, and components of home construction.
Cost of revenue
Cost of revenue increased by $296,680 to $296,680 for the three months ended September 30, 2023, from $0 for the three months ended September 30, 2022. Cost of revenue includes land cost and related land improvements including infrastructure and subdivision costs.
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Operating Expenses
Operating expenses increased by $485,996 to $1,019,030 for the three months ended September 30, 2023, from $533,034 for the three months ended September 30, 2022.
Sales and marketing costs decreased by $88,600, to $12,000 in the three months ended September 30, 2023, from $100,600 in the three months ended September 30, 2022. Such decrease mainly relates to the reduced marketing efforts incurred by RCVD and ILAL during the three months ended September 30, 2023 as the Company was in process of raising additional capital. Sales costs are related to real estate’s sales commissions. Marketing costs include advertising, prospective customers’ education, travel, and accommodation.
General and administrative costs increased by $574,596, to $1,007,030 in the three months ended September 30, 2023, compared to $432,434 for the three months ended September 30, 2022. General and administrative increased for professional fees and other general and administrative expenses due to the acquisition of RCVD. General and administrative costs mainly include commissions paid attributable to sales.
Other expense
Other expenses increased by approximately $4,920,796 to $5,382,787 in the three months ended September 30, 2023, from $461,991 in the three months ended September 30, 2022.
Such increase is primarily due to $588,314 change in fair value of the Company’s derivative liability, an increase in loss on acquisition of RCVD of $2,995,000, and a $1,091,117 increase in loss from debt extinguishment related to an unfavorable conversion of convertible notes and promissory notes payable during the three months ended September 30, 2023.
Net Loss
The Company finished the three months ended September 30, 2023, with a net loss of $6,340,368, as compared to a net loss of $978,052 for the three months ended September 30, 2022. The increase in our net loss resulted from the reasons outlined above.
The factors that will most significantly affect future operating results will be:
| ■ | The positive effect of implemented sales and marketing initiatives to drive opportunities into our various projects. | |
| ■ | The quality of our amenities. | |
| ■ | The global economy and the demand for vacation homes. | |
| ■ | The sale price of future plots and home construction compared to the sale price in other resorts in Mexico. | |
| ■ | The prime location of our projects. |
Other than the foregoing we do not know of any trends, events or uncertainties that have had, or are reasonably expected to have, a material impact on our revenues or expenses.
Results of Operations for the Nine Months Ended September 30, 2023, compared to the Nine Months Ended September 30, 2022
| For the nine months ended | ||||||||
| September 30, 2023 | September 30, 2022 | |||||||
| Revenue, net | $ | 1,084,641 | $ | 50,919 | ||||
| Cost of revenue | 300,680 | - | ||||||
| Gross profit | 783,961 | 50,919 | ||||||
| Operating expenses | ||||||||
| Sales and marketing | 300,259 | 903,283 | ||||||
| Impairment loss | 245,674 | - | ||||||
| General and administrative expenses | 2,316,807 | 2,506,181 | ||||||
| Total operating expenses | 2,862,740 | 3,409,464 | ||||||
| Loss from operations | (2,078,779 | ) | (3,358,545 | ) | ||||
| Other income (expense) | ||||||||
| Loss from debt extinguishment | (1,140,446 | ) | - | |||||
| Loss from acquisition of RCVD | (2,995,000 | ) | - | |||||
| Loss from equity-method investment | - | (231,845 | ) | |||||
| Change in fair value of derivative liability | (690,091 | ) | 219,069 | |||||
| Interest income | - | 536 | ||||||
| Interest expense | (1,723,273 | ) | (960,496 | ) | ||||
| Total other expense | (6,548,810 | ) | (972,736 | ) | ||||
| Net loss | $ | (8,627,589 | ) | $ | (4,331,281 | ) | ||
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Revenue
Revenue increased by $1,033,722 to $1,084,641 for the nine months ended September 30, 2023, from $50,919 for the nine months ended September 30, 2022. The revenue recognized during the nine months ended September 30, 2023 includes real estate sales, interest from financed sales, financing fees, and components of home construction,
Cost of revenue
Cost of revenue increased by $300,680 to $300,680 for the nine months ended September 30, 2023, from $0 for the nine months ended September 30, 2022. Cost of revenue includes land cost and related land improvements including infrastructure and subdivision costs.
Operating Expenses
Operating expenses decreased by $546,724 to $2,862,740 for the nine months ended September 30, 2023, from $3,409,464 for the nine months ended September 30, 2022.
Sales and marketing costs decreased by $603,024, to $300,259 in the nine months ended September 30, 2023, from $903,283 in the nine months ended September 30, 2022. Such decrease mainly relates to the reduced marketing efforts incurred by RCVD during the nine months ended September 30, 2023 as the Company was in process of raising additional capital. Sales costs are related to real estate’s sales commissions. Marketing costs include advertising, prospective customers’ education, travel, and accommodation.
