10-Q: International Land Alliance Reports Net Income of $3.5 Million for Nine Months Ended September 30, 2024, Despite Ongoing Liquidity Concerns

International Land Alliance reported a net income of $3.5 million for the nine months ended September 30, 2024, a significant improvement compared to a net loss in the same period last year, but faces substantial doubt about its ability to continue as a going concern due to liquidity issues.

Summary

• International Land Alliance, Inc. reported a net income of $3.5 million for the nine months ended September 30, 2024, a turnaround from a net loss of $8.6 million in the same period of 2023.
• The company's revenue increased significantly to $7.1 million for the nine months ended September 30, 2024, compared to $1.1 million in the same period of 2023.
• Operating expenses decreased to $1.7 million for the nine months ended September 30, 2024, from $2.9 million in the same period of 2023.
• The company's current liabilities exceeded its current assets by approximately $13.8 million as of September 30, 2024.
• The company has an accumulated deficit of approximately $23.7 million as of September 30, 2024.
• The company's ability to continue as a going concern is dependent on its ability to generate revenues and raise capital.
• The company continues to raise additional capital through the issuance of debt instruments and equity, which may dilute existing shareholders.
• Management anticipates that the company's capital resources will significantly improve if its plots of land gain wider market recognition and acceptance resulting in increased plot sales and house construction.

Sentiment

Score: 4

Explanation: While the company shows significant revenue growth and a return to profitability, the severe liquidity issues, accumulated deficit, and going concern warning significantly dampen the positive aspects. The company's financial health is precarious, and its future is highly uncertain.

Positives

• The company achieved a net income of $3.5 million for the nine months ended September 30, 2024, a substantial improvement from the previous year's loss.
• Revenue increased significantly to $7.1 million for the nine months ended September 30, 2024, indicating strong sales performance.
• Operating expenses decreased by $1.2 million for the nine months ended September 30, 2024, demonstrating improved cost management.
• The company converted the entire principal balance of $8.9 million and accrued interest of $556,250 of a convertible note into 89,000 shares of Series A Preferred shares.

Negatives

• The company's current liabilities exceed its current assets by $13.8 million, indicating a significant liquidity issue.
• The company has an accumulated deficit of $23.7 million, highlighting past financial challenges.
• The company's cash balance is very low at $3,339 as of September 30, 2024.
• The company's ability to continue as a going concern is dependent on its ability to generate revenues and raise capital, indicating a high level of uncertainty.

Risks

• The company faces substantial doubt about its ability to continue as a going concern due to significant liquidity shortages.
• The company's reliance on raising additional capital through debt and equity may dilute existing shareholders.
• The company's success is dependent on its ability to increase plot sales and house construction, which is subject to market conditions.
• The company has not yet established bank trusts for the Plaza Bajamar and Valle Divino projects, which could delay title transfers.
• The company has fully impaired the accumulated costs related to its Valle Divino and Plaza Bajamar projects due to uncertainty pertaining to title transfers.
• The company has material weaknesses in internal control over financial reporting related to the lack of adequate accounting and finance personnel, inadequate controls over maintenance of records, and inadequate internal controls relating to the authorization, recognition, capture, and review of transactions.

Future Outlook

The company anticipates that its capital resources will significantly improve if its plots of land gain wider market recognition and acceptance resulting in increased plot sales and house construction. The company expects its expenses will continue to increase during the foreseeable future as a result of increased operations, increased construction activity and the development of current and future projects. The company anticipates generating increased revenues over the next twelve months, as it continues to market the sale of plots held for sale at its various projects, and generate cash from the sale of house construction at its properties.

Management Comments

• 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.
• 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.

Industry Context

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 have 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. This context suggests a favorable environment for the company's projects, but the company's financial health remains a concern.

Comparison to Industry Standards

• The company's revenue growth of over 600% year-over-year is significantly higher than the average growth rate for real estate development companies, which typically ranges from 5% to 20% annually, however, this is from a low base.
• The company's operating expenses decreased by 41% year-over-year, which is a positive sign compared to industry averages where operating expenses typically increase with revenue growth.
• The company's negative working capital of $13.8 million is a significant concern compared to industry standards where companies typically maintain a positive working capital balance to ensure operational stability.
• The company's accumulated deficit of $23.7 million is a significant deviation from industry norms, where established companies usually have positive retained earnings.
• The company's cash balance of $3,339 is extremely low compared to industry benchmarks, where companies typically maintain a cash reserve to cover operational expenses and unexpected costs.
• Compared to companies like KB Home or Lennar, which are large-scale home builders, International Land Alliance is a much smaller company with a focus on land development and smaller-scale projects. These larger companies have significantly more resources and established financial stability.
• The company's reliance on debt and equity financing is common in the real estate development industry, but the extent of its reliance and the associated risks are higher than average due to its current financial situation.
• The company's projects in Baja California are in a region with growing demand for vacation homes, which is a positive factor compared to other regions with stagnant or declining demand.

Related Party Transactions

• The company funded an aggregate amount of $1.4 million for construction on residential lots, projects amenities and towards the acquisition of land to companies controlled by the company's Chief Executive Officer.
• The land for the Plaza Bajamar and Valle Divino is currently owned by two entities controlled by the Chief Executive Officer.
• The company has not accrued or paid any salary to its Chief Executive Officer, Chief Financial Officer, or President for the nine months ended September 30, 2024.
• The company's Chief Financial Officer is also the managing member of Six Twenty Management LLC, an entity that has historically provided ongoing capital support to the company.
• Frank Ingrande, the company's President, was an owner of 33% of IRED at the time of the 25% initial investment in RCVD and is still a 33% owner in IRED.

Stakeholder Impact

• Shareholders face potential dilution due to the company's need to raise additional capital through equity issuances.
• Employees may be affected by the company's financial instability and potential need to reduce operating expenses.
• Customers may be impacted by delays in project completion and title transfers.
• Creditors face increased risk due to the company's liquidity issues and going concern warning.

Next Steps

• The company needs to focus on increasing plot sales and house construction to improve its financial position.
• The company needs to secure additional financing to address its liquidity issues and continue operations.
• The company needs to complete the transfer of titles for the Plaza Bajamar and Valle Divino projects.
• The company needs to address the material weaknesses in internal control over financial reporting.

Key Dates

Keywords

real estate development, land sales, residential development, Baja California, liquidity, going concern, financial results, debt financing, equity financing, property development