UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2005
Commission File Number: 001-16423
-----------------------------------
ISA INTERNATIONALE INC.
(Exact name of registrant as specified in its charter)
Delaware 41-1925647
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2560 Rice Street, St. Paul, MN 55113
(Mailing address of principal executive offices) (Zip Code)
(Issuer's telephone number) (651) 483-3114
Securities registered under Section 12(g) of the Exchange Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock OTC Bulletin Board
----------------------------------------------------------------------------
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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. Yes [X] No [ ]
State the number of shares outstanding of each of the issuer's classes of
Common equity, as of the latest practical date On August 15, 2005, there were
3,948,000 of the Registrant's common stock, par value $.0001 per share
outstanding and 5,000,000 shares of convertible preferred stock, par value
$.0001 per share issued and outstanding.
The preferred stock was convertible into common shares issued (pre-split) at a
conversion rate of 3.5 common shares for each preferred share being converted.
After giving effect to the reverse stock split that was effective January 22,
2004, the preferred stock is now convertible into shares at a convertible rate
of 0.025 common shares for every preferred share being converted, however, the
preferred shares also contain an anti-dilution provision clause that states the
preferred shares will convert into no less than 75% ownership of the then
common shares to be outstanding.
As of August 24, 2005 the preferred shares upon conversion (post-split basis)
would convert into no less than 11,368,867 additional common shares. The timing
of the conversion is at the discretion of the holder.
Transitional Small Business Disclosure Format (check one). Yes [ ] No [X]
ISA INTERNATIONALE INC.
FORM 10-QSB
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial statements
Condensed Consolidated Balance Sheet as of
June 30, 2005 (unaudited) 3
Condensed Consolidated Statements of Operations for the three months
and nine months ended June 30, 2005 and 2004 (unaudited) 4
Consolidated Statements of Cash Flows for the three months and
nine months ended June 30, 2005 (unaudited) 5
Notes to Condensed Consolidated Financial Statements 6-13
Item 2. Management's Discussion and Analysis or Plan of Operation 14-20
Item 3. Controls and Procedures 21
PART II OTHER INFORMATION
Item 1. Legal Proceedings 22
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 22
Item 3. Defaults Upon Senior Securities 22
Item 4. Submission of Matters to a Vote of Security Holders 22
Item 5. Other Information 22
Item 6. Exhibits and Reports on Form 8-K 22-24
Signatures 24
Certifications 25-26
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
ISA INTERNATIONALE INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
June 30, 2005
ASSETS ------------
Assets:
Cash and cash equivalents $ 1,821
Trade receivables 30,248
Purchased receivables, Net 1,064,652
Deposits and Other 2,129
Costs incurred for pending acquisitions 121,580
----------
Total Assets $ 1,220,430
==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable - trade and taxes 14,478
Common stock payable 3,900
Convertible notes payable - related party 586,930
Accrued interest payable - related party 175,021
Accounts payable - related party 280,000
Convertible debentures, accrued interest,
Accounts payable - disposed business
Less Indemnification Agreement related party 0
----------
Total current liabilities 1,060,329
----------
Long-term liabilities:
Convertible debenture payable
Less indemnification Agreement - related party 0
----------
Total Liabilities 1,060,329
Stockholders' Deficit:
Preferred stock, $.0001 par value
30,000,000 shares authorized,
5,000,000 shares issued and outstanding
at June 30, 2005 500
Common stock, $.0001 par value,
300,000,000 shares authorized;
3,948,000 shares issued and outstanding
at June 30, 2005 395
Additional paid-in capital 7,281,788
Accumulated deficit (7,122,582)
-----------
Total Stockholders' Deficit 160,101
-----------
Total Liabilities and Stockholders' Deficit $ 1,220,430
===========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
ISA INTERNATIONALE INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Nine Months Ended
June 30, 2005 June 30, 2004 June 30, 2005 June 30, 2004
--------------- -------------- -------------- --------------
Operating revenue: 0 0 0 0
Operating expenses:
General & administrative $ 47,517 $45,615 218,112 $ 368,354
Settlement expense 359,328
--------- ---------- ---------- ------------
Subtotal Operating expenses 47,517 45,615 218,112 727,682
--------- ---------- ---------- ------------
Operating loss (47,517) (45,615) (218,112) (727,682)
Other income (expense):
Interest expense (21,403) (16,176) (59,724) (47,464)
--------- --------- -------- ---------
Net loss from continuing operations (68,920) (61,791) (277,836) (775,146)
Extraordinary gain (loss) on
extinguishment of debt 9,090 (14,523) 9,090 62,828
---------- -------- ---------- --------
Net Income (Loss) (59,830) (76,314) (268,746) (712,318)
======== ======== ========== =========
Basic and diluted (Loss) per share $ (0.02) (0.20) (0.10) $ (1.91)
========= ========= ========== =========
Weighted average common shares outstanding:
Basic and diluted 2,821,277 372,880 2,658,058 372,880
============ ========= ========== ========
Dividends per share of common stock none none none none
============ ========= ========== ========
The accompanying notes are an integral part of these condensed consolidated financial statements.
ISA INTERNATIONALE INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
(Unaudited)
Three Months Nine Months
Ended June 30, Ended June 30
2005 2005
-----------------------------
Cash flows from operating activities:
Loss from operations $ (59,830) $(268,746)
Adjustments to reconcile net loss to net cash
provided by (used for) operating activities:
Deposits and other assets 29 (1,971)
Costs incurred for pending acquisitions (25,771) (81,775)
Common stock payable - services (96,401) (66,101)
Accounts payable and accrued expenses (55,776) 19,868
Accrued expenses - related party 35,000 105,000
Accrued interest payable - related party 16,167 44,017
-----------------------------
Cash used for operating activities (186,582) (249,708)
Cash flows from investing activities:
Incorporation costs - new subsidiary (158) (158)
-----------------------------
Cash used for investing activities (158) (158)
Cash flows from financing activities:
Proceeds from issuance of convertible debt
to related party 93,059 157,821
Proceeds from stock issued for services 21,210 21,210
Proceeds from stock issued to settle debt 70,001 70,001
----------------------------
Cash provided by financing activities 184,270 249,032
Net decrease in cash and cash equivalents (2,470) (834)
Cash at beginning of period 4,291 2,655
----------------------------
Cash and cash equivalents at end of period $ 1,821 $ 1,821
============================
Supplemental disclosure of cash flow information:
Non-cash investing in financing transactions:
Additional paid in capital for
Indemnification agreement 5,236 15,707
Payment of accrued interest on convertible
Debentures with common stock 70,001 70,001
Stock issued to creditors for services 21,210 21,210
Stock issued for investment in subsidiary
to purchase debt receivables 1,094,900 1,094,900
--------------------------
The accompanying notes are an integral part of these condensed consolidated
financial statements.