General and administrative costs decreased by $189,374, to $2,316,807 in the nine months ended September 30, 2023, compared to $2,506,181 for the nine months ended September 30, 2022. General and administrative was decreased due to a lack of capital compared to prior period as the Company was in process of raising additional funds through September 30, 2023. General and administrative costs are mainly comprised of commissions paid attributable to sales.
Other operating expenses increased by $245,674 which is attributable to an increase in impairment losses recognized on long-lived assets of $245,674 during the nine months ended September 30, 2023. There was no impairment loss recognized for the nine months ended September 30, 2022.
Other expense
Other expenses increased by approximately $5,576,074 to $6,548,810 in the nine months ended September 30, 2023, from $972,736 in the nine months ended September 30, 2022.
Such increase is primarily due to a $762,777 increase in interest expense, which results from the additional convertible notes that the Company secured during fiscal year 2022 and 2023 to fund its ongoing operations and the additional convertible note for an aggregate amount of $8,900,000 issued pursuant to the RCVD acquisition, a decrease of $909,160 in the change in fair value of the Company’s derivative liability, $2,995,000 related to the loss on acquisition of RCVD, and $1,140,446 related to loss from debt extinguishment.
Net Loss
The Company finished the nine months ended September 30, 2023, with a net loss of $8,627,589, as compared to a net loss of $4,331,281 for the nine months ended September 30, 2022. The increase in our net loss resulted from the reasons outlined above.
The factors that will most significantly affect future operating results will be:
| ■ | The positive effect of implemented sales and marketing initiatives to drive opportunities into our various projects. | |
| ■ | The quality of our amenities. | |
| ■ | The global economy and the demand for vacation homes. | |
| ■ | The sale price of future plots and home construction compared to the sale price in other resorts in Mexico. | |
| ■ | The prime location of our projects. |
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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 $123,117 and $49,374 as of September 30, 2023, and December 31, 2022, respectively. As shown in the accompanying financial statements, we recorded a loss of $8.6 million for the nine months ended September 30, 2023. Our working capital deficit as of September 30, 2023, was $32.4 million. These factors and our ability to raise additional capital to accomplish our objectives, raises substantial doubt about our ability to continue as a going concern. We expect our expenses will continue to increase during the foreseeable future as a result of increased operations, increased construction activity and the development of current and future projects which include our current business operations.
We anticipate generating revenues over the next twelve months, as we continue to market the sale of plots held for sale at our various projects, generate cash from the sale of house construction at our properties.
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.
Operating Activities
Net cash flows used in operating activities for the nine months ended September 30, 2023, was $1,107,362 which resulted primarily due to the loss of $8,627,589 offset by non-cash share-based compensation of $358,037, amortization of debt discount of $357,376, depreciation of $89,241, impairment loss of $245,674, loss from debt extinguishment of $1,140,446, loss on acquisition of RCVD of $2,995,000, fair value of equity securities issued for services for $152,000, excess fair value of derivative liability for $108,465, change in fair value of derivative liability of $475,114, and net change in assets and liabilities of $1,490,778.
Net cash flows used in operating activities for the nine months ended September 30, 2022, was $506,041 which resulted primarily due to the loss of $4,331,281 offset by non-cash share-based compensation of $1,281,976, fair value of equity securities issued for services of $1,310,497, amortization of debt discount of $291,374, loss from the Company’s equity-method investment of $231,845, positive change in fair value of derivative liability of $219,069 depreciation of $39,708, and net change in assets and liabilities of $532,124.
Investing Activities
Net cash flows used in investing activities was $101,900 for the nine months ended September 30, 2023. The funds were used for the development of the various projects and the purchased house construction at Plaza Bajamar and Valle Divino for $354,070, additional investment for land development for $274,846. This was offset by the cash acquired for $321,920 from the acquisition of RCVD and $205,096 in proceeds from the disposal of fixed assets.
Net cash flows used in investing activities was $444,535 for the nine months ended September 30, 2022. The funds were used for the development of the various projects and the purchased house construction at Plaza Bajamar and Valle Divino.
Financing Activities
Net cash flows provided by financing activities for the nine months ended September 30, 2023, was $1,283,005, primarily from cash proceeds from additional funding from related parties for aggregate amount of $560,840, cash proceeds from convertible notes of $225,000, cash proceeds from other loans for $380,938, cash proceeds from Common Stock issuances of $50,000, cash proceeds from promissory notes of $465,000, and cash proceeds from Series C Preferred Stock issuance of $250,000. These were offset by $318,359 repayment of related party advances, $60,000 repayment of promissory notes, and $270,414 repayment of convertible notes.
