INTERNATIONAL LAND ALLIANCE INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations. (form 10-Q)

Overview of Our Company

The Company was incorporated pursuant to the laws of the State of Wyoming on
September 26, 2013. We are based in San Diego, California. We are a residential
land development company with target properties located primarily in the Baja
California Norte
region of Mexico and Southern California. Our principal
activities are purchasing properties, obtaining zoning and other entitlements
required to subdivide the properties into residential and commercial building
plots, securing financing for the purchase of the plots, improving the
properties’ infrastructure and amenities, and selling the lots to homebuyers,
retirees, investors, and commercial developers. We offer the option of financing
(i.e. taking a promissory note from the buyer for all or part of the purchase
price) with a guaranteed acceptance on any purchase for every customer.



Overview


The real estate market in the 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
    that offers180-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, which resulted in multiple
    sales closings and commitments for new home construction. 75 of the 1,344
    planned residential lots were pre-sold to initial stakeholders. 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 completed the construction of the waterfront clubhouse, and model homes.
    The Company has not sold any home sites during the nine months ended September
    30, 2022, but has received approximately $24,000 in additional payments from a
    home construction sold during the fourth quarter of 2021 for purchase price of
    $99,000.

  ? 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. The Company has a
    dedicated partner for solar-plus-storage power solutions at its properties,
    CleanSpark, Inc., which serves as the Company's exclusive partner for the
    installation of solar solutions across its portfolio. Management believes that
    this represents an estimated $60 million in gross sales opportunity. During
    the nine months ended September 30, 2022, the Company sold 6 land plots for
    total purchase price of $270,000, of which $2,250 has been collected. The
    amount collected was reported under contract liability in the consolidated
    balance sheets.

  ? 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. The Company sold seven (7) house construction
    for total contractual consideration of $1,573,000 funded through seller's
    carryback, of which $282,570 was collected during the nine months ended
    September 30 and reported under contract liability in the consolidated balance
    sheets.

  ? Emerald Grove Estates is the Company's newly renovated Southern California
    property, used for organized events at this 8,000 square foot event venue.
    There was no activity during the nine months ended September 30, 2022. Define
    what is or was the idea of this property. The Company acquired 80-acre Emerald
    Grove in 2019 for $1.1 million. In 2021, the Company sold 20-acre for sale
    price of $630,000. As of September 30, 2022, the Company collected $212,980
    and the financed amount remains at $417,020. The Company recently listed for
    sale its 20-acre event venue and is currently in the process of subdividing
    its remaining 40-acres into 8 residential lots for total price of $3.5
    million.




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Equity-method investment:



  ? 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. RCV 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 RCV in
    exchange for $100,000 and 3,000,000 shares of the Company's common stock, and
    such investment was recorded as an equity-method investment in the Company's
    condensed consolidated financial statements. During the nine months ended
    September 30, 2022, RCVD generated approximately $2 million in revenue for
    gross profit of approximately $1 million.



Summary of key operational and financial events:



  ? During the nine months ended September 30, 2022, the Company collected an
    aggregate amount of $282,570 from house construction at the Plaza Bajamar
    project resulting from the execution of seven (7) house construction contracts
    for total contractual consideration of $1,573,000 payable over term of 120
    months. cash received from the construction contract was recorded and
    presented as contract liability in the consolidated balance sheets.

  ? As of September 30, 2022, the Company executed six (6) contracts for the sale
    of vacant plots for total contractual consideration of $270,000, of which
    $2,250 was collected and presented as contractual liability in the
    consolidated balance sheets.

  ? To avoid paying multiple title transfer fees and the extended time for each
    recording, the seller for both properties, Valdeland, S.A. de C.V., an entity
    controlled by the Company's Chief Executive Officer, is in the process of
    creating a master bank trust. This will provide the Company through its
    Mexican's subsidiary, International Land Alliance, S.A. de C.V., the rights,
    and interest to each property, including buildings and improvements. As
    demonstrated from the Company's Oasis Park Resort, this will also potentially
    allow the Company to record revenue from its Valle Divino and Plaza Bajamar
    projects, as sales are made and performance obligations are satisfied, and
    individual trusts are established for each buyer, pending further review of
    Mexican trust law. The Company expects to have this trust established by the
    end of our fourth fiscal quarter of 2022.

