UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For
the fiscal year ended
For the transition period from _____________ to ____________
Commission
file number
(Exact name of small business issuer as specified in its charter)
| (State or other jurisdiction of incorporation) | (IRS Employer Identification No.) |
(Address of principal executive offices) (Zip Code)
(Issuer’s telephone number)
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
| Title of each class | Trading Symbol(s) | Name of exchange on which registered | ||
| OTCMKTS |
Indicate
by check mark if registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐
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.
In addition, the registrant should have filed its unaudited quarterly financial statements on Form 10-Q for the three months ended March 31, 2023 by May 22, 2023, inclusive of the five day extension.
In addition, the registrant should have filed its unaudited quarterly financial statements on Form 10-Q for the three and nine months ended September 30, 2023 by November 20, 2023, inclusive of the five day extension.
In addition, the registrant should have filed its unaudited quarterly financial statements on Form 10-Q for the three months ended March 31, 2024 by May 20, 2024, inclusive of the five day extension.
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 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, 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 has filed a report on and attestation to its management’s assessment of the effectiveness
of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered
public accounting firm that prepared or issued its audit report.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
☐ No
If
securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant
included in the filing reflect the correction of an error to previously issued financial statements.
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
The
aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant was approximately $
As of June 27, 2024 there were shares of Common Stock, $0.001 par value, outstanding.
TABLE OF CONTENTS
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CAUTIONARY NOTE ABOUT FORWARD-LOOKING STATEMENTS
The information contained in this Report includes some statements that are not purely historical and that are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and as such, may involve risks and uncertainties. These forward-looking statements relate to, among other things, expectations of the business environment in which we operate, perceived opportunities in the market and statements regarding our mission and vision. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. You can generally identify forward-looking statements as statements containing the words “anticipates,” “believes,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “might,” “plans,” “possible,” “potential,” “predicts,” “projects,” “seeks,” “should,” “will,” “would” and similar expressions, or the negatives of such terms, but the absence of these words does not mean that a statement is not forward-looking.
Forward-looking statements involve risks and uncertainties that could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements. The forward-looking statements contained herein are based on various assumptions, many of which are based, in turn, upon further assumptions. Our expectations, beliefs and forward-looking statements are expressed in good faith on the basis of management’s views and assumptions as of the time the statements are made, but there can be no assurance that management’s expectations, beliefs or projections will result or be achieved or accomplished.
In addition to other factors and matters discussed elsewhere herein, the following are important factors that, in our view, could cause actual results to differ materially from those discussed in the forward-looking statements: technological advances, impact of competition, dependence on key personnel and the need to attract new management, effectiveness of cost and marketing efforts, acceptances of products, ability to expand markets and the availability of capital or other funding on terms satisfactory to us, the continuing impact of Covid-19 and geopolitical environment of the market in which the Company operates. We disclaim any obligation to update forward-looking statements to reflect events or circumstances after the date hereof.
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PART I
Item 1. Description of Business.
International Land Alliance, Inc. (the “Company”) was incorporated under the laws of the State of Wyoming on September 26, 2013 (inception).
The Company is a residential land development company with target properties located in the Baja California, 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 lots, securing financing for the purchase of the lots, improving the properties infrastructure and amenities, and selling the plots to homebuyers, retirees, investors, and commercial developers.
On June 30, 2011, International Land Alliance, SA De CV (“ILA Mexico”) was formed as a Mexican corporation to acquire from Baja Residents Club, S.A., a related-party Mexican corporation, 497 acres south of San Felipe, Baja California, known as the Oasis Park project and also 20 acres in Ensenada, Baja California, known as the Valle Divino project. On October 1, 2013, Roberto Jesus Valdez, Jason A. Sunstein and Elizabeth Roemer transferred their interest in Oasis Park and Valle Divino real estate projects to ILA Mexico in exchange for 7,500 shares of ILA Mexico. On October 1, 2013, we issued 3,750,000 shares of our common stock to each Roberto Jesus Valdez, and Jason Sunstein and 1,000,000 shares of our common stock to Elizabeth Roemer in exchange for all of the outstanding shares of ILA Mexico. As a result of this transaction, ILA Mexico became our wholly owned subsidiary.
On March 5, 2019, the Company received its trading symbol “ILAL” from FINRA. On April 4, 2019, the Company was approved to have its common stock traded on the OTCQB. On April 12, 2019, the Company became eligible for electronic clearing and settlement through the Depositary Trust Company (“DTC”) in the United States.
On March 18, 2019, the Company acquired real property located in Hemet, California, which included approximately 80 acres of land and two structures for $1.1 million. The property includes the main parcel of land with existing structures along with three additional parcels of land which are vacant lots to be used for the purpose of land development. The Company was generating lease income from this property up until October 1, 2021, at which point, the Company recognized revenue from the sale of 20 acres of land pursuant to Accounting Standard Codification (“ASC”) 606.
In October 2019, the Company entered into an agreement with Valdeland, S.A. de C.V.(“Valdeland”), a Mexican corporation controlled by our CEO, Roberto Valdes, to acquire 1 acre of land at the Bajamar Ocean Front Golf Resort in Ensenada, Baja California, known as the Plaza Bajamar. The transfer of title for this project is subject to approval from the Mexican government in Baja California. Although management believes that the transfer of title to the land will be approved and transferred by the end of our fiscal year of 2023, there is no assurance that such transfer of title will be approved in that time frame or at all.
On October 1, 2013, the Company entered into a promissory agreement with Grupo Jataya, S.A. DE C.V. (“Grupo”), a Mexican corporation controlled by our Chief Executive Officer, Roberto Valdes, to convey into an irrevocable trust, with ILAL named as beneficiary, to acquire 10 acres of land in Ensenada, Baja California, known as the Valle Divino, free of lien and encumbrances.
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On July 2020, the Company filed the Articles of Organization with the California Secretary of State for Emerald Grove Estates, LLC (“Emerald Estates”). Emerald Estates is a wholly owned subsidiary of the Company. The purpose of Emerald Estates is agriculture and land development. On January 27, 2021, Jason Sunstein and ILAL granted the deed of the property in Sycamore Road, Hemet, California to Emerald Estates.
On May 3, 2021, the Company acquired a 25% interest in Rancho Costa Verde Development, LLC (“RCVD”). RCVD is a successful developer of a 1,100-acre, 1,200-lot master planned community in Baja California, located roughly eight (8) km north of ILA’s Oasis Park Resort. Such investment was accounted for under the equity method of investment under ASC 323 Investments - Equity method and Joint Ventures. Subsequent to December 31, 2022, the Company acquired the remaining 75% for a total contractual consideration of $13.5 million (see subsequent events in note 13).
Industry Overview
Mexico’s real estate industry has experienced a wave of growth brought about by foreign investment with the creation of investment trusts in 1993 (“fideicomiso”) and significant changes in regulations, primarily NAFTA in 1994, along with competitive land prices and the significant expansion of new business centers and factories (“Maquiladoras”) across the country over the last 10 years.
Most recently, this continued growth was fueled by Mexico´s enormously strong domestic market, particularly the rising middle class. In 2018, the country’s middle class was estimated to account for almost half of the total households, at about 16 million. They are expected to continue growing, with about 3.8 million more households projected to move into the middle class by 2030. Moreover, most Mexicans who move generally prefer to buy rather than to rent. Around 82% of Mexicans want to buy a property, as opposed to 18% that prefer to rent, according to Lamudi’s recent Real Estate Market Report 2018.
In addition to a strong domestic market, demand has also been fueled by international buyers from California seeking affordable retirement alternatives. Due to a serious housing shortage, CoreLogic data show the median price of a Southern California home, or the price at the midpoint of all sales, was $706,000 in February 2022, up 15.4% from February 2021. That’s a 12-month gain of $94,000, equivalent to a price hike of $1,800 every week. Prices hit or tied all-time highs in all but one county, Los Angeles, in the six-county region.
Market Opportunity
For years, U.S. and Canadian retirees have flocked to Mexico as an alternative overseas retirement destination that was affordable, offered desirable weather and was close to their communities of origin in North America. These attributes have made Mexico the top overseas retirement destination for older Americans, resulting in a building boom that reached its peak in 2005/06 and stretched from Playas de Tijuana-Rosarito and Los Cabos along the Baja California peninsula and from Puerto Peñasco, Sonora to Mazatlán, Sinaloa. In southern Mexico, the real estate focus has been on expanding the Cancún corridor to the Riviera Maya.
Mexico remains a viable retirement option for Americans aged 50 years and over, offering a reduced cost of living, lower health care expenses, and proximity to friends and family in the United States. In addition, over half of survey respondents observed that their motivation to purchase a home in Mexico was based on their desire to have a home on or near the coast that would otherwise be unattainable in the United States.
In addition to U.S. and Canadian citizens, Baja California has seen a noticeable increase in business from Japan and Europe. With the interest in Baja expected to continue along with Mexico’s overall economic growth, we will be well positioned to offer prospective homebuyers and investors a luxurious residence with breathtaking views for an affordable price.
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Target Market
The Company’s projects will be marketed toward residents of the United States and Canada. Specifically, we will target the influx of Maquiladoras (manufacturing facilities run by a foreign company) moving to Mexico as well as the residents of California, Texas, Arizona and Washington for the purpose of appealing to their need for a second home or retirement property within driving distance from Southern California. The targeted market includes residents making over $50,000 or a combined household income of $150,000.
Our target home buyers are typically professionals who own an existing property. Many are married without children or married with several children. The target audience enjoys a vacation away from home and often seeks information regarding villas or condominiums as a second home or vacation destination. We plan to provide them with an affordable location for a vacation home in a community that surpasses all their expectations.
Growth Strategy
We believe that growth of homebuilders in Mexico has created opportunities for smaller companies with long-term experience and relationships in their local markets. We believe that we can utilize our many strengths to benefit our target market. These strengths include:
| ● | better knowledge of local demand; |
| ● | superior understanding of the entitlement and acquisition process; |
| ● | affordable high-quality homes and aggressive marketing; |
| ● | long term relationships with local regulatory authorities, landowners, designers, and contractors; and |
| ● | faster and less cumbersome financing processes. |
It is our plan to utilize these advantages to move more quickly and address the needs of those in our target market, especially retirees looking to purchase a home in Mexico.
Competition
The Mexican public real estate market is fragmented and highly competitive. We compete with numerous developers, builders, and others for the acquisition of property and with local, regional, and national developers, homebuilders, and others with respect to the sale of residential properties. We also compete with builders and developers to obtain financing on commercially reasonable terms.
The Company is also subject to competition from other entities engaged in the business of resort development, sales and operation, including vacation interval ownership, condominiums, hotels and motels. Some of the world’s most recognized lodging, hospitality and entertainment companies have begun to develop and sell resort properties in the Baja California area. Many of these entities possess significantly greater financial, marketing and other resources than those of the Company. Management believes that recent regulatory developments in the electricity industry and overall growth in the Mexican economy will increase competition in the real estate investment industry.
The Company is in the process of acquiring properties, as well as developing its marketing and sales strategy.
Intellectual Property
We currently have no patents, copyrights, trademarks and/or service marks, nor do we have any plans to file applications for such rights.
Marketing research
The Company is in the process of acquiring properties, as well as developing its marketing and sales strategy. The Company also developed an interactive website and help center to answer questions from potential home buyers. The Company launched its website during its first fiscal quarter of 2021.
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Government Regulation
The housing and land development industries are subject to increasing environmental, building, zoning, and real estate sales regulations by various authorities. Such regulations affect home building by specifying, among other things, the type and quality of building materials that must be used, certain aspects of land use and building design. Some regulations affect development activities by directly affecting the viability and timing of projects.
We must obtain the approval of numerous governmental authorities that regulate such matters as land use and level of density, the installation of utility services, such as water and waste disposal, and the dedication of acreage for open space, parks, schools, and other community purposes. If these authorities determine that existing utility services will not adequately support proposed development, building moratoria may be imposed. As a result, we use substantial resources to evaluate the impact of government restrictions imposed upon new residential development. Furthermore, as local circumstances or applicable laws change, we may be required to obtain additional approvals or modifications of approvals previously obtained or we may be forced to stop work. These increasing regulations may result in a significant increase in resources between our initial acquisition of land and the commencement and the completion of developments. In addition, the extent to which we participate in land development activities subjects us to greater exposure to regulatory risks.
Additionally, the Mexican real estate industry is subject to substantially different regulation than the U.S. real estate industry. The Mexican constitution of 1917 prohibited foreign ownership of residential real property within approximately 31 miles (approximately 50 km) of any coastline and 62 miles (approximately 100 km) of its natural borders. All of Baja California is included in this “restricted zone.” In 1971 (further expanded in 1989 and 1993) provisions were made for a mechanism that would allow foreigners to own property in the “restricted zone.” Within the “restricted zone,” a foreigner can purchase the beneficial interest in real property through a bank trust or “fideicomiso.” Thus, virtually all property in Mexico is available for purchase by foreigners, keeping in mind that the fideicomiso, or 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 actions, i.e. rent it, make improvements, sell it, etc.
As long as the foreign buyer of the property adheres to laws and ordinances of Mexico and agrees not to invoke the protection of the government of his country, he may exercise the same rights as a Mexican national with regard to the use of his property.
Properties
Our corporate headquarters are located in month-to-month leased office facilities at 350 10th Ave., Suite 1000, San Diego, CA 92101.
Employees
As of the date of this filing, we have four employees, three of whom are executive officers of the Company.
We have and will continue to use independent contractors to assist us in accounting, marketing and selling our products.
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Item 1A. Risk Factors.
An investment in our securities is highly speculative and subject to numerous and substantial risks. Readers are encouraged to review these risks carefully before making any investment decision.
In addition to the other information provided in this filing, you should carefully consider the following risk factors in evaluating our business before purchasing any of our common stock. All material risks are discussed in this section.
RISKS RELATED TO OUR BUSINESS AND OPERATIONS
There is substantial doubt about our ability to continue as a going concern. If we do not continue as a going concern, investors will lose their entire investment.
Our consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Our auditor’s report reflects that the ability of the Company to continue as a going concern is dependent upon our ability to repay or refinance our obligations, to raise additional capital and, ultimately, the achievement of significant operating revenues. If we are unable to continue as a going concern, stockholders will lose their investment. We will be required to seek additional capital to fund future growth and expansion. No assurance can be given that such financing will be available or, if available, that it will be on commercially favorable terms. Moreover, favorable financing may be dilutive to investors.