ISA INTERNATIONALE INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1.) NATURE OF BUSINESS AND SIGNIFICANT EVENTS
1.a) Nature of Business
ISA Internationale Inc. (the Company or ISAI) was incorporated on June 2, 1989,
under the laws of the State of Delaware under a former name and became a
reporting publicly held corporation on November 15, 1999. On May 8, 1998,
Internationale Shopping Alliance Incorporated (Internationale), a Minnesota
corporation, was merged with the Company, a Delaware corporation, pursuant to a
merger agreement dated April 23, 1998. Upon consummation of the merger,
Internationale became a wholly owned subsidiary of the Company. During 2000,
the Company sold its International Strategic Assets, Inc. subsidiary and
discontinued the operations of its ShoptropolisTV.com subsidiary. Since then,
reorganization specialists, Doubletree Capital Partners LLC, has internally
reorganized the Company's financial affairs and changed its direction to focus
on the financial services industry.
1.b) Asset Acquisition and Purchase Agreement
On August 19, 2004, the Company signed an asset purchase agreement with five
related California Companies, wherein the Company (ISAI) would issue 5,250,000
shares of ISAI common stock and a combination of 4,000,000 bonus common shares
and 5,250,000 common stock warrants at varying prices to purchase additional
common shares over a three year period to be used to purchase the assets being
acquired. The companies from whom the assets are being purchased have not been
able to comply with certain terms of the agreement wherein two years of
certified audits are required as a part of the acquisition agreement.
Consequently, the agreement to purchase was amended on October 29, 2004 and
again on January 13, 2005, as previously reported in 8K filings by the Company
on August 23, 2004, November 3, 2004, January 14, 2005 and again recently on
May 18, 2005. Accordingly, the Company has not been able to complete the
original asset purchase agreement. ISAI has contingently issued into an escrow
account arrangement 9,250,000 shares of ISAI common stock in exchange for
certain assets of the acquired companies. Only 1,250,000 of these shares are
included in the total shares issued and outstanding as of June 30, 2005.
On May 11, 2005, the Company did complete a Portfolio Debt Purchase Agreement
with two of the five Companies wherein ISAI did purchase $38,724,836 (revised
amount) of face value Receivables for 1,250,000 restricted common shares of ISA
Internationale Inc. This purchase agreement does change the original asset and
stock purchase agreements wherein, if the "Collection Companies" can complete
and deliver the certified audits of their Companies for the two years 2003 and
2004 on or before September 30, 2005, ISAI will compensate the Companies,
pursuant to the terms of the Agreement, as amended, wherein 3,750,000 (revised
from 5,000,000) common stock shares will be delivered to the Companies in
exchange for the assets listed in Schedule 1.0 of the Asset Purchase Agreement
by and between the Companies and ISA Financial Services Inc. (formerly named
ISA Acquisition Corporation), a Minnesota wholly owned subsidiary of ISA
Internationale Inc., as adjusted on May 11, 2005.Recognition of the results of
this contract are reflected in the financial statements as of June 30, 2005.
Collection of the portfolio debt received by the California companies from May
11 to June 30, 2005 is recorded as a "Trade receivable" in the amount of
$30,248. These funds were received prior to the date of this report.
Advanced costs in the form of travel, legal and accounting and consulting fees
incurred to assist the certified audit, are being recognized as a receivable
from the potential subsidiary whose assets are being acquired. If for any
reason the agreement is not executed, ISAI may be forced to charge off these
specific receivables, unless collection is obtained from the five companies to
be acquired. Subsequent to June 30, 2005 additional costs for similar expenses
have been incurred and these may also have to be accordingly charged off as
uncollectible should the acquisition fail to be finalized.
Pending receipt of the required seller's certified audits for the years 2003
and 2004, now scheduled to be finalized by September 30, 2005, and their
submission to the Securities and Exchange Commission, as required by the
agreement, the original transaction, as now adjusted, will be considered
completed and reported by the Company at that time. ISAI has not taken
effective control of the California "companies" and assets as described in the
original asset purchase agreement except as provided by the new Asset Purchase
Agreement dated May 11, 2005, which was a partial purchase of the assets not
exceeding the threshold of effective control. ISAI will not take effective
control until the audits are completed and the original agreement has closed.
1.c) Change in Fiscal Year
On November 4, 2004 the Company announced with an 8-K filing it was changing
its fiscal year from December 31 to September 30, therein making fiscal year
2004 a nine-month period that commenced on January 1, 2004 and accordingly
ended on September 30, 2004. Any references to the fiscal year 2004 will
therefore be for a nine-month period of time from January 1 to September 30,
2004. Fiscal year 2005 will be from October 1, 2004 to September 30, 2005. The
Company has adjusted its presentation of comparable prior year periods to
facilitate similar period of time comparison.
NOTE 2) SIGNIFICANT ACCOUNTING POLICIES
2.a) Presentation
The interim unaudited financial statements have been prepared in accordance
with accounting principles generally accepted in the United States for interim
financial information and the instructions for Form 10-QSB and Regulation S-B.
Accordingly, they do not include all of the information and footnotes required
by accounting principles generally accepted in the United States for complete
financial statements. All adjustments that, in the opinion of management, are
necessary for a fair presentation of the results of operation for the interim
periods have been made and are of a recurring nature unless otherwise disclosed
herein. The results of operations for nine months ended June 30, 2005, are not
necessarily indicative of the results that will be realized for a full year or
future periods. For further information, refer to the financial statements and
notes thereto contained in the Company's Annual Report on Form 10-KSB for the
nine months ending September 30, 2004.
On June 29, 2005 transactions for stock formerly recorded as "common stock
payable" were processed through its transfer agent and stock was issued. The
transactions were recorded as 100,002 common stock shares for settlement of
convertible debt interest by the Company in 2003 valued at $0.70 per share or
$70,001 and 24,240 shares for consulting transactions executed by the Company
in 2005 valued at $1.25 per share. The shares issued in exchange for services
were subsequently revalued at $.875 resulting in an extraordinary gain on
settlement of payables in the amount of $9,090. See note 4(a) Common Stock
Payable.
2.b) Purchased Receivables Portfolios and Revenue Recognition
The Company's balance sheet has a new account called Purchased Receivables.
Purchased Receivables are debts that have been written off as uncollectible by
the original organization after unsuccessfully attempting to collect the debt.
ISAT purchases this debt at a substantial discount from face value (the
original amount owed less payments) from various organizations and financial
services companies. Purchases of portfolio inventory are recorded at cost. Cash
flow generated by financing activities such as selling stock or debt
instruments and from operations are used to purchase the receivables.