  ? 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.

  ? The Company has raised $0.7 million financing through convertible promissory
    notes to continue the funding of its projects and for working capital.

  ? The Company executed a binding letter of intent to acquire the remaining 75%
    of its equity-method investment in RCVD for a total purchase price of $13.5
    million through the issuance of a new series of preferred stock.

  ? The Company intends to raise up to $5 million from accredited investors under
    SEC Regulation D 506(c) offering to launch a new mortgage division. The
    majority of the funds will be allocated to finance loans to purchasers of the
    Company's real estate, including home sites, home construction and finished
    homes, positioning itself as the first real estate developer to provide real
    estate financing to US citizen. This strategy is aimed at circumventing the
    difficulty for US citizen to obtain property financing in Mexico




27

Results of Operations for the Three Months Ended September 30, 2022, compared to
the Three Months Ended September 30, 2021



                                                   For the three months ended
                                              September 30,         September 30,
                                                   2022                 2021
Revenue, net                                  $       16,973       $         8,340

Cost of revenue                                            -                     -

Gross profit                                          16,973                 8,340

Operating expenses
Sales and marketing                                  100,600                61,000
General and administrative expenses                  432,434               496,822
Total operating expenses                             533,034               557,822

Loss from operations                                (516,061 )            (549,482 )

Other income (expense)
Other income                                               -               100,000
Income (loss) from equity-method investment          (49,752 )              32,270
Interest income                                            -                 1,534
Change in fair value of derivative                   219,069                     -
Interest expense                                    (631,308 )            (226,379 )
Total other expense                                 (461,991 )             (92,575 )

Net loss                                      $     (978,052 )     $      (642,057 )




Revenue


Revenue increased by $8,633 to $16,973 for the three months ended September 30,
2022
, from $8,340 for the three months ended September 30, 2021. The revenue
recognized during the three months ended September 30, 2021, relates to the
rental activity for the agreement executed with Integragreen as the Company
determined that there was an embedded lease feature in the agreement pursuant to
ASC 842. Effective on October 1, 2021, the Company determined that the agreement
met the definition of a contract pursuant to the guidance in ASU 2014-09 and
recognized to revenue $15,000 of interest income from the financing component of
the lot sale to Integragreen as well as the coupon on the financed amount. The
Company also recognized $1,973 of interest related to the note receivable with
A&F Agriculture, LLC in the three months ended September 30, 2022.



Operating Expenses


Operating expenses decreased by $24,788 to $533,034 for the three months ended
September 30, 2022, from $557,822 for the three months ended September 30, 2021.

Sales and marketing costs increased by $39,600, to $100,600 in the three months
ended September 30, 2022, from $61,000 in the three months ended September 30,
2021
. Such increase mainly relates to the additional consulting agreements the
Company entered into the third fiscal quarter to improve marketing efforts and
drive sales of its existing projects.

General and administrative costs decreased by $64,388 in the three months ended
September 30, 2022, compared to the three months ended September 30, 2021,
primarily due to a decrease in investors relation fees by approximately
$111,000, offset by an increase in stock-based compensation expense of
approximately $55,000



Other expense


Other expense increased by approximately $369,416 to $461,991 in the three
months ended September 30, 2022, from $92,575 in the three months ended
September 30, 2021. Such increase is related to an increase in loss from the
Company’s equity-method investment by $82,022 and additional interest expense by
$404,929 related to (i) the amortization of the debt discount generated from the
embedded instruments in the promissory notes, (ii) the excess of the fair value
of the derivative attributable to the conversion feature of the new convertible
notes over the carrying amount of the underlying debt instrument and (iii)
additional coupon on the Company’s convertible notes, offset by a change in fair
value of the derivative generating an income of approximately $219,000.