The Company has an accumulated deficit of $27.2 million as of December 31, 2023, and never operated at a profit and our loss for the year ended December 31, 2023, was $2.1 million. This loss and deficit may impact the future of the Company in many ways including, but not limited to, making it more difficult to borrow money, sell stock or to maintain a good trading price for our common stock.
Our Certificate of Incorporation and Bylaws limit the liability of, and provide indemnification for, our officers and directors.
Our Certificate of Incorporation generally limits our officers’ and directors’ personal liability to the Company and its stockholders for breach of fiduciary duty as an officer or director except for breach of the duty of loyalty or acts or omissions not made in good faith, or which involve intentional misconduct or a knowing violation of law. Our Certificate of Incorporation and Bylaws, provide indemnification for our officers and directors to the fullest extent authorized by the Wyoming Business Corporation Act against all expense, liability, and loss, including attorney’s fees, judgments, fines excise taxes or penalties and amounts to be paid in settlement reasonably incurred or suffered by an officer or director in connection with any action, suit or proceeding, whether civil or criminal, administrative or investigative (hereinafter a “Proceeding”) to which the officer or director is made a party or is threatened to be made a party, or in which the officer or director is involved by reason of the fact that he is or was an officer or director of the Company, or is or was serving at the request of the Company whether the basis of the Proceeding is an alleged action in an official capacity as an officer or director, or in any other capacity while serving as an officer or director. Thus, the Company may be prevented from recovering damages for certain alleged errors or omissions by the officers and directors for liabilities incurred in connection with their good faith acts for the Company. Such an indemnification payment might deplete the Company’s assets. Stockholders who have questions regarding the fiduciary obligations of the officers and directors of the Company should consult with independent legal counsel. It is the position of the Securities and Exchange Commission that exculpation from and indemnification for liabilities arising under the Securities Act of 1933, as amended, and the rules and regulations there under, is against public policy and therefore unenforceable.
We will need additional capital, which we may be unable to obtain.
Our capital requirements in connection with our development activities of our residential property’s operations have been and will continue to be significant. As of December 31, 2023, we do expect to require additional funding for more than one year in order to continue development. construction of houses, infrastructure and marketing activities associated with our properties. However, there can be no assurances that we will not need additional funding in the future or that our current cash position will be sufficient to fund any future plans to accelerate our commercialization efforts. In the event additional funding is necessary, there can be no assurance that financing will be available in amounts or on terms acceptable to us, if at all.
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We are dependent on the sale of our securities or debt to fund our operations and will remain so until we generate sufficient revenues to pay for our operating costs. Our officers and directors have made no written commitments with respect to providing a source of liquidity in the form of cash advances, loans and/or financial guarantees. There can be no guarantee that we will be able to successfully sell our equity or debt securities.
We have a potential conflict of interest with a company controlled by one of our officers and directors.
We have and will continue to enter into agreements with firms owned or controlled by our officers and directors. A conflict of interest will arise should a dispute occur with the respect of our rights and obligations pursuant to the agreements and those firms. Under Wyoming law, a conflict-of-interest transaction is not voidable if the transaction was fair at the time it was entered into or is approved in advance by the vote of the board of directors not having an interest in the transaction if the material facts of the transaction and the director’s interest are disclosed or known to the board prior to the vote. Each officer and director owe a fiduciary duty to the Company to present business opportunities to the Company. We do not believe, however, that the fiduciary duties or contractual obligations of our officers or directors to other entities will materially affect our ability to identify and pursue business opportunities or to complete our initial business objectives.
Our lack of operations makes evaluating our business difficult.
We have almost ten years of operational history. Accordingly, our operations are subject to the risks inherent in the establishment of a new business enterprise, including access to capital, successful implementation of our business plan and limited revenue from operations. We cannot assure you that our intended activities or plan of operation will be successful or result in revenue or profit to us and any failure to implement our business plan may have a material adverse effect on the business of the Company.
To be profitable, we must:
| ● | develop and identify new prospective purchasers of our real estate |
| ● | compete with larger, more established competitors in the real estate development industry; |
| ● | maintain and enhance our brand recognition; and |
| ● | adapt to meet changes in our markets and competitive developments. |
We may not be successful in accomplishing these objectives. Further, our lack of operating history makes it difficult to evaluate our business and prospects. Our prospects must be considered in light of the risks, uncertainties, expenses and difficulties frequently encountered by companies in their early stages of development, particularly companies in highly competitive industries. The historical information in this report may not be indicative of our future financial condition and future performance. For example, we expect that our future annual growth rate in revenues will be moderate and likely be less than the growth rates experienced in the early part of our history.
There is no guarantee that the Company will be able to complete development of its proposed properties and profitably sell any units.
The Company has acquired properties and thereafter, the Company intends to construct and develop proposed resort properties as well as other residential and commercial property. There can be no assurance that the Company will complete the expected development plans or undertake to develop other resorts or complete such development if undertaken. Risks associated with the Company’s development and construction activities may include the risks that: (i) acquisition and/or development opportunities may be abandoned; (ii) construction costs of a property may exceed original estimates, possibly making the resort uneconomical or unprofitable; and (iii) construction may not be completed on schedule, resulting in decreased revenues and increased carrying cost such as taxes and interest expense. In addition, the Company’s construction activities will typically be performed by third-party contractors, the timing, quality and completion of which the Company will be unable to control.
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Investors will have no discretion in management’s real estate investment decisions.
Our management will have complete discretion in making investments on our behalf in a range of real estate, which may include all types of properties. Consequently, prospective investors will not be able to evaluate for themselves the merits of the specific properties that may be acquired in the future and may not like the properties acquired. You will not be entitled to a return of your investment if you do not approve the properties purchased. Our investment decisions are not made through reliance on sophisticated mathematical models or arbitrage programs. Instead, investors are relying on the judgment of our management alone to locate suitable properties that meet our investment criteria.
Our proposed ownership of real estate may result in losses if demand for property declines.
From our current real estate projects and any future real estate project acquired, we will be subject to risks incident to the ownership of real estate, including: changes in general economic or local conditions, such as a decrease in demand for residential, commercial and industrial space due to a decrease in population or employment or changes in technology or adverse downturns in the general economy; changes to preferences that reduce the attractiveness of our properties to end users; fluctuation in mortgage rates, building ownership or operating expenses; rises and falls in undeveloped land values; costs of infrastructure, construction or other development costs; changes in supply or demand of competing properties in an area; changes in interest rates, zoning and other governmental regulations and availability of permanent mortgage funds that may render the sale of a property difficult or unattractive; increases in the cost of adequate maintenance, insurance and other operating costs, including real estate taxes, associated with one or more properties, which may occur even when a property is not generating revenue; inflation; and changes in tax laws and rates. A negative change in any of these risks could reduce the demand for any properties we may acquire and a reduction in demand could result in a loss to us in the operation of or upon the sale of any such properties we may acquire.
Property improvement costs are difficult to estimate and if costs exceed our budget, we may lose money on the development and sale of a property.
Acquisition of any properties for improvement, repositioning and sale entails risks such as those contemplated by us that include the following, any of which could adversely affect our financial performance and the value of your investment: Our estimate of the costs of improving or repositioning an acquired property may prove to be too low, and, as a result, the property may fail to meet our estimates of the profitability of the property, either temporarily or for a longer time. Our pre-acquisition evaluation of each new investment may not detect certain requirements, limitations, defects or necessary improvements until after the property is acquired, which could significantly increase our total costs.
Our operating results may suffer because of potential development and construction delays and resultant increased costs and risks which could reduce our revenues or lead to the loss of your investment.
We may develop properties, including unimproved real properties, upon which we will construct improvements. We may be subject to uncertainties associated with re-zoning for development, environmental concerns of governmental entities and/or community groups, and our builders’ ability to build in conformity with plans, specifications, budgeted costs and timetables. A builder’s performance may also be affected or delayed by conditions beyond the builder’s control. Delays in completing construction could also give tenants the right to terminate preconstruction leases. We may incur additional risks when we make periodic progress payments or other advances to builders before they complete construction. These and other factors can result in increased costs of a project or loss of our investment.
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Our real estate development strategies may not be successful which could reduce our revenues or lead to the loss of your investment.
We may in the future engage in development activities to the extent attractive development projects become available. To the extent that we engage in development activities, we will be subject to risks associated with those activities that could adversely affect our financial condition, results of operations, cash flows and ability to pay distributions on, and the market price of, our common stock, including, but not limited to:
| ● | development projects in which we have invested may be abandoned and the related investment will be impaired; |
| ● | we may not be able to obtain, or may experience delays in obtaining, all necessary zoning, land-use, building, occupancy and other governmental permits and authorizations; |
| ● | we may not be able to obtain land on which to develop; |
| ● | we may not be able to obtain financing for development projects, or obtain financing on favorable terms; |
| ● | construction costs of a project may exceed the original estimates or construction may not be concluded on schedule, making the project less profitable than originally estimated or not profitable at all (including the possibility of contract default, the effects of local weather conditions, the possibility of local or national strikes and the possibility of shortages in materials, building supplies or energy and fuel for equipment); |
| ● | upon completion of construction, we may not be able to obtain, or obtain on advantageous terms, permanent financing for activities that we financed through construction loans; and |
| ● | we may not achieve sufficient occupancy levels and/or obtain sufficient rents to ensure the profitability of a completed project. |
Moreover, substantial development activities, regardless of their ultimate success, typically require a significant amount of management’s time and attention, diverting their attention from our other operations.
The real estate market is cyclical, and a downturn of the market could increase the risk of loss of your investment.
Investment in real estate involves a high degree of business and financial risk, which can result in substantial losses and accordingly should be considered speculative. The market for property in Mexico and the United States tends to be cyclical, with periods in which the prices of properties rise and fall. Prices have fallen in the past and have done so for a significant period of time. Any downturn in the real estate market in the U.S. or Mexico may have a negative effect on our operations and reduce any return generated upon the sale of our property. Many real estate costs are fixed and must be paid even if the property is not generating revenue which could increase your risk of loss of your investment.
Our financial results depend primarily on being able to add value and then sell properties to others on favorable terms. Many costs associated with real estate investment, such as debt service, real estate taxes and maintenance costs, generally are not reduced even when a property is not fully improved or used. Thus, even a small increase in the time to which a real estate property can be sold can result in a significant increase in the carry costs of the property. New properties that we may acquire may not produce any significant revenue immediately, and the cash flow from existing operations may be insufficient to pay the operating expenses and debt service associated with that property until the property is sold.
Because there is no liquid market for our properties, we may be unable to sell a property when it planned to, which could increase your risk of loss of your investment.
Liquidity relates to our ability to sell a property in a timely manner at a price that reflects the fair value of that property. The illiquidity of properties may adversely affect our ability to dispose of such properties in a timely manner and at a fair price at times when we deem it necessary or advantageous. The timing and likelihood of liquidation events is uncertain and unpredictable and affected by general economic and property-specific conditions. There may not be a market, or the market may be very limited, for the real estate that we will try to sell, even though we will make appropriate efforts to cover the available market. Investments in real properties are generally not liquid. We may not be able to dispose of future properties within its anticipated time schedule and the sales of such properties may not be made at the prices projected by us.
We are subject to zoning and environmental controls that may restrict the use of our property.
Governmental zoning and land use regulations may exist or be promulgated that could have the effect of restricting or curtailing certain uses of our real estate. Such regulations could adversely affect the value of any of our properties affected by such regulations. In recent years real estate values have also sometimes been adversely affected by the presence of hazardous substances or toxic waste on, under or in the environs of the property. A substance (or the amount of a substance) may be considered safe at the time the property is purchased but later classified by law as hazardous. Owners of properties have been liable for substantial expenses to remedy chemical contamination of soil and groundwater at their properties even if the contamination predated their ownership. Although we intend to exercise reasonable efforts to assure that no properties are acquired that give rise to such liabilities, chemical contamination cannot always be detected through readily available means, and the possibility of such liability cannot be excluded.
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Under various foreign, federal, state and local laws, ordinances and regulations, we may be required to investigate and clean up certain hazardous or toxic substances released on or in properties we own or operate, and also may be required to pay other costs relating to hazardous or toxic substances. This liability may be imposed without regard to whether we knew about the release of these types of substances or were responsible for their release. The presence of contamination or the failure to remediate property’ contaminations at any of our properties may adversely affect our ability to sell or lease the properties or to borrow using the properties as collateral. The costs or liabilities could exceed the value of the affected real estate. We have not been notified by any governmental authority, however, of any non-compliance, liability or other claim in connection with any of our properties, and we are not aware of any other environmental condition with respect to any of our properties that management believes would have a material adverse effect on our business, assets or results of operations taken as a whole.
Although we will attempt to determine the environmental condition of each property as part of our due diligence, we cannot be certain that this investigation will reveal all conditions that may impose an obligation on us to mitigate the environmental condition. If we were subject to environmental liability, which could be imposed based on our ownership of its property; such liability could adversely affect the value of your investment.
We may be subject to partially uninsured losses that may require substantial payments which could reduce the value of your investment.
We currently carry a $2,000,000 general liability policy for the Company. On Emerald Grove we have a comprehensive homeowner’s policy which also extends to the three (3) vacant parcels. Any ILA, vacant lot buyers or homebuyers will be encouraged to carry their own individual insurance policies. In addition, if losses occur, they may exceed insurance policy limits, and policies may contain exclusions with respect to various types of losses or other matters. Consequently, all or a portion of our properties may not be covered by disaster insurance and insurance may not cover all losses which could reduce the value of your investment.
We cannot control certain factors affecting the performance and value of a property, which may cause the value of that property and your investment to decline.
The economic performance and value of our real estate assets will be subject to the risks described below that are normally associated with changes in national, regional, and local political, economic and market conditions. These factors may adversely affect the ability of our customers to buy our real estate. Other local economic conditions that may affect the performance and value of the properties include the local economy of a given real estate project; competition for buyers, including competition based on attractiveness and location of the property; and the quality of amenities a project has to offer. In addition, other factors may affect the performance and value of a property adversely, including changes in laws and governmental regulations (including those governing usage, zoning and taxes), changes in interest rates (including the risk that increased interest rates may result in a decline in the liquidity of our properties), declines in housing or commercial property purchases and the availability of financing. Adverse changes in any of these factors, each of which is beyond our control, could reduce the cash flow that we receive from our properties, and adversely affect the value of your investment.