The Company accounts for its investment in purchased receivables under the
guidelines in the Accounting Standards Executive committee Statement of
Position 03-3, "Accounting for Certain Loans of Debt Securities Acquired in a
Transfer" and Practice Bulletin 6 (PB 6), "Amortization of Discounts on Certain
Acquired Loans". The provisions of SOP 03-3 were adopted by the Company
effective in May 2005 and apply to Purchased Receivables acquired after May 11,
2005, the first date the Company has completed purchasing this category of
asset. A portfolio containing similar types of accounts is purchased and
recorded as a pool at its acquisition cost. Pools purchased after 2004 may be
aggregated into a single pool (static pool), within each quarter, based on
common characteristics. Pools purchased before 2005 may not be aggregated with
other pool purchases. Each static pool, either aggregated or not aggregated,
retains its own identification and its composition does not change. Each static
pool is accounted for as a single unit for recognition of revenue, principal
payments and impairment.
The cost recovery methods prescribed by PB 6 and SOP 03-3 are used when
collections on a particular portfolio cannot be reasonably predicted. Under the
cost recovery method, no revenue is recognized until the Company has fully
recovered the cost of the portfolio. The Company will be using the cost
recovery method of revenue recognition until it establishes sufficient data to
reasonably predict collection income and utilize an alternative method of
revenue recognition based on allocating purchased portfolios to static pools
within a quarter, estimating an internal rate of return (IRR) based on
historical cash collections for portfolios with similar characteristics. The
IRR is the rate of return that each static pool requires to amortize the cost
or carrying value of the pool to zero over its estimated life. Based on
historical data on collections, each pool is given an expected life, usually 5
years. The actual life of the pool will vary but the Company expects the pool
to amortize somewhere between 50 to 60 months depending on the age of the
accounts when the portfolio was purchased. Monthly cash inflows exceeding the
amortized estimate recognized as revenue will reduce the carrying value of the
static pool and conversely if collections fall below revenue estimates the
difference is added to the book value of the portfolio receivables. In 2005
under SOP 03-3, if the revised estimate of cash flows (IRR) is less than the
original estimate, the IRR will remain unchanged and an immediate impairment to
income is recognized.
Purchased portfolio contracts usually include provisions from the sellers
providing recourse to the buyer covering death, bankruptcy, fraud, and settled
or paid accounts prior to sale. The buyer is allowed a certain period of time
to return for credit accounts qualifying for recourse, generally within 60
days. Returns are credited to the asset value of the Purchased Receivables.
The Company may sell all or a portion of a portfolio to other third parties in
the collection industry. Proceeds from these sales will be compared to the
carrying value of the portfolio and a gain or loss is recognized on the
difference between the sale price and book value.
Changes in Purchased Receivable portfolios for the three months ended June 30,
2005 were as follow:
Beginning balance $ 0
Investment in Portfolios, net of buybacks 1,094,900
Cash collections - 30,248(see note 2.b1)
Purchased receivable revenues 0
Ending balance $ 1,064,652
2.b1 Note: Cash collections for the quarter were held in escrow by a third
party servicer until the Company established the required systems and
contractual arrangements with other third party collection organizations. These
arrangements were completed by July 2005 and revenue recognition if any in
accordance with the "cost recovery method" will be recorded in the fourth
quarter of our fiscal year ending September 30, 2005. The Company has
arrangements with unaffiliated third party collectors to remit net proceeds
collected during the month to the Company by the twentieth day of the following
month. Typically, the Company will record a percentage of the gross collections
paid to the third parties as a charge to collection expense.
2.c) Use Of Estimates
The preparation of the financial statements in conformity with accounting
principles generally accepted in the United States of America (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 revenue
and expenses during the reporting period. Actual results could differ from
those estimates.
In 2004, significant estimates of the fair value of the Company's common stock
were computed under FASB Statement No. 123, Accounting for Stock-Based
Compensation, and used to value the 6,000,000 shares stock option for $60,000
to DCP (a related party) and the 1,200,000 shares to DLC (a related party) for
an indemnification agreement to the Company in the amount of $329,714. The
valuations were based upon the Company's estimates of the goods or services or
transactional related value of consideration received by the Company. Since no
established market exists for the Company's common shares, the Company used
alternative valuations of estimates for consummated agreements through
September 30, 2004 and for the nine months ended June 30, 2005.
2.d) Loss Per Share
Basic loss per share excludes dilution and is computed by dividing the net
loss by the weighted average number of common shares outstanding during the
period. Diluted loss per share includes assumed conversion shares consisting
of dilutive stock options and warrants determined by the treasury stock method
and dilutive convertible securities. In 2005 and 2004 all shares potentially
issuable have been excluded from the calculation of loss per share, as their
effect is anti-dilutive. The weighted average calculation includes the common
stock payable transactions as enumerated in note 5b. For the periods ended June
30, 2005 and September 30, 2004 respectively there were 11,368,867 and
10,421,516 anti-dilution common shares potentially issuable.
NOTE 3) LIQUIDITY AND GOING CONCERN MATTERS
The Company has no operations and has incurred losses since its inception and,
as a result, has an accumulated deficit of $7,122,582 at June 30, 2005. The net
loss for the nine month period ended June 30, 2005 was $268,746. The Company
had convertible debenture debt in default in the amount of $150,000, plus
related accrued interest payable of $104,988. These factors raise substantial
doubt about the Company's ability to continue as a going concern.
The Company's ability to continue as a going concern depends upon successfully
restructuring its debt, obtaining sufficient financing to maintain adequate
liquidity and provide for capital expansion until such time as operations
produce positive cash flow. The Company is in reorganization at the present
time except for the acquisition activities and remains in default on certain
short term debenture obligations amounting to $150,000.
The accompanying financial statements have been prepared on a going concern
basis, which assumes continuity of operations and realization of assets and
liabilities in the ordinary course of business. The financial statements do not
include any adjustments that might result if the Company was forced to
discontinue its operations. The Company's current plans are to complete its
pending asset acquisition agreement and bring to a conclusion its
reorganization efforts. With the purchase on May 11, 2005 of the Portfolio Debt
Receivables, the Company commenced operations in the troubled debt collection
business, however, there is no assurance the original asset purchase agreement,
as amended, and or the commencement of new operations after May 12, 2005, will
be successful.
The portfolio debt receivables have been transferred to its subsidiary and the
Company has established contractual relationships with third party agencies to
begin collection activities. Collection account receipts in the amount of
$30,248 on these purchased debt portfolio receivables were being held in escrow
by the seller until the Company has its own collection procedures operational.