Net cash flows provided by financing activities for the nine months ended September 30, 2022, was $989,827 primarily from cash proceeds from issuance of promissory notes for aggregate amount of $663,250, cash proceeds from on-going funding from related party for aggregate amount of $677,347, offset by $262,596 repayment of related party advances, and $89,474 repayment of promissory notes.
As a result of these activities, we experienced an increase in cash of $73,743 for the nine months ended September 30, 2023.
Our ability to continue as a going concern is dependent on our success in obtaining additional financing from investors or from the sale of our common shares.
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Critical Accounting Polices
There have been no material changes to our critical accounting policies as compared to the critical accounting policies and significant judgments and estimates disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on July 6, 2023.
Off-balance Sheet Arrangements
During the period ended September 30, 2023, we have not engaged in any off-balance sheet arrangements.
New and Recently Adopted Accounting Standards
For a listing of our new and recently adopted accounting standards, see Note 2, Summary of Significant Accounting Policies, to the Notes to the condensed consolidated financial statements in “Part I, Item 1. condensed consolidated financial statements” of this Quarterly Report.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not required under Regulation S-K for “smaller reporting companies.”
Item 4. Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including the Chief Executive Officer (Principal Executive Officer) and the Chief Financial Officer (Principal Financial Officer), to allow for timely decisions regarding required disclosure. In designing and evaluating disclosure controls and procedures, the Company recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
The Company conducted an evaluation under the supervision and with the participation of management, including the Principal Executive Officer and Principal Financial Officer, of the effectiveness of its disclosure controls and procedures as of September 30, 2023, as defined in Rule 13a -15(e) and Rule 15d -15(e) under the Exchange Act. This evaluation was carried out under supervision and with the participation of our Chief Executive Officer and Chief Financial Officer. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2023, our disclosure controls and procedures were not effective due to material weaknesses in internal control over financial reporting related to the lack of adequate accounting and finance personnel, inadequate controls over maintenance of records, inadequate internal controls relating to the authorization, recognition, capture, and review of transactions, facts, circumstances, and events that could have a material impact on the Company’s financial reporting process.as further discussed in our Annual Report on Form 10-K for the year ended December 31, 2022, and which the Company determined continued to exist as of September 30, 2023.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the three and nine months ended September 30, 2023, that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.
PART II — OTHER INFORMATION
Item 1. Legal Proceedings
We are not party to, and our property is not the subject of, any material pending legal proceedings.
Item 1A. Risk Factors
You should carefully review and consider the information regarding certain factors that could materially affect our business, financial condition or future results set forth under Part I, Item 1A, Risk Factors, contained in our Annual Report on Form 10-K for Fiscal 2022, as filed with the SEC on July 6, 2023. The risk factors described in the fiscal year ended 2022 Form 10-K have not materially changed.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
During the nine months ended September 30, 2023, the Company issued 2,200,000 shares of common stock pursuant to consulting agreements for a total fair value of approximately $152,000.
During the nine months ended September 30, 2023, the Company issued 20,000,000 shares of common stock pursuant to a business acquisition with a fair value of 1,800,000.
During the nine months ended September 30, 2023, the Company issued 8,928,435 shares of common stock pursuant to the conversion of convertible notes and notes payable.
During the nine months ended September 30, 2023, the Company issued 267,310 shares of common stock pursuant to a cashless exercise of warrants.
During the nine months ended September 30, 2023, the Company issued 500,000 shares of common stock for $50,000 in cash proceeds.
During the nine months ended September 30, 2023, the Company issued 3,100 shares of Series C Preferred Stock to Bigger Capital Fund, LP in a private equity offering for $310,000.
Item 3. Defaults upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not Applicable.
Item 5. Other Information
None.
Item 6. Exhibits
(a) Exhibits
| Exhibit No. | Description | |
| 31.1* | Certification of Chief Executive Officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002 | |
| 31.2* | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2022 | |
| 32.1* | Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 32.2* | Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 101* | Inline XBRL Document set for the financial statements and accompanying notes in Part I, Item 1, of this Quarterly Report on Form 10-Q | |
| 104* | Inline XBRL for the cover page of this Quarterly Report on Form 10-Q, included in the Exhibit 101 Inline XBRL Document Set. | |
| Exhibits designated by the symbol * are filed or furnished with this Quarterly Report on Form 10-Q |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Dated: | November 22, 2023 | International Land Alliance, Inc. | ||
| By: | /s/ Roberto Jesus Valdes | |||
| Principal Executive Officer and a Director | ||||
| By: | /s/ Jason Sunstein | |||
| Principal Financial and Accounting Officer and a Director | ||||
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