If we choose to carry debt, inability to make secured debt payments could result in loss of mortgaged property and reduce the value of your investment.
The Company carries secured and unsecured promissory notes. Debt financing carries many risks, including refinancing difficulties, loss of mortgaged properties, reduced ability to obtain new financing and increases in interest. We may choose to use debt financing in connection with future properties. If we cannot meet our secured debt obligations, the lender could take the collateral and we would lose both the secured property and the income, if any, it produces. Foreclosure on mortgaged properties or an inability to refinance existing indebtedness would likely have a negative impact on our financial condition and results of operations. We could have to pay substantial legal costs in connection with foreclosure of a property, and thus be subject to a deficiency judgment if the foreclosure sale amount is insufficient to satisfy the mortgage.
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Rising interest rates could adversely affect our interest expense and cash flow and reduce the value of your investment.
We may borrow money at variable interest rates in the future to finance operations. Increases in interest rates would increase our interest expense on our variable rate debt, which would adversely affect cash flow and our ability to service our debt and make distributions to us.
Our lack of an established brand name and relative lack of resources could negatively impact our ability to effectively compete in the real estate market, which could reduce the value of your investment.
We do not have an established brand name or reputation in the real estate business. We also have a relative lack of resources to conduct our business operations. Thus, we may have difficulty effectively competing with companies that have greater name recognition and resources than we do. Presently, we have no patents, copyrights, trademarks and/or service marks that would protect our brand name or our proprietary information, nor do we have any current plans to file applications for such rights. Our inability to promote and/or protect our brand name may have an adverse effect on our ability to compete effectively in the real estate market.
We may make changes to our business, investment, leverage and financing strategies without stockholder consent, which could reduce the value of your investment.
Our discussions with various individuals concerning various properties or projects have included general discussions of acquiring properties directly either ourselves or in a joint venture with others or of developing properties either ourselves or in a joint venture with others. There is no limitation in the amount of funds we may invest in either property acquisition or property development. There is no limitation on or percentage allocation of funds or assets between property acquisition and property development, or between 100% ownership and joint venture ownership. Further, as the market evolves, we may change our business, investment and financing strategies without a vote of, or notice to, our stockholders, which could result in our making investments and engaging in business activities that are different from, and possibly riskier than, the investments and businesses described in this filing. In particular, a change in our investment strategy, including the manner in which we allocate our resources across our portfolio or the types of assets in which we seek to invest, may increase our exposure to interest rate risk, default risk and real estate market fluctuations. In addition, we may in the future use leverage at times and in amounts deemed prudent by our management in its discretion, and such decision would not be subject to stockholder approval. Changes to our strategies with regards to the foregoing could materially and adversely affect our financial condition, results of operations.
We depend heavily on key personnel, and turnover of key senior management could harm our business.
Our future business and results of operations depend in significant part upon the continued contributions of our Chief Executive Officer, Chief Financial Officer and President. If we lose their services or if they fail to perform in their current position, or if we are not able to attract and retain skilled employees as needed, our business could suffer. Significant turnover in our senior management could significantly deplete our institutional knowledge held by our existing senior management team. We depend on the skills and abilities of these key officers in managing the product acquisition, marketing and sales aspects of our business, any part of which could be harmed by turnover in the future.
Our future results and reputation may be affected by litigation or other liability claims.
We have procured a $2,000,000 general liability insurance policy for our business. In addition, we procured a $1,000,000 Executive and Corporate Securities Liability policy (“D&O”). To the extent that we suffer a loss of a type which would exceed our limit, we could incur significant expenses in defending any action against us and in paying any claims that result from a settlement or judgment against us. Adverse publicity could result in a loss of consumer confidence in our business or our securities.
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We may be subject to regulatory inquiries, claims, suits prosecutions which may impact our profitability.
Any failure or perceived failure by us to comply with applicable laws and regulations may subject us to regulatory inquiries, claims, suits and prosecutions. We can give no assurance that we will prevail in such regulatory inquiries, claims, suits, and prosecutions on commercially reasonable terms or at all. Responding to, defending and/or settling regulatory inquiries, claims, suits, and prosecutions may be time-consuming and divert management and financial resources or have other adverse effects on our business. A negative outcome in any of these proceedings may result in changes to or discontinuance of some of our services, potential liabilities or additional costs that could have a material adverse effect on our business, results of operations, financial condition, and future prospects.
We are vulnerable to concentration risks because we intend to focus on the residential rather than commercial market.
We intend to focus on residential rather than commercial properties. Economic shifts affect residential and commercial property markets, and thus our business, in different ways. A developer with diversified projects in both sectors may be better able to survive a downturn in the residential market if the commercial market remains strong. Our focus on the residential sector can make us more vulnerable than a diversified developer.
RISKS RELATED TO OUR MEXICAN OPERATIONS
General economic conditions in Mexico may have an adverse effect on our operations and reduce our revenues.
General economic conditions in Mexico have an impact on our business and financial results, such as inflation, weakening of the US dollars versus the Mexican Peso and tax fluctuations in Mexico. The global economy in general and in Mexico remains uncertain. Weak economic conditions could result in lower demand for our properties, resulting in lower sales, earnings, and cash flows.
The value of our securities may be affected by the foreign exchange rate between U.S. dollars and the currency of Mexico.
The value of our common stock may be affected by the foreign exchange rate between U.S. dollars and the currency of Mexico, and between those currencies and other currencies in which our revenues, expenses, assets, and liabilities may be denominated. For example, to the extent that we need to convert U.S. dollars into the currency of Mexico for our operational needs, should the currency of Mexico appreciate against the U.S. dollar at that time, our financial position, the business of the Company, and the price of our common stock may be harmed. Conversely, if we decide to convert the currency of Mexico into U.S. dollars for the purpose of declaring dividends on our common stock or for other business purposes and the U.S. dollar appreciates against the currency of Mexico, the U.S. dollar equivalent of our earnings from our subsidiaries in Mexico would be reduced.
We are subject to anti-corruption laws in the jurisdictions in which we operate, including the U.S. Foreign Corrupt Practices Act (the “FCPA”), as well as trade compliance and economic sanctions laws and regulations. Our failure to comply with these laws and regulations could subject us to civil and criminal penalties, harm our reputation and materially adversely affect our business, financial condition and results of operations.
Doing business in Mexico requires us to comply with the laws and regulations of numerous jurisdictions. These laws and regulations place restrictions on our operations and business practices. In particular, we are subject to the FCPA, which generally prohibits companies and their intermediaries from providing anything of value to foreign officials for the purpose of obtaining or retaining business or securing any improper business advantage, along with various other anti-corruption laws. As a result of doing business in Mexico, we are exposed to a heightened risk of violating anti-corruption laws. Although we have implemented policies and procedures designed to ensure that we, our employees and other intermediaries comply with the FCPA and other anti-corruption laws to which we are subject, there is no assurance that such policies or procedures will work effectively all of the time or protect us against liability under the FCPA or other laws for actions taken by our employees and other intermediaries with respect to our business or any businesses that we may acquire. Any continued international expansion, and any development of new partnerships and joint venture relationships worldwide, increases the risk of FCPA violations in the future.
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Violations of anti-corruption laws, export control laws and regulations, and economic sanctions laws and regulations are punishable by civil penalties, including fines, as well as criminal fines and imprisonment. If we fail to comply with the FCPA or other laws governing the conduct of international operations, we may be subject to criminal and civil penalties and other remedial measures, which could materially adversely affect our business, financial condition, results of operations and liquidity. Any investigation of any potential violations of the FCPA or other anti-corruption laws, export control laws and regulations, and economic sanctions laws and regulations by the United States or foreign authorities could also materially adversely affect our business, financial condition, results of operations and liquidity, regardless of the outcome of the investigation.
Our operations may be affected by social instability in Mexico.
Because we have Mexican operations, we are subject to social instability risks which could materially adversely affect our business and our results of operations. Specifically, our business is exposed to the risk of crime that is currently taking place in certain areas in Tijuana. Recent increases in kidnapping and violent drug related criminal activity in Mexico, and in particular Mexican States bordering the United States, may adversely affect our ability to carry on business safely.
RISKS RELATED TO OUR COMMON STOCK
We will be subject to penny stock regulations and restrictions, and you may have difficulty selling shares of our common stock.
The SEC has adopted regulations which generally define so-called “penny stocks” to be an equity security that has a market price less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exemptions. We are a “penny stock”, and we are subject to Rule 15g-9 under the Exchange Act, or the “Penny Stock Rule”. This rule imposes additional sales practice requirements on broker-dealers that sell such securities to persons other than established customers. For transactions covered by Rule 15g-9, a broker-dealer must make a special suitability determination for the purchaser and have received the purchaser’s written consent to the transaction prior to sale. As a result, this rule may affect the ability of broker-dealers to sell our securities and may affect the ability of purchasers to sell any of our securities in the secondary market.
For any transaction involving a penny stock, unless exempt, the rules require delivery, prior to any transaction in a penny stock, of a disclosure schedule prepared by the SEC relating to the penny stock market. Disclosure is also required to be made about sales commissions payable to both the broker-dealer and the registered representative and current quotations for the securities. Finally, monthly statements are required to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stock.
We may qualify for an exemption from the Penny Stock Rule. In any event, even if our common stock were exempt from the Penny Stock Rule, we would remain subject to Section 15(b)(6) of the Exchange Act, which gives the SEC the authority to restrict any person from participating in a distribution of penny stock, if the SEC finds that such a restriction would be in the public interest.
Because we do not have an audit or compensation committee, shareholders will have to rely on the entire board of directors, none of which are independent, to perform these functions.
We do not have an audit or compensation committee comprised of independent directors. These functions are performed by the board of directors as a whole. No members of the board of directors are independent directors. Thus, there is a potential conflict in that board members who are also part of management will participate in discussions concerning management compensation and audit issues that may affect management decisions.
Our directors own a significant percentage of our outstanding voting securities which could reduce the ability of minority shareholders to effect certain corporate actions.
Our Chief Executive Officer and Director Roberto Valdes, and our Chief Financial Officer and Director Jason Sunstein, and our President and Director Frank Ingrande, together own 14,503,575 shares of common stock, or approximately 16.8% of our outstanding voting securities. As a result, currently, and after the filing, they will possess a significant influence and can elect a majority of our board of directors and authorize or prevent proposed significant corporate transactions. Their ownership and control may also have the effect of delaying or preventing a future change in control, impeding a merger, consolidation, takeover or other business combination or discourage a potential acquirer from making a tender offer.
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Because our directors hold a significant amount of our shares of common stock, it may not be possible to have adequate internal controls.
Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”) requires our management to report on the operating effectiveness of the Company’s Internal Controls over financial reporting. We must establish an ongoing program to perform the system and process evaluation and testing necessary to comply with these requirements. However, because our Directors, Roberto Valdes, Jason Sunstein and Frank Ingrande, control approximately 16.8% on aggregate of our outstanding voting securities, will continue to own a significant percentage of our voting securities, it may not be possible to have adequate internal controls. We cannot predict what affect this will have on our stock price.
We may, in the future, issue additional shares of common stock, which would reduce investors’ percent of ownership and may dilute our share value.
Our Articles of Incorporation authorize the issuance of 150,000,000 shares of common stock. As of the date of this report we had 86,064,195 shares of common stock outstanding. Accordingly, we may issue additional shares of common stock subject to limitation on reserve amounts for other securities outstanding. The future issuance of common stock may result in substantial dilution in the percentage of our common stock held by our then existing shareholders. We may value any common stock issued in the future on an arbitrary basis. The issuance of common stock for future services or acquisitions or other corporate actions may have the effect of diluting the value of the shares held by our investors and might have an adverse effect on any trading market for our common stock.
We are subject to compliance with securities law, which exposes us to potential liabilities, including potential rescission rights.
We may offer to sell our common stock to investors pursuant to certain exemptions from the registration requirements of the Securities Act of 1933, as well as those of various state securities laws. The basis for relying on such exemptions is factual; that is, the applicability of such exemptions depends upon our conduct and that of those persons contacting prospective investors and making the offering. We may not seek any legal opinion to the effect that any such offering would be exempt from registration under any federal or state law. Instead, we may elect to relay upon the operative facts as the basis for such exemption, including information provided by investor themselves.
If any such offering did not qualify for such exemption, an investor would have the right to rescind its purchase of the securities if it so desired. It is possible that if an investor should seek rescission, such investor would succeed. A similar situation prevails under state law in those states where the securities may be offered without registration in reliance on the partial preemption from the registration or qualification provisions of such state statutes under the National Securities Markets Improvement Act of 1996. If investors were successful in seeking rescission, we would face severe financial demands that could adversely affect our business and operations. Additionally, if we did not in fact qualify for the exemptions upon which we relied, we may become subject to significant fines and penalties imposed by the SEC and state securities agencies.
Because we do not intend to pay any cash dividends on our common stock, our stockholders will not be able to receive a return on their shares unless they sell them.
We intend to retain any future earnings to finance the development and expansion of our business. We do not anticipate paying any cash dividends on our common stock in the foreseeable future. Unless we pay dividends, our stockholders will not be able to receive a return on their shares unless they sell them. There is no assurance that stockholders will be able to sell shares when desired.
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We expect to experience volatility in the price of our common stock, which could negatively affect stockholders’ investments.
The trading price of our common stock may be highly volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control. The stock market in general has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of companies with securities traded in those markets. Broad market and industry factors may seriously affect the market price of companies’ stock, including ours, regardless of actual operating performance. All of these factors could adversely affect your ability to sell your shares of common stock or, if you are able to sell your shares, to sell your shares at a price that you determine to be fair or favorable.
Financial Industry Regulatory Authority (“FINRA”) sales practice requirements may also limit a stockholder’s ability to buy and sell our common stock, which could depress the price of our common stock.
FINRA has adopted rules that require a broker-dealer to have reasonable grounds for believing that the investment is suitable for that customer before recommending an investment to a customer. Prior to recommending speculative low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives, and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low-priced securities will not be suitable for at least some customers. Thus, the FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our shares of common stock, have an adverse effect on the market for our shares of common stock, and thereby depress our price per share of common stock.