This amount has been recognized on the books of the Company for the quarter
ended June 30, 2005 as Trade Receivables as these receipts were received after
June 30, 2005. The Company expects to be receiving additional income in the
fourth quarter and subsequent quarters thereto on these purchased debt
portfolios of distressed and troubled debt. Because the Company uses the cost
recovery method of revenue recognition from troubled debt portfolio
collections, management believes the effect on revenue recognition of including
collection receipts held in escrow by the seller is not material and would have
no effect on income for the third quarter. Management will report results of
collection income received in the fourth quarter and subsequent thereto.
NOTE 4) STOCK ISSUANCE:
4.a) Common Stock Payable
During the year ended December 31, 2003, the Company and its board of directors
approved for issuance 1,078,277 (post-split) shares of common stock for
services and debt restructuring costs. Of this amount, 1,000,878 shares were
issued in 2004 but 100,002 shares remained to be issued to a convertible
debenture holder as of March 31, 2005. Required paperwork to facilitate the
transaction with the Company's Transfer Agent had not been received.
Consequently, these transactions were recorded as "common stock payable" at
March 31, 2005 and September 30, 2004 respectively. As of June 30, 2005, all of
these specific shares have been issued by the Company as all required paperwork
for their related issuance has been received and processed by the Company.
Within the above issuance of shares, the Company issued 24,240 common shares
for advisory services rendered by an outside consultant assisting in the review
of potential acquisitions and assistance in the submission of Forms 10KSB and
10QSB and related audit matters for the quarters ended September 30, 2004,
December 31 and March 31, 2005. The shares were originally valued at $1.25 per
contract agreement but subsequently revalued at $.875 resulting in an
extraordinary gain on the settlement of payables in the amount of $9,090. An
additional accrual for additional contract services performed partially for
stock was recorded in "Common stock payable" at June 30, 2005 for $3,900.
Note 5.) CONVERTIBLE DEBT
5.a) Convertible Debentures Payable
As of June 30, 2005, the Company was in default on the terms of payment of
quarterly interest on these debentures amounting to $104,988. Accordingly, two
remaining convertible debentures have been classified as a current liability
amounting to $150,000 and one long term debenture amounting to $50,000 totaling
$200,000. Reference should be made to note 6.2 to financial statements as this
amount has been offset by a contra-indemnification receivable.
5.b) Convertible Notes Payable - Related Party
The Company issued convertible notes payable during the three month period
ended June 30, 2005, to a related entity owned by two stockholders of the
Company totaling $24,104. This increased the Convertible Notes Payable -
Related Party account to $586,930 on June 30, 2005 from $429,109 on September
30, 2004. These demand notes bear interest at 12%, are secured by the assets of
the Company, and are convertible at the option of the holder into common stock
at $0.70 per share. These notes were previously convertible at the rate of
$2.80 per share, but in July 2004 the Board of Directors changed the conversion
rate to $.70 per share. The change did not result in any beneficial intrinsic
value to their holders and no change to the Company's financial statements was
required as the fair value of the Company's common stock was less than the
$0.70 per share. The issuance of these notes did not include a beneficial
conversion feature with intrinsic value resulting from the market value for
common stock being less than the conversion price.
Interest expense on these convertible notes was $59,724 and $47,464 during the
nine-month periods ended June 30, 2005 and June 30, 2004, respectively. Accrued
interest payable on these notes was $175,021 at June 30, 2005.
NOTE 6) RELATED PARTY TRANSACTIONS
6.1) Related Party Compensation
For the nine months ended June 30, 2005 the Company incurred expenditures with
its President and major stockholder for consulting services amounting to
$105,000 of which $45,000 was for additional consulting services directly
related to the acquisition efforts of the Company accrued as Costs Incurred for
Pending Acquisitions. The remaining $60,000 in the nine months ended June 30,
2005, compares to $55,000 expensed in the nine months ending June 30, 2004.
These amounts have not been paid but recorded as Accounts Payable - Related
Party.
In December 2003, the Company's Board of Directors approved the issuance of
357,143 common shares as partial payment for services rendered. There are
additional unpaid consulting services remaining as Accounts Payable -Related
Party at June 30, 2005 in the amount of $280,000. No additional compensation
has been authorized by the Board for services as Directors since December 31,
2003.
6.2) Indemnification Agreement - Related Party
On July 1, 2004, the Company approved the issuance of 1,200,000 common shares
to an affiliated company, Doubletree Liquidation Corporation (DLC). DLC is a
corporation owned 50% by the Company's President and 50% by an affiliated
stockholder, whose ownership exceeds, beneficially, 5% of the Company's common
stock. The affiliated company, DLC, has issued an indemnification guarantee to
the Company wherein it will process, review, and guarantee payment for certain
prior Company liabilities (both actual and contingent) that may arise during
the next four years from June 30, 2004. The Company has deemed the value of the
transaction to be $329,714 based upon the consideration given to the Company in
the indemnification agreement.
During the four years of the agreement, DLC will endeavor to finalize and bring
to a conclusion, the payment of prior operation's liabilities. The remaining
unpaid liabilities can be summarized as (1) one defaulted convertible debenture
in the amount of $150,000 and one converted debenture loan payable in the
amount of $50,000. Both of these notes are included on the books of the Company
along with related accrued interest payable in the amount of $104,988, (2) One
account payable - disposed business in the amount of $24,000 which is also
covered by this indemnification agreement. At June 30, 2005, the debt
indemnification accounts are summarized below:
Description of debt indemnification: Current Long-term
Defaulted convertible debenture payable $ 150,000 $ 0
Defaulted accrued interest payable 104,988
Account payable-disposed business 24,000
Convertible debenture payable 50,000
Less, contra-indemnification receivable (278,988) (50,000)
--------- ---------
Net Balances at June 30, 2005: $ 0 $ 0
The Company believes that beyond the $329,714 referred to above plus accrued
interest that may occur after the date of the issuance of the Indemnification
Agreement until all debts are settled and paid, there will be no additional
charge or exposure for past liabilities, contingent or otherwise to the Company
and if any do occur, they will be the responsibility of DLC in accordance with
their guarantee to the Company as enumerated in the Indemnification Agreement.
