10-Q: International Land Alliance Reports Deepening Losses

International Land Alliance, Inc. reported a significant net loss and declining revenue for the first half of 2025, raising substantial doubt about its ability to continue as a going concern.

Summary

• Reported a net loss of $2,937,448 for the six months ended June 30, 2025, a significant decline from a net income of $3,743,848 in the same period of 2024.
• Net revenues decreased by $4,506,974 to $1,323,995 for the six months ended June 30, 2025, compared to $5,830,969 in the prior year period.
• Operating expenses surged by $1,385,263 to $2,423,873 for the six months ended June 30, 2025, primarily driven by a large increase in stock-based compensation expenses.
• The company's working capital deficit expanded to approximately $13.2 million as of June 30, 2025.
• Accumulated deficit increased to $27,084,406 as of June 30, 2025.
• Cash used in operating activities was $491,464 for the six months ended June 30, 2025, a shift from cash provided of $280,270 in the prior year period.
• The fair value of derivative liability significantly increased to $711,606 as of June 30, 2025, from $161,136 at December 31, 2024.
• Title transfers for the Valle Divino and Plaza Bajamar projects, currently owned by entities controlled by the chairman, are still pending and anticipated by the end of fiscal year 2025, having previously led to impairment losses.
• The company is facing a civil action lawsuit from CleanSpark, Inc. alleging breach of a Securities Purchase Agreement and triggering pricing adjustments.

Sentiment

Score: 2

Explanation: The company faces severe financial distress, evidenced by a substantial net loss, declining revenue, a significant working capital deficit, and a going concern warning. Persistent internal control weaknesses, ongoing title transfer issues for key assets, and multiple defaulted debt instruments further compound the negative outlook. While the market context is favorable, the company's internal challenges are overwhelming.

Positives

• Cash balance increased to $99,738 as of June 30, 2025, from $26,120 at December 31, 2024.
• The real estate market in Northern Baja California has significantly improved and fully recovered from the negative impact of Covid-19.
• Rising housing prices and low inventory in the Southwest U.S. are generating additional attraction from home buyers seeking second or vacation homes.
• The company has formed a partnership with a similar development company in Baja California Norte to leverage established marketing plans and resources.

Negatives

• Net loss of $2,937,448 for the six months ended June 30, 2025, a substantial deterioration from net income in the prior year.
• Significant decrease in net revenues by $4,506,974 for the six months ended June 30, 2025.
• Working capital deficit of approximately $13.2 million as of June 30, 2025.
• Accumulated deficit grew to $27,084,406.
• Operating expenses, particularly general and administrative costs, increased substantially due to higher stock-based compensation.
• Negative cash flow from operating activities for the six months ended June 30, 2025.
• Significant increase in derivative liability due to variable conversion rates on convertible notes.
• Uncertainty regarding title transfer for key development projects (Valle Divino and Plaza Bajamar) has led to past impairment losses and ongoing risk.
• Several promissory notes (Cash Call, Christopher Elder, George Banker, George Robles) are past their maturity dates or in technical default.
• Convertible notes (Mast Hill, Blue Lake, Cobra) are in technical default, potentially triggering 25% penalties and additional interest.

Risks

• Substantial doubt exists about the company's ability to continue as a going concern due to significant liquidity shortages, recurring net losses, and a growing accumulated deficit.
• The company's ability to continue operations is dependent on generating increased revenues and raising additional capital through debt or equity financing, which may not be available on commercially reasonable terms or in sufficient amounts.
• Future equity issuances to raise capital may dilute the holdings of existing shareholders.
• Uncertainty pertaining to the title transfer of land for the Valle Divino and Plaza Bajamar projects, which are currently owned by entities controlled by the chairman, poses a risk to project development and revenue recognition.
• The company faces a civil action lawsuit from CleanSpark, Inc. alleging breach of contract and triggering pricing adjustments, which could result in significant financial liabilities.
• Material weaknesses in internal control over financial reporting persist, including a lack of adequate accounting and finance personnel and insufficient controls over transaction authorization, recognition, capture, and review.
• The company's variable rate convertible promissory notes contain conversion features that result in significant non-cash expenses when the stock price increases, leading to volatile net loss fluctuations.
• Default clauses on various promissory and convertible notes could lead to immediate payment obligations, penalties, and increased interest rates.

Future Outlook

Management anticipates that capital resources will significantly improve with wider market recognition and acceptance of land plots, leading to increased sales and house construction. If marketing efforts are unsuccessful, the company expects to continue experiencing cash shortfalls, necessitating further equity or debt financing or substantial reductions in operating expenses to sustain future operations. The company expects to complete the transfer of title for Valle Divino and Plaza Bajamar properties before the end of fiscal year 2025.