Anti-takeover effects of certain provisions of Wyoming state law may hinder a potential takeover of us.
Wyoming has a business combination law that prohibits certain business combinations between Wyoming corporations and “interested stockholders” for two years after an “interested stockholder” first becomes an “interested stockholder,” unless the corporation’s board of directors approves the combination in advance. For purposes of Wyoming law, an “interested stockholder” is any person who is (i) the beneficial owner, directly or indirectly, of ten percent or more of the voting power of the outstanding voting shares of the corporation or (ii) an affiliate or associate of the corporation and at any time within the three previous years was the beneficial owner, directly or indirectly, of ten percent or more of the voting power of the then outstanding shares of the corporation. The definition of the term “business combination” is sufficiently broad to cover virtually any kind of transaction that would allow a potential acquirer to use the corporation’s assets to finance the acquisition or otherwise to benefit its own interests rather than the interests of the corporation and its other stockholders.
The effect of Wyoming’s business combination law is potentially to discourage parties interested in taking control of us from doing so if they cannot obtain the approval of our Board. Both of these provisions could limit the price investors would be willing to pay in the future for shares of our common stock.
Our stock is thinly traded, so you may be unable to sell your shares at or near the quoted bid prices if you need to sell a significant number of your shares.
The shares of our common stock are thinly traded on the OTCQB Marketplace, meaning that the number of persons interested in purchasing our common stock at or near bid prices at any given time may be relatively small or non-existent. As a consequence, there may be periods of several days or more when trading activity in our shares is minimal or non-existent, as compared to a seasoned issuer which has a large and steady volume of trading activity that will generally support continuous sales without an adverse effect on share price. We cannot give you any assurance that a broader or more active public trading market for our common stock will develop or be sustained, or that current trading levels will be sustained. Due to these conditions, we can give you no assurance that you will be able to sell your shares at or near bid prices or at all if you need money or otherwise desire to liquidate your shares.
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Shares eligible for future sale may adversely affect the market.
From time to time, certain of our stockholders may be eligible to sell all or some of their shares of common stock by means of ordinary brokerage transactions in the open market pursuant to Rule 144 promulgated under the Securities Act, subject to certain limitations. In general, pursuant to amended Rule 144, non-affiliate stockholders may sell freely after six months subject only to the current public information requirement. Affiliates may sell after six months subject to Rule 144 volume, manner of sale (for equity securities), and current public information and notice requirements. Any substantial sales of our common stock pursuant to Rule 144 may have a material adverse effect on the market price of our common stock.
We could issue additional common stock, which might dilute the book value of our common stock.
Our Board of Directors has authority, without action or vote of our shareholders, to issue all or a part of our authorized but unissued shares. Such stock issuances could be made at a price that reflects a discount or a premium from the then-current trading price of our common stock. In addition, in order to raise capital, we may need to issue securities that are convertible into or exchangeable for a significant amount of our common stock. These issuances would dilute the percentage ownership interest, which would have the effect of reducing your influence on matters on which our shareholders vote and might dilute the book value of our common stock.
Our common stock could be further diluted as a result of the issuance of convertible securities, warrants or options.
In the past, we have issued convertible securities (such as convertible debentures and notes), warrants and options in order to raise money or as compensation for services and incentive compensation for our employees and directors. We have shares of common stock reserved for issuance upon the exercise of certain of these securities and may increase the shares reserved for these purposes in the future. Our issuance of these convertible securities, options and warrants could affect the rights of our stockholders, could reduce the market price of our common stock or could result in adjustments to exercise prices of outstanding warrants (resulting in these securities becoming exercisable for, as the case may be, a greater number of shares of our common stock), or could obligate us to issue additional shares of common stock to certain of our stockholders.
Our articles of incorporation allow for our board of directors to create new series of preferred stock without further approval by our stockholders, which could adversely affect the rights of the holders of our common stock.
Our board of directors has the authority to fix and determine the relative rights and preferences of preferred stock. Our board of directors has the authority to issue up to 2,010,000 shares of our preferred stock without further stockholders’ approval. As a result, our board of directors could authorize the issuance of a new series of preferred stock that would grant to holders of preferred stock the right to our assets upon liquidation, or the right to receive dividend payments before dividends are distributed to the holders of common stock. In addition, our board of directors could authorize the creation of a new series of preferred stock that has greater voting power than our common stock or that is convertible into our common stock, which could decrease the relative voting power of our common stock or result in dilution to our existing stockholders.
Item 1B. Unresolved Staff Comments.
None.
Item 1C. Cybersecurity
Item 2. Properties.
Our corporate headquarters are located in leased office facilities at 350 10th Ave., Suite 1000, San Diego, CA 92101. Because of the nature of our real estate development operations, significant amounts of property are held as inventory in the ordinary course. Such properties are not included in response to this Item.
Item 3. Legal Proceedings.
The Company presently is not a party to, nor is management aware of, any pending legal proceedings.
Item 4. Mine Safety Disclosures.
Not applicable.
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PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information
On March 5, 2019, the Company received its trading symbol from FINRA “ILAL”. On April 4, 2019, the Company was approved to have its common stock traded on the OTCQB. On April 12, 2019, the Company became eligible for electronic clearing and settlement through the Depository Trust Company (“DTC”) in the United States.
As of June 27, 2024 there were 281 holders of record of our common stock. As of such date, 86,064,195 shares of our common stock were issued and outstanding.
Market for Common Equity
Our common stock is quoted on the OTC Bulletin Board (“OTCQB”) under the symbol “ILAL”. The following table sets forth the high and low bid prices for our common stock for the two most recently completed fiscal years. Such prices are based on inter-dealer prices, without retail mark-up, markdown, or commission, and may not necessarily represent actual transactions.
| Fiscal 2022 | Low | High | ||||||
| First Quarter | $ | 0.32 | $ | 0.85 | ||||
| Second Quarter | $ | 0.29 | $ | 0.50 | ||||
| Third Quarter | $ | 0.12 | $ | 0.45 | ||||
| Fourth Quarter | $ | 0.08 | $ | 0.30 | ||||
| Fiscal 2023 | Low | High | ||||||
| First Quarter | $ | 0.06 | $ | 0.16 | ||||
| Second Quarter | $ | 0.06 | $ | 0.19 | ||||
| Third Quarter | $ | 0.05 | $ | 0.36 | ||||
| Fourth Quarter | $ | 0.05 | $ | 0.29 | ||||
Repurchases of Equity Securities
None.
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Equity Compensation Plan Information
2022 Equity Incentive Plan
| Plan category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) | |||||||||
| Equity compensation plans not approved by security holders | - | - | - | |||||||||
| Equity compensation plans approved by security holders | 2,150,000 | $ | 0.20 | 2,850,000 | ||||||||
| Total | 2,150,000 | $ | 0.20 | 2,850,000 | ||||||||
2020 Equity Incentive Plan
| Plan category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) | |||||||||
| Equity compensation plans not approved by security holders | - | - | - | |||||||||
| Equity compensation plans approved by security holders | 1,700,000 | $ | 0.33 | 1,300,000 | ||||||||
| Total | 1,700,000 | $ | 0.33 | 1,300,000 | ||||||||
2019 Equity Incentive Plan
| Plan category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) | |||||||||
| Equity compensation plans not approved by security holders | 2,150,000 | $ | 0.48 | 850,000 | ||||||||
| Equity compensation plans approved by security holders | - | - | - | |||||||||
| Total | 2,150,000 | $ | 0.48 | 850,000 | ||||||||
Brief Description of equity compensation 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 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 3,000,000 shares of the Company’s common stock under the Plan. The Company has a total of 2,150,000 options issued and outstanding as of December 31, 2023.
On August 26, 2020, the Company’s Board of Directors approved the 2020 Equity Plan. The Company has reserved a total of 3,000,000 shares of the Company’s authorized common stock for issuance under the 2020 equity plan. The 2020 Equity 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 1,700,000 options issued and outstanding as of December 31, 2023.
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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 5,000,000 shares of the Company’s common stock to be available under the 2022 Plan. The Company did not grant any options during the year ended December 31, 2023. The Company has 2,150,000 options issued and outstanding under the 2022 Plan as of December 31, 2023 and 2022, respectively.
Penny Stock Considerations
Because of the possible low price of our securities and certain other factors, many brokerage firms may not be willing to effect transactions in these securities and some market makers have declined to make a market for our common stock. Purchasers and holders of our securities should be aware that any market that develops in our stock may be subject to the penny stock restrictions.
Transfer Agent
Globex Transfer, LLC, located at 780 Deltona Blvd., Ste. 202, Deltona FL 32725 is the registrar and transfer agent for our common stock.
Recent Sales of Unregistered Securities
See Note 11 to the consolidated financial statements for disclosure of the issuance of unregistered securities for the year ended December 31, 2023.
Additional Information
We are a fully reporting issuer, subject to the Securities Exchange Act of 1934. Our Quarterly Reports, Annual Reports, and other filings can be obtained from the SEC’s Public Reference Room at 100 F Street, NE., Washington, DC 20549, on official business days during the hours of 10 a.m. to 3 p.m. You may also obtain information on the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0330. The Commission maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the Commission at http://www.sec.gov. Our internet website address is https://ila.company.
Item 6. Selected Financial Data.
Not required under Regulation S-K for “smaller reporting companies.”
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation.
This Annual Report on Form 10-K contains forward-looking statements. Our actual results could differ materially from those set forth as a result of general economic conditions and changes in the assumptions used in making such forward-looking statements. The following discussion and analysis of our financial condition and results of operations should be read together with the audited financial statements and accompanying notes and the other financial information appearing elsewhere in this Annual Report on Form 10-K. The analysis set forth below is provided pursuant to applicable Securities and Exchange Commission regulations and is not intended to serve as a basis for projections of future events.
Overview of Our Company
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. | |
| ■ | 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. | |
| ■ | 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. |
| 22 |
Summary of key operational and financial events:
| ■ | During the year ended December 31, 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 year ended December 31, 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 2024, 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 year ended December 31, 2023, compared to the year ended December 31, 2022
| For the years ended | ||||||||
| December 31, 2023 | December 31, 2022 | |||||||
| Revenues and lease income | $ | 7,058,479 | $ | - | ||||
| Cost of revenue | 927,903 | - | ||||||
| Gross profit | 6,130,576 | - | ||||||
| Operating expenses | ||||||||
| Sales and marketing | 1,218,921 | 1,085,300 | ||||||
| Impairment loss | 260,674 | 4,158,243 | ||||||
| General and administrative expenses | 2,875,868 | 3,107,457 | ||||||
| Total operating expenses | 4,355,463 | 8,351,000 | ||||||
| Income (loss) from operations | 1,775,113 | (8,351,000 | ) | |||||
| Other income (expense) | ||||||||
| Other income | - | 540 | ||||||
| Loss from equity-method investment | - | (422,493 | ) | |||||
| Loss from debt extinguishment | (1,140,446 | ) | - | |||||
| Loss from related party debt extinguishment | - | (78,508 | ) | |||||
| Change in fair value derivative liability | (775,555 | ) | (33,992 | ) | ||||
| Interest expense | (1,932,392 | ) | (1,532,186 | ) | ||||
| Total other expense | (3,848,392 | ) | (2,066,639 | ) | ||||
| Net loss | $ | (2,073,281 | ) | $ | (10,417,639 | ) | ||
Revenues
Our total revenue reported for the year ended December 31, 2023, was $7,058,479, compared with $0 for the year ended December 31, 2022.
During the year ended December 31, 2023, the Company acquired RCVD and revenues are now consolidated with the Company’s financial statements. As such the Company saw a large increase to operations and revenues for the year ended December 31, 2023.
| 23 |
Cost of Revenues
Our total cost of revenues for the year ended December 31, 2023, was $927,903 compared with $0 for the year ended December 31, 2022. The change is a result of the cost associated with the acquisition of RCVD during the year ended December 31, 2023.
Operating Expenses
Operating expenses decreased to $4,355,463 for the year ended December 31, 2023, from $8,351,000 for the year ended December 31, 2022. The detail by major category is reflected in the table below.
Sales and marketing costs increased by $133,621 for the year ended December 31, 2023, primarily due to the acquisition of RCVD during the current year.
General and administrative costs decreased by $231,589 for the year ended December 31, 2022, primarily due to stock-based compensation, legal fees and insurance expenses offset by a significant reduction in website design and investor relations.
Impairment loss decreased by $3,897,569, as there was a large $2,089,337 impairment of the Company’s equity-method investment in the prior year along with a significant impairment of the accumulated construction in progress costs net of contract liability for our projects at Plaza Bajamar and Valle Divino due to the uncertainty in the transfer of title of the land from our related party, uncertainty in the determination of the market value of our Oasis Park Resort.
Other expenses
Other expenses increased by $1,781,753 to $3,848,392 for the year ended December 31, 2023, from $2,066,639 for the year ended December 31, 2022.
Such increase is primarily due to a $1,140,446 increase in the loss from debt extinguishment and $400,206 increasein interest expense, which results from the additional convertible notes that the Company secured during fiscal year 2023 to fund its ongoing operations, and increase to the change in fair value of the Company’s derivative liability by $690,091.
Net Loss
As a result of the foregoing, the Company finished the year ended December 31, 2023, with a net loss of $2,073,281, as compared to a loss of $10,417,639 for the year ended December 31, 2022.
The factors that will most significantly affect future operating results will be:
| ■ | The acquisition of land with lots for sale and house construction. |
| ■ | The sale price of future lots, compared to the sale price of lots in other resorts in Mexico. |
| ■ | The cost to construct a home on the lots to be transferred, and the quality of construction. |
| ■ | The quality of our amenities. |
| ■ | The effectiveness of our sales and marketing strategies. |
| ■ | The global economy and the demand for vacation homes. |
| ■ | The on-going effect of COVID-19 on the US and Global economy. |
| ■ | The access to capital financing to continue the development of our existing projects and acquire new 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.
| 24 |
Capital Resources and Liquidity
Cash and cash equivalents were approximately $140,247 at December 31, 2023. As shown in the accompanying consolidated financial statements, we recorded a loss of $2,073,281 and $10,417,639 for the years ended December 31, 2023, and 2022, respectively. Our working capital deficit at December 31, 2023 was approximately $26.8 million and net cash flows used in operating activities for the year ended December 31, 2023, were approximately $2.2 million.