(6.3) Restatement of June 30, 2004 Financial Statements and 10-QSB
The value of the indemnification agreement transaction had been recorded during
the quarter ended June 30, 2004 in the previously determined amount of
$561,000. The $561,000 was based upon a more encompassing list of unpaid
liabilities from all prior operations of the Company, both parent and
subsidiary included, The Company now deems their potential debt payment
exposure to be limited to only the liabilities included on the Company's
financial statements in the amount of $329,714 at the date of the issuance of
the Indemnification Agreement by DLC, plus accrued interest that may occur
until all debts are settled and paid. The valuation change herein discussed
will require a change to the Company's previously filed Form 10-QSB financial
statement report with the Securities and Exchange Commission. Also the Company
will record an additional $14,523 in expense to issue an additional 20,747
shares of common stock for additional interest due to the conversion of a
convertible debenture. The Company will make this amended report to the SEC
within the next thirty days from the date of this report. The following table
summarizes the changes to the financial statements as of June 30, 2004 before
and after the revisions:
As Reported Revised
Total Assets $ 403 $ 403
Total Liabilities 1,709,249 1,162,772
Stockholders Equity (1,593,045) (1,032,045)
Loss on extinquishment of debt 14,523
General and Administrative expense 83,916 83,916
Interest expense 31,885 31,885
Net (loss) (115,801) (130,324)
6.4) Convertible Notes Payable - Related Party
During the three months ending June 30, 2005, the Company issued an additional
$93,059 of convertible debt to an entity controlled by two of the Company's
stockholders, one of which is the Company's President. The convertible note
holder, Doubletree Capital Partners, Inc., an entity controlled by the same
parties listed as controlling DLC (See Note 6.2), holds a secured collateral
interest in any assets the Company currently owns and any assets the Company
may acquire in the future until the convertible notes are either paid in full
or converted into common shares of stock at the option of the convertible note
holder. See note 5.b for more information.
NOTE 7) SUBSEQUENT EVENTS
On May 18, 2005, the Company filed a Form 8-K announcement that ISA Acquisition
Corporation (a Minnesota Corporation), a wholly owned subsidiary of ISAI, has
signed an amended Asset Purchase Agreement and amended again its Stock
Acquisition Agreements, all originally dated August 19, 2004, amended on
October 29, 2004, and amended again on January 13, 2005, to complete and
finalize the acquisition of the assets of a privately-held network of financial
service companies located in California. The group of related companies are
composed of Harrison Asset Management Inc. (HAMI), Money Asset Management, Inc.
(MAMI), Cash Asset Management Inc. (CAMI), E-commerce Bank, First American
Financial Family Services (FAFFS), and United Recovery Inc. (URI) - a wholly-
owned subsidiary of MAMI (the "companies").
Amendments to original agreements
The original Asset Purchase Agreement is being amended to:
1.) change the closing date to September 30, 2005 from April 30, 2005 as
stipulated in the prior amended agreement (See exhibit 99.1),
2.) change Schedule A - List of Deliverable Assets to exclude assets now
included in a new Portfolio Debt Purchase Agreement dated May 11, 2005,
3.) revise the purchase price in common shares of ISAI from 5,250,000 shares to
4,000,000 shares to be delivered after the seller satisfies the certified audit
delivery conditions of the agreement, satisfactory to the Board of Directors of
ISAI, for the years 2003 and 2004.
Also being amended is a Stock Purchase Agreement between ISA Acquisition
Corporation and the First American Financial Family Services Corp., one of the
seller companies, to purchase its common stock held by the principal owner,
wherein the effective closing date is changed to September 30, 2005 or earlier
if the seller can deliver the consideration and requirements of the original
purchase agreement, as amended on May 11, 2005. A copy of these amendments are
attached hereto as Exhibits and incorporated herein by reference. See Note 3 -
LIQUIDITY AND GOING CONCERN MATTERS and the Company's Form 8-K announcement of
May 18, 2005 for more details.
On July 28, 2005, the Company filed a Form 8-K announcement that it has
completed the New Portfolio Debt Purchase Agreement as described in our Form 8-
K filing on May 12, 2005. The only change from the original agreement signed on
May 12, 2005 was the amount of face value of Portfolio Debt Receivables
purchased was increased to $38,724,836 from $36,097,726 for the same 1,250,000
common shares due to various valuation differences.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Forward Looking Statements
The information herein contains certain "forward looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities and
Exchange Act of 1934, as amended, which are intended to be covered by the safe
harbors created thereby. Investors are cautioned that all forward looking
statements involve risks and uncertainties, including, without limitation, the
ability of the Company to continue its present business strategy which will
require it to obtain significant additional working capital, changes in costs
of doing business, identifying and establishing a means of generating revenues
at appropriate margins to achieve profitability, changes in governmental
regulations and labor and employee benefits and costs, and general economic and
market conditions. Such risks and uncertainties may cause the Company's actual
results, levels of activity, performance or achievement to be materially
different from those future results, levels of activity, performance or
achievements expressed or implied by such forward-looking statements.
Although the Company believes that the assumptions and expectations reflected
in these forward looking statements are reasonable, any of the assumptions and
expectations could prove inaccurate or not be achieved, and accordingly there
can be no assurance the forward looking statements included in this Form 10-QSB
will prove to be accurate. In view of the significant uncertainties inherent in
these forward-looking statements, their inclusion herein should not be regarded
as any representation by the Company or any other person that the objectives,
plans, and projected business results of the Company will be achieved.
Generally, such forward looking statements can be identified by terminology
such as "may," "could," "anticipate," "expect," "will," "believes," "intends,"
"estimates," "plans," or other comparable terminology.
Overview
The Company (ISAI), through its two former wholly owned subsidiaries Minnesota
corporations, ShoptropolisTV.com, Inc. (f/k/a Internationale Shopping Alliance,
Inc.) and International Strategic Assets, Inc., was engaged in two distinct
businesses: (1) the development of a multimedia home shopping network
primarily for the purpose of generating direct retail sales of varied products
from T.V. viewers and internet shoppers, and (2) direct sales via outbound
telemarketing of precious metals consisting mainly of gold and silver coins and
bars.
ISAI is presently attempting to financially restructure itself. ISAI disposed
of International Strategic Assets, Inc. on May 19, 2000, and ISAI disposed
of the ShoptropolisTV.Com, Inc. on March 29, 2001 as a part of its
reorganization efforts. Additional reorganization efforts include negotiation
with creditors to restructure and convert debt to equity and actively seeking
new business opportunities. After successful completion of its reorganization
efforts, ISAI plans to pursue strategic alternatives that may include the
purchase of a business or acquisition by another entity. With the consummation
of the indemnification agreement, ISAI believes it can now effect an
acquisition and or a merger in 2005 and resume operations.