Management Comments

• Management anticipates that the Company’s capital resources will significantly improve if its plots of land gain wider market recognition and acceptance resulting in increased plot sales and house construction.
• If the Company is not successful with its marketing efforts to increase sales, the Company will continue to experience a shortfall in cash, and it will be necessary to obtain funds through equity or debt financing in sufficient amounts or to further reduce its operating expenses in a manner to avoid the need to curtail its future operations subsequent to June 30, 2025.
• The real estate market in Northern Baja California has continued to significantly improve and has fully recovered 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.
• 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 2025, as we continue to follow the necessary steps to complete this legal process.
• The Company has not been served with any notice of default stating the specific default events but will continue to accrue the additional default interest until the matter is resolved. As of the date of the filing of this Annual Report, the parties are cooperating to resolve this matter.

Industry Context

The company operates in the residential land development sector, focusing on second homes, retirement homes, and vacation properties in Baja California, Mexico, and Southern California. The filing highlights a positive trend in the Northern Baja California real estate market, noting its significant improvement and full recovery from the COVID-19 pandemic. Additionally, rising housing prices and low inventory in the Southwest U.S. are increasing demand for vacation homes, which could benefit the company's target market.

Comparison to Industry Standards

• NA

Corporate Governance

Legal Proceedings

• CleanSpark, Inc. initiated a civil action against the company on April 8, 2025, in the U.S. District Court for the Southern District of California (Civil Action No. 25CV829 RBMMSB).
• CleanSpark alleges breach of the Securities Purchase Agreement, dated October 31, 2019, related to the purchase of Series B Preferred Stock, and claims 34 events have occurred triggering pricing adjustments.
• CleanSpark asserts claims for breach of contract and breach of the implied duty of good faith and fair dealing.
• The company denies any liability or breaches and intends to vigorously defend the action.

Related Party Transactions

• Accrued compensation owed to CEO Frank Ingrande is $66,846 as of June 30, 2025.
• Accrued compensation owed to CFO Jason Sunstein is $66,846 as of June 30, 2025.
• Accrued compensation owed to Chairman Roberto Valdes is $66,846 as of June 30, 2025.
• The company funded an aggregate of $1.4 million for construction on residential lots, project amenities, and land acquisition to companies controlled by Chairman Roberto Valdes.
• Land for Plaza Bajamar and Valle Divino is currently owned by Valdeland, S.A. de C.V. and Valdetierra, S.A. de C.V., both entities controlled by Roberto Valdes, with title transfer pending.
• Valdeland, controlled by Roberto Valdes, is also the construction contractor for Plaza Bajamar.
• Lisa Landau, a relative of the CFO Jason Sunstein, advanced $459,935 in funds to the company for general corporate expenses and direct payments towards Diagonal convertible notes, with advances being on demand and carrying no interest.

Stakeholder Impact

• Shareholders face significant dilution risk from potential future equity raises to address liquidity issues.
• Existing shareholders are experiencing substantial losses, with net loss per common share at $(0.03) for the six months ended June 30, 2025.
• Creditors holding promissory and convertible notes face default risks, although the company is cooperating to avoid additional default terms.
• Employees may face uncertainty due to the company's going concern issues and potential need to reduce operating expenses.
• Customers who have made deposits or payments for properties (e.g., Plaza Bajamar) face uncertainty regarding title transfer and project completion due to the company's financial instability and title issues.

Next Steps

• Continue marketing efforts to identify potential home buyers in the United States, Canada, Europe, and Asia.
• Leverage additional resources through a partnership with a similar development company in the Baja California Norte Region of Mexico for marketing and sales.
• Follow necessary steps to complete the legal process for the transfer of title on Valle Divino and Plaza Bajamar properties, anticipated before the end of fiscal year 2025.
• Obtain additional funds through equity or debt financing if marketing efforts do not sufficiently increase sales.
• Reduce operating expenses if necessary to generate positive cash flow and sustain operations.
• Vigorously defend against the civil action lawsuit initiated by CleanSpark, Inc.

Key Dates

Recommendation

The company's financial health has severely deteriorated, marked by a significant net loss, substantial revenue decline, and a worsening working capital deficit, leading to a 'going concern' warning. Persistent internal control weaknesses, ongoing legal disputes, and critical delays in securing land titles for key projects introduce high operational and financial risks. The reliance on future capital raises, which could heavily dilute existing shareholders, coupled with multiple defaulted debt obligations, paints a highly unfavorable investment picture. The current situation suggests a high probability of further share price depreciation and significant risk to capital.

Keywords

Real Estate Development, Baja California, Land Development, Vacation Homes, Residential Properties, SEC Filing, 10-Q, Going Concern, Liquidity, Convertible Notes, Related Party Transactions, Internal Controls