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Net Loss


The Company finished the three months ended September 30, 2022, with a net loss
of $978,052, as compared to a net loss of $642,057 for the three months ended
September 30, 2021. The increase in our net loss resulted from the reasons
outlined above.

Results of Operations for the Nine Months Ended September 30, 2022, compared to
the Nine Months Ended September 30, 2021



                                                   For the nine months ended
                                               September 30,       September 30,
                                                    2022               2021
Revenue, net                                   $       50,919     $        25,899

Cost of revenue                                             -                   -

Gross profit                                           50,919              25,899

Operating expenses
Sales and marketing                                   903,283           1,276,200
General and administrative expenses                 2,506,181           1,917,067
Total operating expenses                            3,409,464           3,193,267

Loss from operations                               (3,358,545 )        (3,167,368 )

Other income (expense)
Other income (expense)                                    536              91,624
Income (Loss) from equity-method investment          (231,845 )            39,212
Interest Income                                             -               1,534
Change in fair value of derivative liability          219,069                   -
Interest expense                                     (960,496 )          (572,372 )
Total other expense                                  (972,736 )          (440,002 )

Net loss                                       $   (4,331,281 )   $    (3,607,370 )




Revenue


Revenue increased by $25,020 to $50,919 for the nine months ended September 30,
2022
, from $25,899 for the nine months ended September 30, 2021. The revenue
recognized during the nine months ended September 30, 2021, relates to the
rental activity for the agreement executed with Integragreen as the Company
determined that there was an embedded lease feature in the agreement pursuant to
ASC 842. Effective on October 1, 2021, the Company determined that the agreement
met the definition of a contract pursuant to the guidance in ASU 2014-09 and
recognized to revenue $45,000 of interest income from the financing component of
the lot sale to Integragreen as well as the coupon on the financed amount.



Operating Expenses


Operating expenses increased by $216,197 to $3,409,464 for the nine months ended
September 30, 2022, from $3,193,267 for the nine months ended September 30,
2021
.

Sales and marketing costs decreased by $372,917 to $903,283 in the nine months
ended September 30, 2022, from $1,276,200 in the nine months ended September 30,
2021
. Such decrease mainly relates to the fair value of the 1,000,000 stock
options which were granted pursuant to a consulting and real estate sales
agreement in the nine months ended September 30, 2021, offset by the issuance of
restricted stock as compensation pursuant to consulting and real estate sales
marketing agreements to drive traffic and interest into the various projects of
the Company.

General and administrative costs increased by approximately $589,114 to
$2,506,181 in the nine months ended September 30, 2022, compared to $1,917,067
in the nine months ended September 30, 2021, primarily due to an increase in
share-based compensation expense related to stock options granted to employees,
affiliates, and consultants.



Other expense


Other expense increased by approximately $532,734 to $972,736 in the nine months
ended September 30, 2022, from $440,002 in the nine months ended September 30,
2021
. Such increase is related to an increase in loss from the Company’s
equity-method investment by approximately $271,100, additional interest expense
by approximately $ 388,120 related to (i) the amortization of the debt discount
generated from the embedded additional instruments in the promissory notes, (ii)
the excess of the fair value of the derivative attributable to the conversion
feature of the new convertible notes over the carrying amount of the underlying
debt instrument and (iii) additional coupon on the Company’s convertible notes,
offset by a positive change in fair value of the derivative by approximately
$219,000.



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Net Loss



The Company finished the nine months ended September 30, 2022, with a net loss
of $4,331,281, as compared to a net loss of $3,607,370 for the nine months ended
September 30, 2021. The increase in our net loss resulted from the reasons
outlined above.

The factors that will most significantly affect future operating results will
be:



  ? The positive effect of implemented sales and marketing initiatives to drive
    opportunities into our various projects.
  ? The quality of our amenities.
  ? The global economy and the demand for vacation homes.
  ? The sale price of future plots and home construction compared to the sale
    price in other resorts in Mexico.
  ? The prime location of our projects.



Other than the foregoing we do not know of any trends, events or uncertainties
that have had, or are reasonably expected to have, a material impact on our
revenues or expenses.