ISAI was incorporated in Delaware in 1989 under a former name, and was inactive
operationally for some time prior to its May 1998 recapitalization through a
acquisition with ShoptropolisTV.com, Inc. (f/k/a Internationale Shopping
Alliance Inc.), which was a wholly owned subsidiary of ISAI. This subsidiary
was acquired when the former shareholders of this subsidiary acquired 89% of
the outstanding common stock of ISAI through a stock exchange. ISAI issued
11,772,600 shares of its common stock in exchange for all of the outstanding
common stock of ShoptropolisTV.com, Inc. This merger was effected as a reverse
merger for financial statement and operational purposes. Accordingly, ISA
regards its inception as being the incorporation of ShoptropolisTV.com, Inc. on
October 7, 1997. ISAI sold ShoptropolisTV.com, Inc. on March 29, 2001. In
January 1999, the Company redeemed and cancelled 1,650,000 shares held by three
of the founding shareholders. No consideration was paid to the founding
shareholders for the redemption.
ISAI incorporated its precious metals subsidiary, International Strategic
Assets, Inc., as a Minnesota corporation in March 1999. Its business was direct
sales via outbound telemarketing of precious metals consisting mainly of gold
and silver coins and bars. ISAI sold International Strategic Assets, Inc. on
May 19, 2000 to an individual who was an officer and director of ISAI.
Since December 2000, the Company has been operationally dormant. The Company
believes its shareholder base is its major asset. For the last four years, from
January 2001 to present, the Company has been actively reorganizing its
financial affairs and actively seeking merger or acquisition candidates
offering growth and profit potential for its shareholders.
On May 11, 2005, the Company through its wholly owned subsidiary, ISA
Acquisition Corporation, purchased $36,097,726 of portfolio debt receivables
and intends to commence operations in the troubled debt collection business.
The Company now considers itself to be out of the reorganization period and
again an operating company.
Results of Operations for the nine months ended June 30, 2005 and 2004.
Sales and Gross Profit
No revenues were recorded for the nine months ended June 30, 2005 and 2004
while operations were suspended. The Company resumed operations in the third
quarter of 2005 in the troubled debt collection business as a result of its
purchase of $38,724,836 (face value) in debt receivables valued at $1,094,900
and engaged the services of third party collection companies. Collection
revenues in the amount of $30,248 were collected in the quarter ended June 30,
2005 but has been recorded as a reduction of the purchase price carrying value
of the purchased debt receivables. The Company is currently in the process of
obtaining from third party collectors currently employed by the Company
estimates cash flow revenues that may come to the Company from these specific
debt purchases. The Company does not believe that the cash flow estimates will
be anywhere close to the amount estimated to be required to sustain Company
operations in the future. Therefore, additional efforts are being expended to
bring to the Company additional debt portfolio receivables for the operational
source of future additional revenues.
Operating Expenses
Operating expenses included general and administrative expenses and interest
expenses related to convertible debenture and convertible notes payable.
General and administrative expenses were $218,112 for the nine months ended
June 30, 2005 compared to $368,354 for the nine months ended June 30, 2004. The
expenses in 2005 and 2004 were principally for audit, consulting, office,
salaries, and interest costs. Additionally, new current expenses are being
incurred for interest, office, telephone, consulting, and legal and
professional expenses relating to potential acquisitions and the Company
efforts in obtaining new business operations. No advertising expense was
incurred in 2005 or 2004. At this time, the Company has no anticipation as to
its operating expenses in future periods as it begins to operate in the debt
collection business.
Liquidity and Capital Resources
ISAI obtained its original capitalization through the sale of equity securities
to a limited group of private investors known to management of ISAI. From the
inception of ISAI in 1997 through December 31, 1997, ISAI raised $400,000 in
cash through the sale of its common stock with accompanying warrants. In
calendar year 1998, ISA raised an additional $833,376 in cash through sales of
common stock and common stock with accompanying warrants. During a period from
January through February 1999, ISAI raised a total of $1,171,040 through the
exercise of outstanding warrants by existing shareholders, of which $528,702
was in cash and $642,838 was in gold bullion and coins transferred to ISAI.
Such gold bullion and coins were immediately liquid to ISA, and were converted
to cash. From September 1999 through February 2000, the Company raised
$1,336,640 through the sale of unsecured convertible debentures.
From March 2000 through May 2000, the Company raised $255,000 from the sale of
unsecured convertible debentures. In May 2000 the Company sold its wholly owned
subsidiary, International Strategic Assets, Inc. (ISA), for a cash sum of
$175,000. The $175,000 purchase price consisted of $75,000 for the purchase of
approximately 43% of the outstanding common stock of ISA and $100,000 paid in
connection with the subsequent redemption of the remaining 57% of the
outstanding common stock of ISA. During the quarter ended June 30, 2000, the
Company had one option exercised for 5,000 common shares for $6,850.
From July 2000 through October 2000, the Company sold a total of 902,857 shares
of its Common Stock: 200,000 shares at a purchase price of $0.10 per share,
299,999 shares at a purchase price of $0.15 per share, and 385,000 shares at a
purchase price of $0.20 per share, and 17,858 shares at a purchase price of
$4,100 for a total amount of $146,100. In November 2000 the Company sold
5,000,000 shares of its Preferred Stock at a purchase price of $0.0002 per
share for total consideration of $1,000, and, 2,999,999 shares of its Common
Stock at a purchase price of $0.0097 per share for total consideration of
$29,000. Also in November and December 2000 the Company obtained loans
totaling $88,527 to settle unsecured debts using the Company's television
broadcast and production equipment and office equipment and furniture as
collateral. In March 2001 the collateral was disposed of in the sale of the
discontinued operations of the Company.
In 2001 the Board of Directors of the Company issued additional shares to
these stockholders to reflect a uniform purchase price for those shares
purchased from July 2000 through October 2000 at a price of $0.06 per share.
This resulted in an additional 1,547,142 shares being issued.
In the nine months ended June 30, 2005, the Company received $157,821 from
convertible demand notes payable from a related investor in connection with the
continuing reorganization efforts. The convertible note holder, since November
2000, has held a secured collateral interest in any assets the Company owns or
may acquire in the future until the convertible notes are either paid in full
or converted into common shares of stock at the option of the convertible note
holder.
As of June 30, 2005, the Company had Total Assets of $1,220,430 consisting of
$1,821 in cash, $2,000 in Deposits, $30,248 in Trade receivables, $1,064,652 in
Purchased receivables - net, $121,580 in Costs Incurred for Pending
Acquisitions and $129 in Organization Costs Amortized - Net. It had $1,060,329
in Current Liabilities consisting of $3,900 in Common Stock payable, $294,478
in accounts payable, convertible notes payable-related party of $586,930 and
related interest accruals of $175,021.
The Company's current capital resources are not sufficient to supports its
development and operations. Additional capital will be necessary to support
future growth of the Company as well as general and administrative and interest
expenditures. The Company cannot continue its existence without a full and
complete reorganization of all of its financial affairs and obligations as well
as the capital requirements to support its operational activities required now
as a result of the troubled debt purchase on May 11, 2005 and the related
expenditures that will be required.