These factors and our limited ability to raise additional capital to accomplish our objectives raise 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 and the development of our current business operations. We anticipate generating continued revenues over the next twelve months as we continue to market the sale of lots held for sale and also from home construction, now having assumed title of our Oasis Park Resort property and through the acquisition of RCVD. We expect to assume title to our other properties; however, there can be no assurance that such revenue will be sufficient to cover our expenses. Consequently, we expect to be dependent on the proceeds from future debt or equity investments to sustain our operations and implement our business plan. If we are unable to raise sufficient capital, we will be required to delay or forego some portion of our business plan, which would have a material adverse effect on our anticipated results from operations and financial condition. There is no assurance that we will be able to obtain necessary amounts of capital or that our estimates of our capital requirements will prove to be accurate.
We presently do not have any significant credit available, bank financing or other external sources of liquidity. Due to our operating losses, our operations have not been a significant source of liquidity. We will need to acquire other profitable properties or obtain additional capital in order to expand operations and become profitable. In order to obtain capital, we may need to sell additional shares of our common stock or borrow funds from private lenders. There can be no assurance that we will be successful in obtaining additional funding.
To the extent that we raise additional capital through the sale of equity or convertible debt securities, the issuance of such securities may result in dilution to existing stockholders. If additional funds are raised through the issuance of debt securities, these securities may have rights, preferences, and privileges senior to holders of common stock and the terms of such debt could impose restrictions on our operations. Regardless of whether our cash assets prove to be inadequate to meet our operational needs, we may seek to continue to compensate providers of services by issuance of stock in lieu of cash, which may also result in dilution to existing shareholders. Even if we are able to raise the funds required, it is possible that we could incur unexpected costs and expenses, fail to collect significant amounts owed to us, or experience unexpected cash requirements that would force us to seek alternative financing.
No assurance can be given that sources of financing will be available to us and/or that demand for our equity/debt instruments will be sufficient to meet our capital needs, or that financing will be available on terms favorable to us. If funding is insufficient at any time in the future, we may not be able to take advantage of business opportunities or respond to competitive pressures or may be required to reduce the scope of our planned development, any of which could have a negative impact on our business and operating results. In addition, insufficient funding may have a material adverse effect on our financial condition, which could require us to:
| ● | Curtail our operations significantly, or | |
| ● | Seek arrangements with strategic partners or other parties that may require us to relinquish significant rights to our development of resorts and correlated services, or | |
| ● | Explore other strategic alternatives including a merger or sale of our Company. |
Operating Activities
Net cash flows used in operating activities for the year ended December 31, 2023, was approximately $2,167,104, which resulted primarily due to the loss of $2,073,281, offset by stock-based compensation of $927,774, fair value of shares issued as settlement of debt of $1,140,446, impairment loss of $245,674, amortization of debt discount of $437,376, $775,555 change in fair value of derivative liability, and $4,078,450 change in assets and liabilities.
Net cash flows used in operating activities for the year ended December 31, 2022, was approximately $528,000, which resulted primarily due to the loss of $10,417,639, offset by stock-based compensation of $1,710,881, fair value of shares issued as settlement of debt of $1,470,836, impairment loss of $4,158,243, amortization of debt discount of $458,616, depreciation of $52,944, loss from equity method investment of $422,493, excess of fair value of derivative over the carrying amount of the underlying debt instrument of $356,784, loss on related party debt extinguishment of $78,508, $33,992 of change in fair value of derivative liability, and $1,146,281 change in assets and liabilities.
| 25 |
Investing Activities
Net cash flows used in investing activities was $210,423 for the year ended December 31, 2023, resulting for the additional funds invested in developing the infrastructure and amenities to our various projects in Baja California, offset by cash acquired from the RCVD acquisition of $321,919.
Net cash flows used in investing activities was $539,935 for the year ended December 31, 2022, resulting for the additional funds invested in developing the infrastructure and amenities to our various projects in Baja California.
Financing Activities
Net cash flows provided by financing activities for the year ended December 31, 2023, was $2,468,400 primarily from cash proceeds from issuance of convertible notes for aggregate amount of $275,000, cash proceeds from promissory notes of $1,115,000, additional funds received from related party of $888,209, $300,00 from cash proceeds from sale of common and preferred stock, offset by repayment on a promissory note of $330,000, and repayment to related party by $308,248.
Net cash flows provided by financing activities for the year ended December 31, 2022, was $1,060,777 primarily from cash proceeds from issuance of convertible notes for aggregate amount of $773,250, additional funds received from related party of $793,187, $15,000 from cash proceeds from sale of common stock, offset by repayment on a promissory note of $131,339, and repayment to related party by $390,621.
As a result of these activities, we experienced an increase in cash and cash equivalents of approximately $90,873 for the year ended December 31, 2023, and an increase in cash and cash equivalents of approximately $7,200 for the year ended December 31, 2022. Our ability to continue as a going concern is still dependent on our success in obtaining additional financing from investors.
Critical Accounting Polices
In December 2001, the SEC requested that all registrants list their “critical accounting polices” in the Management Discussion and Analysis. The SEC indicated that a “critical accounting policy” is one which is both important to the portrayal of a company’s financial condition and results, and requires management’s most difficult, subjective, or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Our accounting policies are disclosed in Note 2 of our audited consolidated financial statements included herein. We consider the following accounting policies critical to the understanding of the results of our operations:
| ■ | Going concern. It requires to rely on management’s representation on financial forecast. |
| ■ | Revenue recognition. It requires judgement to determine when a contract exists, when performance obligations are met and the estimated variable consideration if any. |
| ■ | Issuance of debt with attached financial instruments. Some instruments carry embedded features that require bifurcation from host instrument and accounting as derivative liability. |
| ■ | Accounting of the Company’s equity-method investment. Indeed, it requires judgement by management to determine whether there is significant influence or control over the Company’s investee. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over these policies. |
Off-balance Sheet Arrangements
Since our inception through December 31, 2023, we have not engaged in any off-balance sheet arrangements.
Recent Accounting Pronouncements
The recent accounting pronouncements that are material to our financial statements are disclosed in Note 2 of our consolidated audited financial statements included herein.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
Not required under Regulation S-K for “smaller reporting companies.”
Item 8. Financial Statements and Supplementary Data.
Our audited consolidated financial statements are set forth in this Annual Report beginning on page F-1.
| 26 |
INTERNATIONAL LAND ALLIANCE, INC. INDEX TO FINANCIAL STATEMENTS
| F-1 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of
International Land Alliance, Inc.
OPINION ON THE FINANCIAL STATEMENTS
We have audited the accompanying consolidated balance sheet of International Land Alliance, Inc. (the “Company”) as of December 31, 2023, and the related consolidated statements of operations and comprehensive loss, stockholders’ equity and cash flows for the year then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.
Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered net losses from operations, which raises substantial doubt about its ability to continue as a going concern. Management’s plans regarding those matters are discussed in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
BASIS FOR OPINION
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
Emphasis of a Matter – Significant Related Party Transactions
As described in the accompanying notes the Company engages in substantial real estate activities between the Company and other entities controlled by an officer of the Company. The Company has also borrowed funds from an entity controlled by other officers of the Company.
Critical Audit Matters
Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgements. We determined that there are no critical audit matters.
/s/ Bush & Associates CPA LLC
We have served as the Company’s auditor since 2024.
Henderson, Nevada
June 27, 2024
PCAOB ID Number 6797
| F-2 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of International Land Alliance, Inc.
Opinion on the Financial Statements
We have audited the accompanying balance sheet of International Land Alliance, Inc. (the Company) as of December 31, 2022, and the related statements of operations, statement of changes in stockholders’ equity, and cash flows and the related notes and schedules (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.
Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered net losses from operations, which raises substantial doubt about its ability to continue as a going concern. Management’s plans regarding those matters are discussed in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and the significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe our audit provides a reasonable basis for our opinion.
| F-3 |
Emphasis of a Matter – Significant Related Party Transactions
As described in the accompanying notes the Company engages in substantial real estate activities between the Company and other entities controlled by an officer of the Company. The Company has also borrowed funds from an entity controlled by other officers of the Company.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinion on the critical audit matter or on the accounts or disclosures to which they relate.
Going Concern
Due to the net loss for the year, the Company evaluated the need for a going concern.Auditing management’s evaluation of a going concern can be a significant judgement given the fact that the Company uses management estimates on future revenues and expenses which are not able to be substantiated.
As discussed in Note 1, the Company has a going concern due to net loss during the year as well as having negative cash flows from operations during the year ended December 31,2022.
To evaluate the appropriateness of the going concern, we examined and evaluated the financial information along with management’s plans to mitigate the going concern and management’s disclosure on going concern.
/s/
We served as the Company’s auditor since 2022
July 6, 2023
| F-4 |
INTERNATIONAL LAND ALLIANCE, INC.
CONSOLIDATED BALANCE SHEETS
| December 31, 2023 | December 31, 2022 | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable | ||||||||
| Prepaid and other current assets | ||||||||
| Total current assets | ||||||||
| Land | ||||||||
| Buildings, net | ||||||||
| Furniture and equipment, net | ||||||||
| Other non-current assets | ||||||||
| Goodwill | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY (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 11) | ||||||||
| Preferred Stock Series B (Temporary Equity) | ||||||||
| Preferred Stock Series C (Temporary Equity) | ||||||||
| Total Temporary Equity | ||||||||
| Stockholders’ Equity (Deficit) | ||||||||
| Preferred stock; $ par value; shares authorized; Series A shares issued and outstanding as of December 31, 2023 and December 31, 2022 | ||||||||
| Series B shares issued and outstanding as of December 31, 2023 and December 31, 2022 | ||||||||
| Series C shares issued and outstanding as of December 31, 2023 and shares issued and outstanding as of December 31, 2022. | ||||||||
| Series D shares issued and outstanding as of December 31, 2023 and shares issued and outstanding as of December 31, 2022 | ||||||||
| Common stock; $ par value; shares authorized; and shares issued and outstanding as of December 31, 2023, respectively, and shares issued and outstanding as of December 31, 2022. | ||||||||
| Additional paid-in capital | ||||||||
| Common stock payable | ||||||||
| Treasury stock ( shares as of December 31, 2023) | ( | ) | ||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity (deficit) | ( | ) | ||||||
| Total liabilities and stockholders’ equity (deficit) | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-5 |
INTERNATIONAL LAND ALLIANCE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
| For the Years Ended, | ||||||||
| December 31, 2023 | December 31, 2022 | |||||||
| Net revenues and lease income | $ | $ | ||||||
| Cost of revenues | ||||||||
| Gross profit | ||||||||
| Operating expenses | ||||||||
| Sales and marketing | ||||||||
| Impairment loss | ||||||||
| General and administrative expenses | ||||||||
| Total operating expenses | ||||||||
| Income (loss) from operations | ( | ) | ||||||
| Other income (expense) | ||||||||
| Other income | ||||||||
| Loss from debt extinguishment | ( | ) | ||||||
| Loss from equity-method investment | ( | ) | ||||||
| Loss from related party debt extinguishment | ( | ) | ||||||
| Change in fair value derivative liability | ( | ) | ( | ) | ||||
| 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 consolidated financial statements.
| F-6 |
INTERNATIONAL LAND ALLIANCE, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
Activity for the year Ended December 31, 2023
| Series A Preferred Stock |
Series B Preferred Stock |
Series C Preferred Stock |
Series D Preferred Stock |
Common Stock | Treasury | Additional Paid-in |
Common Stock | Accumulated | Total Stockholders’ | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | 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 | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Reciprocal interest in business acquisition | - | - | - | - | - | ( |
) | ( |
) | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for warrant exercise | - | - | - | - | ( |
) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common shares in escrow issued as collateral | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Warrants issued pursuant to Series C Preferred Stock | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Series C Preferred Stock issued for cash | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividend on Series C Preferred | - | - | - | - | - | ( |
) | ( |
) | |||||||||||||||||||||||||||||||||||||||||||||||||||
| 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 | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Series D Preferred shares issued for the conversion of related party debt | - | - | - | $ | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Settlement of derivative liability | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends on Series B Preferred Stock | - | - | - | - | - | ( |
) | ( |
) | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | ( |
) | ( |
) | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2023 | $ | $ | $ | $ | $ | ( |
) | $ | $ | $ | ( |
) | $ | |||||||||||||||||||||||||||||||||||||||||||||||
| F-7 |
Activity for the year Ended December 31, 2022
| Series A Preferred Stock | Series B Preferred Stock | Common Stock | Additional Paid-in | Accumulated | Total Stockholders’ Equity | |||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | (Deficit) | ||||||||||||||||||||||||||||
| Balance, December 31, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||
| Commitment shares issued pursuant to promissory notes | - | - | ||||||||||||||||||||||||||||||||||
| Issuance of common shares pursuant to consulting agreements | - | - | ||||||||||||||||||||||||||||||||||
| Common stock issued from options exercise | - | - | ||||||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||||||||||
| Common shares issued from related party debt settlement | - | - | ||||||||||||||||||||||||||||||||||
| Fair value of warrants issued with debt | - | - | - | |||||||||||||||||||||||||||||||||
| Common stock issued with lot sale | - | - | ||||||||||||||||||||||||||||||||||
| Dividend on Series B Preferred | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Balance, December 31, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-8 |
INTERNATIONAL LAND ALLIANCE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| For the Years Ended, | ||||||||
| December 31, 2023 | December 31, 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 from extinguishment of debt | ||||||||
| Loss from extinguishment of related party debt | ||||||||
| Fair value of shares issued for debt settlement/modification | ||||||||
| Fair value of commitment shares | ||||||||
| Fair value of shares issued for services | ||||||||
| Depreciation expense | ||||||||
| Excess fair value of derivative over carrying balance of debt | ||||||||
| Loss from equity-method investment | ||||||||
| Change in fair value derivative | ||||||||
| Amortization of debt discount | ||||||||
| Changes in assets and liabilities | ||||||||
| Accounts Receivable | ||||||||
| Prepaid and other current assets | ||||||||
| Other non-current assets | ( | ) | ||||||
| Accrued interest | ||||||||
| Accounts payable and accrued interest | ( | ) | ( | ) | ||||
| Accounts payable and accrued interest-related party | ||||||||
| Deferred revenue | ( | ) | ||||||
| Contract liability | ||||||||
| Deposit | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash Flows from investing | ||||||||
| Cash acquired from RCVD acquisition | ||||||||
| Proceeds from disposal of fixed assets | ||||||||
| Additional expenditures on land | ( | ) | ||||||
| Additions to Construction in Progress on land not owned | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash Flows from Financing Activities | ||||||||
| Common stock and warrants sold for cash | ||||||||
| Dividends paid on Series C Preferred Stock | ( | ) | ||||||
| Series C Preferred Stock issued for cash | ||||||||
| Common stock issued for warrant exercise | ||||||||
| Cash payments on promissory notes – related party | ( | ) | ( | ) | ||||
| Cash payments on promissory notes | ( | ) | ( | ) | ||||
| Cash proceeds from convertible notes | ||||||||
| Cash payments on convertible notes | ( | ) | ||||||
| Cash proceeds from promissory notes | ||||||||
| Cash proceeds from other loans | ||||||||
| Cash proceeds promissory notes – Related party | ||||||||
| Net cash provided by financing activities | ||||||||
| Net increase (decrease) in Cash | ( | ) | ||||||
| Cash, beginning of period | ||||||||
| Cash, end of period | $ | $ | ||||||
| Supplemental disclosure of cash flow information | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income tax | $ | $ | ||||||
| Non-Cash investing and financing transactions | ||||||||
| Corporate expenses paid by related party advances | $ | $ | ||||||
| Dividend on Series B | $ | $ | ||||||
| Dividend on Series C | ||||||||
| Conversion of related party debt for Series D Preferred shares | $ | $ | ||||||
| Conversion of related party debt | $ | $ | ||||||
| Conversion of debt for common shares | ||||||||
| Debt discount from bifurcated derivative | $ | $ | ||||||
| Debt discount from warrants issued with debt | $ | $ | ||||||
| Debt discount | $ | $ | ||||||
| Commitment shares issued with promissory notes | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-9 |
INTERNATIONAL LAND ALLIANCE, INC.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2023 and 2022
NOTE 1 – NATURE OF OPERATIONS AND GOING CONCERN
Nature of Operations
International Land Alliance, Inc. (the “Company”) was incorporated under the laws of the State of Wyoming on September 26, 2013. The Company is a residential land development company with target properties located in the Baja California, Northern region of Mexico and Southern California. The Company’s principal activities are purchasing properties, obtaining zoning and other entitlements required to subdivide the properties into residential and commercial building plots, securing financing for the purchase of the plots, improving the properties infrastructure and amenities, and selling the plots to homebuyers, retirees, investors, and commercial developers.