Capital Resources and Liquidity

Cash was $95,841 and $56,590 as of September 30, 2022, and December 31, 2021,
respectively. As shown in the accompanying financial statements, we recorded a
loss of $4,331,281 for the nine months ended September 30, 2022. Our working
capital deficit as of September 30, 2022, was $5,696,934 and net cash flows used
in operating activities for the nine months ended September 30, 2022, were
$506,041. These factors and our ability to raise additional capital to
accomplish our objectives, raises substantial doubt about our ability to
continue as a going concern. We expect our expenses will continue to increase
during the foreseeable future as a result of increased operations, increased
construction activity and the development of current and future projects which
include our current business operations.

We anticipate generating revenues over the next twelve months, as we continue to
market the sale of plots held for sale at our various projects, generate cash
from the sale of house construction at our properties. The above sale will
trigger a corresponding revenue only when the Company obtains title of the land
at Valle Divino and Plaza Bajamar, which we expect will occur in the Company’s
third fiscal quarter of the year ended December 31, 2022.

If the Company is not successful with its marketing efforts to increase sales,
the Company will continue to experience a shortfall in cash, and it will be
necessary to obtain funds through equity or debt financing in sufficient amounts
or to further reduce its operating expenses in a manner to avoid the need to
curtail its future operations.



Operating Activities


Net cash flows used in operating activities for the nine months ended September
30, 2022
, was $506,041 which resulted primarily due to the loss of $4,331,281
offset by non-cash share-based compensation of $1,281,976, fair value of equity
securities issued for services of $1,310,497, amortization of debt discount of
$291,374, loss from the Company’s equity-method investment of $231,845, positive
change in fair value of derivative liability of $219,069 depreciation of
$39,708, and net change in assets and liabilities of $532,124.

Net cash flows used in operating activities for the nine months ended September
30, 2021
, was $703,349 which resulted primarily due to the loss of $3,607,370
offset by non-cash share-based compensation of $2,001,021, non-cash amortization
of debt discount of 284,616, an increase in accounts payable of $287,596,
increase in prepaid and other current assets by $157,212 and increase in
deposits by $137,980.




Investing Activities



Net cash flows used in investing activities was $444,535 for the nine months
ended September 30, 2022. The funds were used for the development of the various
projects and the purchased house construction at Plaza Bajamar and Valle Divino.

Net cash flows used in investing activities was $441,259 for the nine months
ended September 30, 2021. The funds were used for the development of the
commercial agriculture at Emerald Grove resort for $100,000, cash consideration
of $100,000 for the acquisition of 25% of RCV accounted for as its equity-method
investment and approximately $241,000 for construction at the Company’s
projects.



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Financing Activities



Net cash flows provided by financing activities for the nine months ended
September 30, 2022, was $989,827 primarily from cash proceeds from issuance of
promissory notes for aggregate amount of $663,250, cash proceeds from on-going
funding from related party for aggregate amount of $677,347, offset by $262,596
repayment of related party advances, and $89,474 repayment of promissory notes.

Net cash flows provided by financing activities for the nine months ended
September 30, 2021, was $1,833,425 primarily from cash proceeds from issuance of
promissory notes for aggregate amount of $1,052,686, net funding from
refinancing of approximately $368,736, sale of common stocks of $1,804,750,
exercise of warrants and options for $100,000, and offset by repayment on a
promissory note of $1,492,747.

As a result of these activities, we experienced an increase in cash of $39,251
for the nine months ended September 30, 2022.

Our ability to continue as a going concern is dependent on our success in
obtaining additional financing from investors or from sale of our common shares.



Critical Accounting Polices


There have been no material changes to our critical accounting policies as
compared to the critical accounting policies and significant judgments and
estimates disclosed in our Annual Report on Form 10-K for the year ended
December 31, 2021, filed with the SEC on April 15, 2022.

Off-balance Sheet Arrangements

During the period ended September 30, 2022, we have not engaged in any
off-balance sheet arrangements.

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