The Company is not currently seeking any additional sources of debt or equity
financing beyond which is already in place with the financing agreement
consummated in November 2000 with Doubletree Capital Partners, Inc. Until the
reorganization process is completed and capital needs required to be made as a
result of the entry by the Company into the troubled debt collection as of May
11, 2005 are determined and defined, the Company cannot provide assurances as
to its future viability or its ability to prevent the possibility of a
bankruptcy filing petition either voluntary or involuntary by creditors of
the Company.
As a result of the Company's history of operating losses and its need for
significant additional capital, the reports of the Company's independent
auditors' on the Company's financial statements for the fiscal nine months
ended September 30, 2004 and year ended December 31, 2003, should be read
including explanatory paragraphs concerning the Company's ability to continue
as a going concern.
Income Tax Benefit
The Company has an income tax benefit from net operating losses, which is
available to offset any future operating profits. None of this benefit was
recorded in the accompanying financial statements as of June 30, 2005 because
of the uncertainty of future profits. The ability to utilize the net operating
losses may be limited due to ownership changes.
Impact of Inflation
The Company believes that inflation has not had any material effect on its
development or operations since its inception in 1997. Furthermore, the
Company has no way of knowing if inflation will have any material effect
for the foreseeable future.
New Business Ventures
With respect to the business strategy of developing and launching a multimedia
home shopping network, ISAI had only a very limited operating history on which
to base an evaluation of its business and prospects. The Board of Directors
decided in December 2000 to sell the Shoptropolis subsidiary and cease
development of the home shopping network. All efforts of the Company at the
present time have been directed to a complete reorganization of all of its
affairs. Therefore, the Company's prospects for new business ventures must be
considered in light of the many risks, expenses and difficulties encountered
frequently by companies in reorganization. Such major risks include, but are
not limited to, an evolving business model and the overall effective management
of future growth. To address the many startup risks and difficulties the
Company has encountered, it must in the future have the ability to successfully
execute any of its operational and marketing strategies that it may develop in
any new business venture. There would be no assurance the Company would be
successful in addressing the many risks and difficulties it could encounter and
the failure to do so would continue to have a material adverse effect on the
Company's business, prospects, financial condition and results of any
operations it pursues or tries to develop, pending successful reorganization of
its financial affairs. There can be no assurance that ISAI can find and attract
new capital for any new business ventures and if successful in finding
sufficient capital, that it can successfully grow and manage the business or
new business venture into a profitable and successful operation. No assurance
can be given on any of these developments. The Company will continue to
complete its financial reorganization, attempt to develop a successful business
in the debt collection business and endeavor to find suitable candidates for
merger or acquisition.
History of Losses and Anticipated Further Losses
ISAI has generated only limited revenues to date and has an accumulated deficit
as of June 30, 2005 of $7,122,582. Further, the Company expects to continue to
incur losses until it generates revenues at appropriate margins to achieve
profitability. There can be no assurance the Company will ever generate
revenues or that it will achieve profitability, or that its future operations
will prove commercially successful, or that it will establish any means of
generating revenues at appropriate margins to achieve profitability.
Need for Additional Financing
The Company's current capital resources are not sufficient to support the
Company's anticipated day-to-day operations. As such, the Company must obtain
significant additional capital to support the Company's anticipated day-to-day
operations and settle the debt incurred by ISAI during its past operations
until it establishes a means of generating revenues at appropriate margins to
achieve profitability. The Company currently has an agreement with Doubletree
Capital Partners, Inc. (hereinafter referred to as the financial company or
DCP) to loan the Company, at the financial company's sole discretion, funds to
meet its day-to-day operational expense and settle certain debt incurred by
ISAI. The financial company is owned by two individuals, one of which is ISAI's
current President, CEO and Chairman of the Board of Directors.
The financial company has commenced its best efforts to help the Company
resolve, consolidate, and reorganize the Company's present debt structure and
contractual liabilities. There is no assurance that the financial company will
provide the Company any additional capital. Additional financing is
contemplated by the Company, but such financing is not guaranteed and is
contingent upon pending successful settlement of the Company's problems with
various creditors. There is no assurance that the Company will be able to
obtain any additional capital. There can be no assurance that the necessary
additional financing will be available when needed by the Company, or that
such capital will be available on terms acceptable to the Company. If the
Company is unable to obtain financing sufficient to meet its operating and
development needs, the Company will be unable to develop and implement a new
business strategy or continue its operations. As a result of the Company's
history of operating losses and its need for significant additional capital,
the reports of the Company's consolidated financial statements for the year
ended December 31, 2003, and the nine month period ended September 30, 2004
include an explanatory paragraph concerning the Company's ability to continue
as a going concern.
Reliance on Key Personnel
The Company's future success will be dependent upon the ability to attract and
retain executive officer(s) and certain other key persons. The inability to
attract such individuals or the loss of services of one or more of such persons
would have a material adverse effect on ISAI's ability to implement its current
plans or continue its operations. There can be no assurance the Company will
be able to attract and retain qualified personnel as needed for its business.
Control By Existing Management
One principal shareholder, Doubletree Capital Partners, Inc., beneficially owns
approximately 95.06% of the Company's outstanding common stock, compared to
95.10% on December 31, 2004. DCP's beneficial ownership includes common stock
that can be converted from preferred stock owned by the one principal
shareholder as well as similar conversion of convertible loans and related
interest due, and all options issued. DCP accordingly has complete control of
the business and development, including the ability to manage all operations,
establish all corporate policies, appoint future executive officers, determine
management salaries and other compensation, and elect all members of the Board
of Directors of ISAI.
Effects of Trading in the Over-the-Counter Market
The Company's common stock is traded in the over-the-counter market on the OTC
Electronic Bulletin Board. The Company's stock symbol is ISAT. Consequently,
the liquidity of the Company's common stock may be impaired, not only in the
number of shares that may be bought and sold, but also through delays in the
timing of transactions, and coverage by security analysts and the news media
may also be reduced. As a result, prices for shares of the Company's common
stock may be lower than might otherwise prevail if the Company's common stock
were traded on a national securities exchange or listed on the NASDAQ Stock
Market. Further, the recent adoption of new eligibility standards and rules for
broker dealers who make a market in shares listed on the OTC Election Bulletin
Board may limit the number of brokers willing to make a market in the Company's
common stock.
Limited Market For Securities
There is a limited trading market for the Company's common stock, which is not
listed on any national stock exchange or the NASDAQ stock market. The
Company's securities are subject to the "penny stock rules" adopted pursuant to
Section 15(g) of the Securities Exchange Act of 1934, which applies to non-
NASDAQ companies whose common stock trades at less than $5 per share or has
tangible net worth of less than $2,000,000. These "penny stock rules" require,
among other things, that brokers who sell covered "penny stock" to persons
other than "established customers" complete certain documentation, make
suitability inquiries of investors and provide investors with certain
information concerning trading in the security, including a risk disclosure
document and quote information under certain circumstances.