In
May 2021, the Company acquired a
Going Concern and liquidity
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business.
Management
evaluated all relevant conditions and events that are reasonably known or reasonably knowable, in the aggregate, as of the date the consolidated
financial statements were available to be issued and determined that substantial doubt exists about the Company’s ability to continue
as a going concern. The Company’s ability to continue as a going concern is dependent on the Company’s ability to generate
revenues from its properties, raise capital or issue debt instruments. The Company has faced significant liquidity shortages as shown
in the accompanying consolidated financial statements. As of December 31, 2023, the Company’s current liabilities exceeded its
current assets by approximately $
The Company is currently raising additional capital through debt and equity financing in order to continue the funding of its operations, which may have the effect of diluting the holdings of existing shareholders.
Management anticipates that the Company’s capital resources will significantly improve if its plots of land gain wider market recognition and acceptance resulting in increased plot sales. If the Company is not successful with its marketing efforts to increase sales and weak demand for purchase of plots continues, the Company will continue to experience a shortfall in cash, and it will be necessary to further reduce its operating expenses in a manner or obtain funds through equity or debt financing in sufficient amounts to avoid the need to curtail its future operations subsequent to December 31, 2022. The direct impact of these conditions is not fully known. There is also uncertainty pertaining to the transfer of title of the lands currently owned by companies controlled by our Chief Executive Officer.
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.
| F-10 |
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements of the Company are prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”).
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries, ILA Fund I, LLC (the “ILA Fund”), a company incorporated in the State of Wyoming and International Land Alliance, S.A. de C.V., a company incorporated in Mexico (“ILA Mexico”), Emerald Grove Estates LLC, incorporated in the State of California, Oasis Park Resort, LLC, incorporated in the State of California, Plaza Bajamar, LLC, incorporated in the State of California, Plaza Valle Divino, LLC, incorporated in the State of California.
ILA Fund includes cash as its only assets with minimal expenses as of December 31, 2022. The sole purpose of this entity is strategic funding for the operations of the Company. ILA Mexico has lots held for sale for the Oasis Park Resort, no liabilities, and minimal expenses as of December 31, 2023. All intercompany balances and transactions are eliminated in consolidation. As of December 31, 2023, Emerald Grove Estates LLC, Plaza Bajamar LLC, and Plaza Valle Divino LLC have no operations.
The Company’s consolidated subsidiaries were as follows as of December 31, 2023:
| 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) | % | |||||
| Rancho Costa Verde Development, LLC | % | |||||
| Emerald Grove Estates, LLC | % | |||||
| Oasis Park Resort, LLC | % | |||||
| Plaza Bajamar, LLC | % | |||||
| Plaza Valle Divino, LLC | % | |||||
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.
| F-11 |
Use of Estimates
The preparation of financial statements in conformity with US. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management regularly evaluates estimates and assumptions related to the valuation of assets and liabilities. Management bases its estimates and assumptions on current facts, historical experience, and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from management’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected. Significant estimates include:
| ■ | Liability for legal contingencies. | |
| ■ | Useful lives of building. | |
| ■ | Assumptions used in valuing equity instruments. | |
| ■ | Deferred income taxes and related valuation allowance. | |
| ■ | Going concern. | |
| ■ | Assessment of long-lived asset for impairment. | |
| ■ | Significant influence or control over the Company’s equity-method 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 a 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 December 31, 2023, and 2022.
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 carrying amounts of the Company’s financial assets and liabilities, such as cash, accounts receivable, prepaid and other current assets, accounts payable and accrued liabilities, contracts liability, deposits, promissory notes, net of debt discounts and promissory notes related party approximate fair value due to their relatively short maturities. Equity-method investment is recorded at cost, which approximates its fair value since the consideration transferred includes cash and a non-monetary transaction, in the form of the Company’s common stock, which was valued based on a combination of a market and asset approach.
| F-12 |
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-Scholes 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 December 31, 2023:
| Fair Value Measurements at December 31, 2023 Using | ||||||||||||||||
| Quoted
Prices in Active Markets for Identical Assets (Level 1) | Significant
Other Observable Inputs (Level 2) | Significant
Unobservable Inputs (Level 3) | Total | |||||||||||||
| Derivative liability | $ | $ | $ | $ | ||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
The following table presents changes of the liabilities with significant unobservable inputs (Level 3) for the year ended December 31, 2022:
| Derivative | ||||
| Liability | ||||
| Balance December 31, 2022 | $ | |||
| New derivative from convertible notes | ||||
| Settlement by debt extinguishment | ( | ) | ||
| Change in estimated fair value | ||||
| Balance December 31, 2023 | $ | |||
Derivative Liability
As of December 31, 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 Years Ending December 31, | ||||||||
| 2023 | 2022 | |||||||
| Expected term | month – year | - year | ||||||
| Exercise price | - $ | $-$ | ||||||
| Expected volatility | % - % | %-% | ||||||
| Expected dividends | ||||||||
| Risk-free interest rate | % - % | %-% | ||||||
| Forfeitures | ||||||||
| F-13 |
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.
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 December 31, 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 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 December 31, 2023.
| F-14 |
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 | ||||
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.
Advertising Costs
The
Company expenses advertising costs when incurred. Advertising costs incurred amounted to $
Debt issuance costs and debt discounts
Debt issuance costs and debt discounts are being amortized over the lives of the related financings on a basis that approximates the effective interest method. Costs and discounts are presented as a reduction of the related debt in the accompanying consolidated balance sheets.
Stock-Based Compensation
The fair value of stock options is estimated on the grant date using the Black-Scholes option pricing model, based on weighted average assumptions. Expected volatility is based on historical volatility of our common stock. The Company has elected to use the simplified method described in the Securities and Exchange Commission Staff Accounting Bulletin Topic 14C to estimate the expected term of employee stock options. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant. The value of stock awards is determined using the fair value of the Company’s common stock on the date of grant. Following the adoption of Accounting Standards Update ASU 2016-09, the Company elected to account for forfeitures as they occur. Any compensation cost previously recognized for an unvested award that is forfeited because of a failure to satisfy a service condition is reversed in the period of the forfeiture. Compensation expense is recognized on a straight-line basis over the requisite service period of the award. Stock-based compensation includes the fair value of options, warrants and restricted stocks issued to employees, directors, and non-employees.
Income Taxes
The Company accounts for income taxes using the asset and liability method in accordance with ASC 740, Income Taxes. The asset and liability method provide that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities, and for operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates and laws. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.
| F-15 |
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.
Basic net loss per share is calculated based on the net loss attributable to common shareholders divided by the weighted average number of shares outstanding for the period excluding any dilutive effects of options, warrants, unvested share awards and convertible securities. Diluted net loss per common share assumes the conversion of all dilutive securities using the if-converted method and assumes the exercise or vesting of other dilutive securities, such as options, common shares issuable under convertible debt, warrants and restricted stock using the treasury stock method when dilutive.
| For
the year ended December 31, 2023 | For
the year ended December 31, 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 December 31, 2023. All of the Company accounts receivable is concentrated with one customer.
| F-16 |
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 year ended December 31, 2023.
Accounts Receivable
The
Company uses the specific identification method for recording the provision for doubtful accounts, which was $
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.
Recently Issued Accounting Pronouncements Not Yet Adopted
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.
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.
| F-17 |
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
There was no activity during the year ended December 31, 2023.
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 year ended December 31, 2023, the Company did not enter into any new contract to sell plots of land.
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 AND BUILDING
Land and buildings, net as of December 31, 2023, and 2022:
| Useful life | December 31, 2023 | December 31, 2022 | ||||||||
| Land – Emerald Grove | $ | $ | ||||||||
| Land – Rancho Costa Verde Development | $ | $ | ||||||||
| Furniture & equipment, net | $ | $ | ||||||||
| Building – Emerald Grove | ||||||||||
| Less: Accumulated depreciation | ( | ) | ( | ) | ||||||
| Building, net | $ | $ | ||||||||
Depreciation
expense was approximately $
| F-18 |
Valle Divino
The
Valle Divino is the Company’s premier wine country development project in Ensenada, Baja California. This land project consists
of
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” 1,150 square-foot single-family homes that feature 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 construction in mind. Planned amenities include a pool, wellness and fitness center and available office space.
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
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 $
| F-19 |
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 December 31, 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
Roberto Valdes - Chief Executive Officer
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 year ended December 31, 2023. The Company has accrued $
As
of December 31, 2023, the Company funded an aggregate amount of
During
the year ended December 31, 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
| F-20 |
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 year ended December 31, 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 year ended December 31, 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 $
| F-21 |
NOTE 6 – PROMISSORY NOTES
Promissory notes consisted of the following at December 31, 2023, and 2022:
| December 31, 2023 | December 31, 2022 | |||||||
| Cash Call note payable, due | $ | $ | ||||||
| Elder note payable, | ||||||||
| Elder note Payable, | ||||||||
| Griffith note Payable, | ||||||||
| Banker note Payable, | ||||||||
| Robles note Payable, | ||||||||
| Victrix 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 | $ | $ | ||||||
Redwood Trust
On
January 21, 2021, the Company refinanced its existing first and second mortgage loans on the
Victrix LLC
On
December 6, 2023, the Company took out a second financing on its
Cash Call, Inc. – In default
On
March 19, 2018, the Company issued a promissory note to CashCall, Inc. for $
| F-22 |
On
August 2, 2022, the Company and Cash Call settled for an aggregate principal of $
As
of December 31, 2023 and 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 years ended December 31, 2023 and 2022, respectively. As of December 31, 2023 and 2022, the remaining principal
balance was $
The
Company incurred approximately $
Bobbie Allen Griffith
On
September 5, 2023, the Company entered into a promissory note pursuant to which the Company borrowed $
The
Company repaid the note in full during the ended December 31, 2023. During the year ended December 31, 2023, the Company was advanced
another $
The
Company incurred approximately $
The
Company initially recognized a debt discount and stock payable on this note of $
George Banker – In Default
On
August 11, 2023, the Company entered into a promissory note pursuant to which the Company borrowed $
The
Company incurred approximately $
The
Company initially recognized a debt discount and stock payable on this note of $
George Robles – In Default
On
September 1, 2023, the Company entered into a promissory note pursuant to which the Company borrowed $
| F-23 |
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 December 31, 2023 and 2022:
| December 31, 2023 | December 31, 2022 | |||||||
| 1800 Diagonal convertible note
#1, | ||||||||
| 1800 Diagonal convertible note#2, | ||||||||
| 1800 Diagonal convertible note #3, | ||||||||
| 1800 Diagonal convertible note #5, | ||||||||
| 1800 Diagonal convertible note #6, | ||||||||
| 1800 Diagonal convertible note #7, | ||||||||
| 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 | $ | $ | ||||||
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 year ended December 31, 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
| F-24 |
As
of December 31, 2023 and 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
As
of December 31, 2023 and 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 December 31, 2023, the Company converted $
| F-25 |
The
principal balance of Diagonal note #1 was $
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
The
Company incurred approximately $
During
the year ended December 31, 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
| F-26 |
During
the year ended December 31, 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 $
Diagonal note #7
On
December 5, 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 $
| F-27 |
The
Company initially recognized $
The
balance of the Diagonal note #7 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 PARTIES
Related party promissory notes consisted of the following at December 31, 2023 and 2022:
| December 31, 2023 | December 31, 2022 | |||||||
| RAS Real Estate LLC – Past maturity | $ | $ | ||||||
| Six-Twenty Management LLC – On demand | ||||||||
| Frank Ingrande – On demand | ||||||||
| Lisa Landau – On demand | ||||||||
| Total promissory notes, net of discount current | $ | $ | ||||||
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 year ended December 31, 2023, Six Twenty funded an additional $
During the year ended December 31, 2023, the Company converted the outstanding balance and interest payable into Series D Preferred Stock. See note 12 for further discussion.
The
Company incurred approximately $
As
of December 31, 2023 and 2022, the principal balance owed to Six-Twenty was $
| F-28 |
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 year ended December 31, 2023, the Company paid $
During
the year ended December 31, 2023, the Company incurred $
Lisa Landau
Lisa
Landau is a relative of the Company’s Chief Financial Officer. During the year ended December 31, 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
| F-29 |
As of December 31, 2023, the Company finalized its purchase price allocation and valuation for the acquisition of RCVD.
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 the 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 | $ | |||
Pro Forma Financial Information
The following unaudited pro forma consolidated results of operations for the years ended December 31, 2023 and 2022 assume the acquisition was completed on January 1, 2022:
| Years Ended December 31, | ||||||||
| 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 Years Ending December 31, | ||||||||
| 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.
| F-30 |
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 as part of the accounting for the business combination, see Note 9.
NOTE 11 – COMMITMENTS AND CONTINGENCIES
Commitment to Purchase Land (Valle Divino)
The
land project consisting of 20 acres to be acquired from Baja Residents Club (a Company controlled by our CEO Roberto Valdes) and developed
into Valle Divino resort in Ensenada, Baja California, the acquisition of title to the land for this project is subject to approval from
the Mexican government in Baja, California. Although management believes that the transfer of title to the land will be approved before
the end of the Company fiscal year end 2023, there is no assurance that such transfer of title will be approved in that time frame or
at all. The Company has promised to transfer title to the plots of land to the investors who have invested in the Company once the Company
receives an approval of change in transfer of title to the Company through a Fideicomiso. As of December 31, 2022, and 2021, Valdetierra
S.A de C.V., a company controlled and
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 $
| F-31 |
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
The Company fully impaired the carrying balance of its account receivable owed by IntegraGreen as of December 31, 2023 and 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’ EQUITY (DEFICIT)
The Company’s equity at December 31, 2023 consisted of authorized common shares and authorized preferred shares, all with a par value of $ per share. As of December 31, 2023, there were shares issued and shares outstanding. As of December 31, 2022, there were shares issued and outstanding.
As of December 31, 2023, there were shares of Series A Preferred Stock issued and outstanding, shares of Series B Preferred Stock issued and outstanding, shares of Series C Preferred Stock issued and outstanding, and shares of Series D Preferred Stock issued and outstanding
As of December 31, 2022, there were shares of Series A Preferred Stock issued and outstanding, shares of Series B Preferred Stock issued and outstanding.
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 year ended December 31, 2023. The Company has options issued and outstanding under the 2022 Plan as of December 31, 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 year ended December 31, 2023. The Company has options issued and outstanding under the 2020 Plan as of December 31, 2023 and 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 year ended December 31, 2023. The Company has options issued and outstanding under the 2019 Plan as of December 31, 2023 and 2022.
Activity during the year ended December 31, 2023
During
the year ended December 31, 2023, the Company issued shares of common stock pursuant to consulting agreements for a total fair
value of approximately $
During
the year ended December 31, 2023, the Company issued shares of common stock pursuant to a business acquisition with a fair
value of $
| F-32 |
During the year ended December 31, 2023, the Company issued shares of common stock pursuant to the conversion of convertible notes and notes payable.
During the year ended December 31, 2023, the Company issued shares of common stock pursuant to a cashless exercise of warrants.
During the year ended December 31, 2023, the Company issued shares of common stock pursuant to an exercise of warrants.
During
the year ended December 31, 2023, the Company issued shares of common stock for $
During
the year ended December 31, 2023, the Company issued common shares pursuant to agreements with two lenders. Of these issuances,
Activity during the year ended December 31, 2022
During
the year ended December 31, 2022, the Company issued an aggregate of shares of common stock pursuant to consulting agreements
for a total value of $
During
the year ended December 31, 2022, the Company received $
During
the year ended December 31, 2022, the Company issued shares of common stock from the exercise of stock options for
a total cash consideration of $
During
the year ended December 31, 2022, the Company issued shares of common stock for the settlement of related party debts in the
aggregate amount of $
During
the year ended December 31, 2022, the Company issued commitment shares in connection with the issuance of convertible notes for
an aggregate fair value of $
Preferred Stock
On
November 6, 2019, the Company authorized and issued shares of Series B Preferred Stock (“Series B”) and shares
of common stock to CleanSpark Inc. in a private equity offering for $
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 year ended December 31, 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
| F-33 |
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 $
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).
During
the year ended December 31, 2023, the Company converted $
Stock Options
Number of Options | Weighted Average Exercise Price | Weighted Average Remaining Contract Term (Year) | ||||||||||
| Outstanding at December 31, 2022 | $ | |||||||||||
| Granted | - | |||||||||||
| Exercised | - | |||||||||||
| Forfeit/Canceled | - | |||||||||||
| Outstanding at December 31, 2023 | $ | |||||||||||
| Exercisable at December 31, 2023 | ||||||||||||
Number of Options | Weighted Average Exercise Price | Weighted Average Remaining Contract Term (Year) | ||||||||||
| Outstanding at December 31, 2021 | $ | |||||||||||
| Granted | ||||||||||||
| Exercised | ( | ) | ||||||||||
| Forfeit/Canceled | - | |||||||||||
| Outstanding at December 31, 2022 | $ | |||||||||||
| Exercisable at December 31, 2022 | ||||||||||||
Options outstanding as of December 31, 2023 and 2022, had aggregate intrinsic value of $, respectively. At December 31, 2023, the total deferred share-based compensation has been fully recognized.
| F-34 |
| Options Outstanding | Options Vested | |||||||||||||||||||||||||||||
| Weighted | ||||||||||||||||||||||||||||||
| Average | Weighted | Weighted | Weighted | |||||||||||||||||||||||||||
| Number | Number | Remaining | Average | Number | Remaining | Average | ||||||||||||||||||||||||
| Exercise | of Options | of Options | Contractual | Exercise | of | Contractual | Exercise | |||||||||||||||||||||||
| Prices | Outstanding | Exercisable | Life | Price | Options | Life | Price | |||||||||||||||||||||||
| (In years) | (In years) | |||||||||||||||||||||||||||||
| $ | ||||||||||||||||||||||||||||||
| $ | ||||||||||||||||||||||||||||||
| $ | ||||||||||||||||||||||||||||||
| $ | ||||||||||||||||||||||||||||||
| $ | $ | |||||||||||||||||||||||||||||
| For Years Ending December 31, | ||||||||
| 2023 | 2022 | |||||||
| Expected term | - years | - years | ||||||
| Strike price | $ | – | $ | – | ||||
| Expected volatility | %-% | %-% | ||||||
| Expected dividends | ||||||||
| Risk-free interest rate | % - % | % - % | ||||||
| Forfeitures | ||||||||
Warrants
A summary of the Company’s warrant activity during the years ended December 31, 2023 and 2022, 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 December 31, 2023 | $ | |||||||||||
| Exercisable at December 31, 2023 | ||||||||||||
Number of Warrants | Weighted Average Exercise Price | Weighted Average Remaining Contract Term (Year) | ||||||||||
| Outstanding at December 31, 2021 | $ | |||||||||||
| Granted | ||||||||||||
| Exercised | ||||||||||||
| Forfeit/Canceled | - | |||||||||||
| Outstanding at December 31, 2022 | $ | |||||||||||
| Exercisable at December 31, 2022 | ||||||||||||
| F-35 |
During
the year ended December 31, 2023, the Company issued
As noted above, during the year ended December 31, 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 December 31, 2023 and 2022, was $ and , respectively.
The Company used the following assumptions to value the warrants issued during the years ended December 31, 2023 and 2022:
December 2023 | December 2022 | |||||||
| Warrants | Warrants | |||||||
| Risk free rate | % | % | ||||||
| Market price per share | $ | $ | ||||||
| Life of instrument in years | ||||||||
| Volatility | % | % | ||||||
| Dividend yield | % | % | ||||||
NOTE 13 – INCOME TAX
As
of December 31, 2023 and 2022, the Company had gross federal net operating loss carryforwards of approximately $
Due
to the enactment of the Tax Reform Act of 2017, the corporate tax rate for those tax years beginning with 2018 has been reduced to
NOTE 14 – SUBSEQUENT EVENTS
Subsequent
to December 31, 2023, the Company entered into a securities purchase agreement with IRED under which the Company issued shares
of Series A preferred stock at $ per share to convert the outstanding note payable and accrued interest of $
Management has evaluated subsequent events pursuant to the issuance of the consolidated financial statements and has determined that, other than listed above, no other reportable subsequent events exist through the date of these consolidated financial statements.
| F-36 |
Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure.
Not Applicable.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
As required by Rule 13a-15 under the Securities Exchange Act of 1934, we have carried out an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this annual report, being December 31, 2023. This evaluation was carried out under the supervision of, and with the participation of, our management, including our Chief Executive Officer and Chief Financial Officer.
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in our company’s reports filed under the Securities Exchange Act of 1934 is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
Based upon that evaluation, we have concluded that our disclosure controls and procedures are not effective as of the end of the period covered by this annual report due to the material weaknesses indicated below. We intend to implement additional procedures to improve disclosure controls.
MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934). Management has assessed the effectiveness of our internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
As a result of this assessment, management concluded that, as of December 31, 2023, our internal control over financial reporting was not effective. Our management identified the following material weaknesses in our internal control over financial reporting, which are indicative of many small companies with limited personnel:
| ■ | Lack of qualified and sufficient personnel, and processes to adequately and timely identify any and all required public disclosures. |
| ■ | Deficiencies in the period-end reporting process and accounting policies. |
| ■ | Inadequate internal controls over the application of new accounting principles or the application of existing accounting principles to new transactions. |
| ■ | 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 processes. |
| ■ | Inadequate controls over maintenance of records. |
| 27 |
Management has assigned a priority to the short-term and long-term improvement of our internal control over financial reporting.
The Company plans to:
| ■ | Continue to outsource the bookkeeping and technical accounting functions to external consulting firms due to the lack of internal resources. |
| ■ | Emphasize the importance of, and monitor the sustained compliance with, the execution of our internal controls over financial reporting. |
| ■ | Work with our third-party service provider to ensure that our accounting and reporting for income taxes are timely and accurate |
CHANGES IN INTERNAL CONTROLS
No change in our system of internal control over financial reporting occurred during the period covered by this report, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information.
Not applicable.
PART III
Item 10. Directors, Executive Officers, and Corporate Governance.
Our Bylaws provide that the Board of Directors shall consist of no more than three (3) directors. Each director of the Company serves until his successor is elected and qualified, subject to removal by the Company’s shareholders. Each officer holds office for such term and exercises such powers and performs such duties as are determined by the Board of Directors.
| Name | Age | Position | ||
| Roberto Jesus Valdes | 55 | Principal Executive Officer and a Director. | ||
| Jason Sunstein | 52 | Principal Financial and Accounting Officer and a Director. | ||
| Frank Ingrande | 61 | President and a Director |
Roberto Jesus Valdes
Mr. Valdes has been the President of Grupo Valcas, Baja Residents Club, S.A. de, C.V. since 2004, and was the Assistant in the Grupo Valcas Design Department from 1989 to 1991. From 1991 through 2004, Mr. Valdes was a member of the Board of Directors, DUBCSA - Bajamar Ocean Front Resort Master Developer. During his term as a director, he acted as Project Director for Grupo Valcas. His projects have included:
| ● | La Serena Condominiums, Ensenada, 1992-1994 |
| ● | La Quinta Bajamar Condominiums, Ensenada, 1994-1996 |
| ● | Oceano at Bajamar residential development, Ensenada, 1996-1998 |
| ● | Oceano Diamante residential development, Ensenada, 2000 |
| ● | Costa Bajamar condominiums, Ensenada, 2004-2005 |
Mr. Valdes has been one of our officers and directors since October 2013.
Jason Sunstein
Mr. Sunstein brings finance, mergers and acquisitions and general management experience. Since 1989, he has participated in a broad variety of both domestic and international structured investments and financings, ranging from debt and preferred stock to equity and developmental capital across a wide variety of infrastructure and corporate financings. He has been involved in numerous start-ups, turnarounds and public companies. Mr. Sunstein serves on the Board of Directors of several public and private companies. In December 2014 Mr. Sunstein filed for Chapter 7 bankruptcy, and he was discharged on May 2015. He attended San Diego State University where he majored in Finance and has held NASD Series 7 (General Securities Representative) and Series 63 licenses.
Mr. Sunstein has been one of our officers and directors since October 2013.
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Frank Ingrande
Mr. Ingrande is the Co-founder of Rancho Costa Verde Development, the Company’s equity-method investee. He is a native San Diego resident with over 30 years of experience in the second-home industry and more than 20 years in the second-home market in Mexico. Mr. Ingrande has direct experience in acquiring, developing, and marketing real estate in Mexico. His educational background includes a Bachelor of Business Administration degree and a Master of Business Administration degree with an emphasis in Entrepreneurship and International Business from the University of San Diego. Mr. Ingrande holds a California Real Estate Salesperson License.
Mr. Sunstein has been one of our officers since May 2021.
Term of Office
All officers and directors listed above will remain in office until the next annual meeting of our stockholders, and until their successors have been duly elected and qualified or until removed from office in accordance with our bylaws. There are no agreements with respect to the election of directors. We have not compensated our directors for service on our board of directors, any committee thereof, or reimbursed for expenses incurred for attendance at meetings of our Board of Directors and/or any committee of our board of directors. Officers are appointed annually by our board of directors and each executive officer serves at the discretion of our board of directors. We do not have any standing committees. Our board of directors may in the future determine to pay directors’ fees and reimburse directors for expenses related to their activities.
None of our officers and/or directors have filed any bankruptcy petition, been convicted of or been the subject of any criminal proceedings or the subject of any order, judgment or decree involving the violation of any state or federal securities laws within the past five (5) years.
Board Committees
Audit Committee
We do not have a standing audit committee of the Board of Directors. Management has determined not to establish an audit committee at present because of our limited resources and limited operating activities do not warrant the formation of an audit committee or the expense of doing so. We do not have a financial expert serving on the Board of Directors or employed as an officer based on management’s belief that the cost of obtaining the services of a person who meets the criteria for a financial expert under Item 401(e) of Regulation S-B is beyond its limited financial resources.
Code of Ethics
To date, we have not adopted a Code of Ethics applicable to our principal executive officer and principal financial officer. The Company does not believe that a formal written code of ethics is necessary at this time. We expect that the Company will adopt a code of ethics if and when the board of directors deems it is necessary.
Our directors will serve until the next annual meeting of shareholders or until their successors are duly elected and have qualified. Officers hold their positions at the pleasure of the board of directors, absent any employment agreement, of which none currently exists or is contemplated. There is no arrangement or understanding between any person pursuant to which any director or officer was or is to be selected as a director or officer, and there is no arrangement, plan or understanding as to whether non-management shareholders will exercise their voting rights to continue to elect directors to our board. There are also no arrangements, agreements or understandings between non-management shareholders that may directly or indirectly participate in or influence the management of our affairs. Our Board of Directors does not have any committees at this time.
Potential Conflicts of Interest
Since we do not have an audit or compensation committee comprised of independent directors or any independent directors on our board, the functions that would have been performed by such committees are performed by our directors. Thus, there is a potential conflict of interest in that our directors and officers have the authority to determine issues concerning management compensation and audit issues that may affect management decisions. We have disclosed throughout this Annual Report all potential Conflicts of interest involving the Company’s executive officers as disclosed in notes 3, 4, 5, 8 and 9. We are not aware of any other conflicts of interest with any of our executives or directors.
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Director Independence
Our board of directors has undertaken a review of the independence of each director and considered whether any director has a material relationship with us that could compromise his ability to exercise independent judgment in carrying out his responsibilities. As a result of this review, our board of directors determined that our directors do not meet the independence requirements, according to the applicable rules and regulations of the SEC.
Corporate Governance
There have been no changes in any state law or other procedures by which security holders may recommend nominees to our board of directors. In addition to having no nominating committee for that purpose, we currently have no specific audit committee and no audit committee financial expert. Based on the fact that our current business affairs are simple, any such committees are excessive and beyond the scope of our business and needs.
Family Relationships
Mr. Sunstein and Ms. Landau are brother and sister. Ms. Landau is a former executive officer and former Secretary of the Company and a shareholder of the Company. The Company issued a promissory note to RAS, LLC “RAS”, a company controlled by Ms. Landau.
Indemnification of Executive Officers and Directors
Section 17-16-856 of the Wyoming Business Corporation Act provides that any director or officer of a Wyoming corporation may be indemnified against judgments, penalties, fines, settlements and reasonable expenses actually incurred by him in connection with or in defending any action, suit or proceeding in which he is a party by reason of his position, so long as it shall be determined that he conducted himself in good faith and that he reasonably believed that his conduct was in the corporation’s best interest and, with respect to any criminal action or proceeding, had no reasonable cause to believe that his conduct was unlawful. If a director or officer is wholly successful, on the merits or otherwise, in connection with such proceeding, such indemnification is mandatory.
Currently we do maintain any directors’ and officers’ liability insurance covering our directors and officers against expenses and liabilities arising from certain actions to which they may become subject by reason of having served in such role.
At present, there is no pending litigation or proceeding involving any of our directors, officers, employees or agents where indemnification will be required under California law. We are not aware of any threatened litigation or preceding that might result in a claim for such indemnification.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to our directors, officers and controlling persons pursuant to the provisions described above, or otherwise, we have been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than our payment of expenses incurred or paid by our director, officer or controlling person in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
| 30 |
Item 11. Executive Compensation.
SUMMARY COMPENSATION TABLE
We do not offer retirement benefit plan to our named executive officers, nor have we entered into any contract, agreement, plan or arrangement, whether written or unwritten, that provides for payments to a named executive officer at, or in connection with, the resignation, retirement or other termination of a named executive officer, or a change in control of the company or a change in the named executive officer’s responsibilities following a change in control.
We do not have any standard arrangement for compensation of our directors for any services provided as director, including services for committee participation or for special assignments.
The Company does not have a compensation committee. Given the nature of the Company’s business, its limited stockholder base and the current composition of management, the board of directors does not believe that the Company requires a compensation committee at this time.
The information required by Regulation S-K Item 407(e)(4), “Compensation Committee Interlocks and Insider Participation,” and Item 407(e)(5), “Compensation Committee Report,” is not required because the Company is a smaller reporting company.
The following table sets forth information regarding each element of compensation that we paid or awarded to our named executive officers, for the two fiscal years ended December 31, 2023, and 2022, which includes cash compensation, stock options awarded and all other compensation:
| Name and Principal Position | Year Ended Dec. 31 | Salary/Fees ($) (1) | Bonus ($) | Stock Awards ($) | Option Awards ($) (2) | Non-Equity Incentive Plan Compensation ($) | Change in pension value and Nonqualified Deferred Compensation Earnings ($) | All Other Compensation ($) | Total ($) | |||||||||||||||||||||||||||
| Roberto Jesus Valdez, CEO and a Director | 2023 | 132,152 | - | - | - | - | - | - | 135,152 | |||||||||||||||||||||||||||
| 2022 | 132,152 | - | - | 53,825 | - | - | - | 185,977 | ||||||||||||||||||||||||||||
| Jason Sunstein, CFO and a Director | 2023 | 132,152 | - | - | - | - | - | - | 135,152 | |||||||||||||||||||||||||||
| 2022 | 132,152 | - | - | 53,825 | - | - | - | 185,977 | ||||||||||||||||||||||||||||
| Frank Ingrande, President and a Director | 2023 | 132,152 | - | - | - | - | - | - | 135,152 | |||||||||||||||||||||||||||
| 2022 | 132,152 | - | - | 53,825 | - | - | - | 185,977 | ||||||||||||||||||||||||||||
| (1) | Effective January 1, 2020, the Company executed employment agreements with our Chief Executive Officer and Chief Financial Officer. The base salary is in the amount of $120,000 per annum, a $500 monthly auto stipend and four weeks of paid vacation. On May 10, 2021, the Company executed an employment agreement with our President including a base salary of $120,000 per annum and a $500 monthly auto stipend and four weeks of paid vacation. | |
| (2) | On December 1, 2022, the Company awarded 465,833 to each of our named executives under the 2022 Plan, with a strike price of $0.20 and a contractual term of five (5) years. The options vest 25% on grant date and 75% monthly over the twelve months from grant date. The call option was valued at $0.20. |
Employment Agreement
Effective January 1, 2020, we have entered into employment agreements with our executive officers and their compensation is determined at the discretion of our Board of Directors.
The Company entered into an employment agreement with the Chief Executive Officer on January 1, 2020, to perform the duties and responsibilities as may be assigned. The base salary is in the amount of $120,000 per annum, a $500 monthly auto stipend, and four weeks of paid vacation.
The Company entered into an employment agreement with the Chief Financial Officer on January 1, 2020, to perform the duties and responsibilities as may be assigned. The base salary is in the amount of $120,000 per annum, a $500 monthly auto stipend, and four weeks of paid vacation.
| 31 |
The Company entered into an employment agreement with the President on May 10, 2021. The base salary is in the amount of $120,000 per annum, a $500 monthly auto stipend, and four weeks of paid vacation and an incentive bonus of 50,000 shares of common stock pursuant to S-8.
Stock Options Plan – 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 3,000,000 shares of the Company’s common stock to be available under the plan. As of December 31, 2023 and 2022, and 2021, ILA has 2,150,000 options issued and outstanding. The Company did not issue any stock options during the year ended December 31, 2023 and 2022.
During the year ended December 31, 2021, the Company has issued 1,550,000 options at a strike price of $0.50, which vest six months after issuance and contractual term of 5 years. The Company recognized approximately $418,000 of stock-based compensation during the year ended December 31, 2022. As of December 31, 2022, the fair value of these stock options has been fully recognized and no further stock-based compensation will be recognized.
During the year ended December 31, 2021, the Company has issued 600,000 options at a strike price of $0.43, which vest 50% three months after issuance with the remaining 50% in September 2022, with a contractual term of 5 years. The Company recognized approximately $208,200 of stock-based compensation during the year ended December 31, 2022. As of December 31, 2022, the fair value of these stock options has been fully recognized and no further stock-based compensation will be recognized.
On December 1, 2021, the Company executed a stock option cancellation agreement with one option holder pursuant to a previously executed consulting agreement entered into on May 5, 2020, under which both parties agree to cancel 1,200,000 performance options as none of the underlying milestones were met.
The Company recognized $0 and $714,197 of stock-based compensation related to the 2019 Plan options during the year ended December 31, 2023 and 2022, respectively.
Stock Options Plan – 2020 Equity Plan
On August 26, 2020, the Company’s Board of Directors approved a 2020 Equity Plan (the “2020 Plan”). The 2020 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. The 2020 Equity Plan authorizes the grant of Incentive Stock Options (“ISO”) and Non-Qualified Stock Options (“NSO”). Pursuant to the 2020 Plan, the Company has reserved a total of 3,000,000 shares of the Company’s common stock to be available under the plan.
During the year ended December 31, 2022, the Company issued 1,300,000 options under the 2020 Plan, of which 1,300,000 were converted into common stock for a total consideration of $1,300 from exercise. No options were issued in 2023.
The Company recognized $0 and $690,396 of stock-based compensation related to the 2020 Plan options during the years ended December 31, 2023 and 2022, respectively. As of December 31, 2023 and 2022, ILA has 1,700,000 options issued and outstanding.
| 32 |
Stock Options Plan – 2022 Equity Plan
On December 1, 2022, the Company’s Board of Directors approved a 2022 Equity 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 5,000,000 shares of the Company’s common stock to be available under the plan.
During the year ended December 31, 2022, the Company issued 2,150,000 options under the 2022 Plan. No options have been converted to the Company’s common stock during the year ended December 31, 2023 and 2022.
The Company recognized approximately $130,079 of stock-based compensation related to the 2022 Plan options during the year ended December 31, 2023 and 2022. As of December 31, 2023 and 2022, the Company has 2,150,000 options issued and outstanding.
Employee Pension, Profit Sharing, or other Retirement Plans
We do not have a defined benefit pension plan, profit sharing or other retirement plan, although we may adopt one or more of such plans in the future.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The following tables set forth the ownership, as of the date of this filing, of our common stock by each person known by us to be the beneficial owner of more than 5% of our outstanding common stock, our directors, and our executive officers and directors as a group. To the best of our knowledge, the persons named have sole voting and investment power with respect to such shares, except as otherwise noted. There are not any pending or anticipated arrangements that may cause a change in control.
The information presented below regarding beneficial ownership of our voting securities has been presented in accordance with the rules of the Securities and Exchange Commission and is not necessarily indicative of ownership for any other purpose. Under these rules, a person is deemed to be a “beneficial owner” of a security if that person has or shares the power to vote or direct the voting of the security or the power to dispose or direct the disposition of the security. A person is deemed to own beneficially any security as to which such person has the right to acquire sole or shared voting or investment power within 60 days through the conversion or exercise of any convertible security, warrant, option or other right. More than one person may be deemed to be a beneficial owner of the same securities. The percentage of beneficial ownership by any person as of a particular date is calculated by dividing the number of shares beneficially owned by such person, which includes the number of shares as to which such person has the right to acquire voting or investment power within 60 days, by the sum of the number of shares outstanding as of such date plus the number of shares as to which such person has the right to acquire voting or investment power within 60 days. Consequently, the denominator used for calculating such percentage may be different for each beneficial owner. Except as otherwise indicated below and under applicable community property laws, we believe that the beneficial owners of our common stock listed below have sole voting and investment power with respect to the shares shown. The percentage of shares is based on 86,064,195 shares issued and outstanding on June 27, 2024.
| Name | # of Shares of Common Stock | Percentage | ||||||
| Roberto Jesus Valdes | 6,433,961 | 8.1 | % | |||||
| Jason Sunstein | 6,080,648 | 7.6 | % | |||||
| Frank Ingrande | 1,988,966 | 2.5 | % | |||||
| All Exec. Officers and Directors as a group (3 persons) | 14,503,575 | 18.2 | % | |||||
| * | Jason A. Sunstein Family Investments, LLC is the record holder of these shares. Jason Sunstein controls Jason A. Sunstein Family Investments, LLC. |
We are not aware of any person who owns of record, or is known to own beneficially, five percent or more of the outstanding securities of any class of the issuer, other than as set forth above. There are no classes of stock other than common stock issued or outstanding.
There are no current arrangements which will result in a change in control.
| 33 |
Item 13. Certain Relationships and Related Transactions and Director Independence.
Related Party Transactions
Please see Note 5 to the financial statements for a description of our related party transactions.
Director Independence
Our Common Stock is not quoted or listed on any national exchange or interdealer quotation system with a requirement that a majority of our board of directors be independent and therefore, the Company is not subject to any director independence requirements. Under NASDAQ Rule 5605(a)(2)(A), a director is not considered to be independent if he or she is also an executive officer or employee of the corporation. Under such definition our three officers and directors would not be considered an independent director.
Item 14. Principal Accountant Fees and Services.
The following table presents fees for professional services rendered by Bush and Associates CPAS and M&K CPAS for the years ended December 31, 2023, and 2022:
| Year ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| Audit Fees | $ | 175,800 | $ | 136,900 | ||||
| Audit-Related Fees | $ | - | $ | - | ||||
| Tax Fees | $ | - | $ | - | ||||
| All Other Fees | $ | - | $ | - | ||||
Pre-Approval Policy
Our Board of Directors as a whole pre-approves all services provided by Bush and Associates CPAS and M&K CPAS PLLC. For any non-audit or non-audit related services, the Board of Directors must conclude that such services are compatible with the independence as our auditors.
PART IV
Item 15. Exhibits; Financial Statement Schedules.
| * | Filed herein. |
| 34 |
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on the 27th day of June, 2024.
| INTERNATIONAL LAND ALLIANCE, INC. | ||
| By: | /s/ Roberto Jesus Valdes | |
| Name: | Roberto Jesus Valdes | |
| Title: | Principal Executive Officer | |
In accordance with the requirements of the Securities and Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities indicated on the dates stated.
| Signature | ||
| /s/ Roberto Jesus Valdes | Dated: June 27, 2024 | |
| Roberto Jesus Valdes | ||
| President, Principal Executive Officer, and a director | ||
| /s/ Jason Sunstein | Dated: June 27, 2024 | |
| Jason Sunstein | ||
| Principal Financial and Accounting Officer and a director |
| 35 |
EXHIBIT INDEX
| * | Filed herein. |
| 36 |