Many brokers have decided not to trade "penny stock" because of the
requirements of the "penny stock rules" and, as a result, the number of
broker-dealers willing to act as market makers in such securities are limited.
There can be no assurance that an established trading market will develop, the
current market will be maintained or a liquid market for the Company's common
stock will be available in the future.
Liquidity And Going Concern Matters
The Company incurred losses since its inception and, as a result, has an
accumulated deficit of $7,122,582 at June 30, 2005. The net loss for the nine
month period ended June 30, 2005 was $268,746. The Company had convertible
debenture debt in default in the amount of $150,000, plus related accrued
interest payable of $104,988. These factors raise substantial doubt about the
Company's ability to continue as a going concern.
The Company's ability to continue as a going concern depends upon successfully
restructuring its debt, obtaining sufficient financing to maintain adequate
liquidity and provide for capital expansion until such time as operations
produce positive cash flow. The Company is in reorganization at the present
time except for its uncompleted acquisition activities and related purchase of
troubled debt and remains in default on certain debenture obligations amounting
to $150,000 plus related interest of $104,988.
The accompanying financial statements have been prepared on a going concern
basis, which assumes continuity of operations and realization of assets and
liabilities in the ordinary course of business. The financial statements do not
include any adjustments that might result if the Company was forced to
discontinue its operations. The Company's current plans are to complete its
pending asset acquisition agreement, resume operations, and bring to a
conclusion its reorganization efforts. There can be no assurance these actions
will be successful.
Recent acquisition agreements announced in the Company's August 23, 2004 8-K
filing, subsequently amended on November 2, 2004 and January 13, 2005 and again
on May 11, 2005, if executed, will give the Company an operating business
subsidiary in the financial services industry in 2005. However, due to the
inability of the Company to receive certified audits of the assets of the
acquired companies, as required in the original asset acquisition agreement,
only the assets purchased on May 11, 2005 are included at June 30, 2005.
ISAI is providing bookkeeping assistance to assist in the completion of the
agreement, which requires the completion of the certified audit for the years
2003 and 2004 of the acquired companies. The Company has incurred cumulative
costs of $121,581 related to this acquisition activity recorded as "costs
incurred for pending acquisitions" in the financial statements for the period
ending June 30, 2005. ISAI has not taken effective control of the companies or
assets as described in the asset purchase agreement nor will ISAI take
effective control until the audits are completed and the agreement has closed.
One remaining officer is currently managing the Company. The Company has
suspended its operations pending the resolution of its financial matters.
The Company is in default under the terms of its obligation to make quarterly
interest payments on convertible 12% debentures issued between September 1999
and June 2000. These debentures in default are classified as current
liabilities and totaled $150,000 in principal and $104,988 in accrued interest
as of June 30, 2005. No interest payments were ever made by the Company on the
debentures. One convertible debenture holder with a principal amount due of
$50,000 agreed to extend the terms and conditions of his debenture so that
debenture has been reclassified as long-term debt and is not in default. The
indemnification agreement has been designed to cover these liabilities. The
Company is attempting to convert the remaining convertible debenture debt to
common shares.
Item 3. CONTROLS AND PROCEDURES
Within the 90-day period prior to the filing of this report, an evaluation was
carried out as to the effectiveness of its disclosure controls and procedures
pursuant to Rule 13a-15 under the Securities Exchange Act of 1934, as amended
("Exchange Act"). This evaluation was done under the supervision and with the
participation of the Registrant's President. Based on that evaluation, the
President has concluded that the Company's disclosure controls and procedures
are effective in gathering, analyzing, and disclosing information required to
be disclosed by the Company under the Exchange Act.
Subsequent to the date of their evaluation, there were no significant changes
in the Company's internal controls or in other factors that could significantly
affect the disclosure controls, including any corrective actions with regard to
significant deficiencies and material weaknesses.
As a non-accelerated filer with a fiscal year end of September 30, the Company
must first begin to comply with the requirements of Section 404 of the
Sarbanes-Oxley Act of 2002 ("Section 404") for the fiscal year ending September
30, 2006. During fiscal 2005, management will review and evaluate the
effectiveness, and where necessary, enhance the Company's internal
controls over financial reporting. The Company anticipates it may need to
engage a third party to assist it with the design of such internal controls
over financial reporting. As of the date of this report, the Company has not
yet engaged any such third party. This review and any enhancements, if
necessary, will likely involve significant time and expense by the Company and
its independent auditors. Accordingly, there can be no assurances that the
Company will be in compliance with the requirements of Section 404 by September
30, 2006.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
During the quarter ending June 30, 2005, the Company was not sued in any new
legal matters.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
During the quarter ended June 30, 2005, there were 1,250,000 common stock
shares issued in payment of debt portfolio receivables as part of the New Asset
Purchase Agreement. These shares were valued at $1,094,900 or $0.876 per share
based on value received. There were 124,242 common stock shares issued in the
quarter ended June 30, 2005 related to a former convertible debenture holder
(100,002) and a consultant engaged by the Company (24,240) for services
rendered in an advisory capacity. An additional 3,120 common shares are due to
be issued to the same consultant for additional services rendered during the
quarter ended June 30, 2005. It is anticipated that these common shares will be
issued during the quarter ended September 30, 2005.
Item 3. Defaults Upon Senior Securities
The defaults previously present on the Convertible Debentures as of December
31, 2003 continue as of June 30, 2005, after partial conversions into common
stock of the Company. These defaults arose because the Company has missed
payment of quarterly interest payments since June 2000. The remaining default
consists of short-term convertible debt principal amounting to $150,000 and
long-term convertible debt in the amount of $50,000,which is not in default,
with combined accrued interest thereon of $104,988 as of June 30, 2005.
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits: none
(b) Form 8-K:
On November 3, 2004, the Company announced it had amended its acquisition
agreement, originally dated August 19, 2004, to complete and finalize the
acquisition of the privately-held network of financial services companies
composed of Harrison Asset Management Inc. (HAMI), Money Asset Management, Inc.
(MAMI), Cash Asset Management Inc. (CAMI), E-commerce Bank, First American
Financial Family Services (FAFFS), and United Recovery Inc.(URI),a wholly-owned
subsidiary of MAMI to November 1, 2004. On August 19, 2004, ISAI completed the
agreement to exchange common shares and common share warrants of ISAI for
certain assets of the group of companies above. Paragraph 2.5 of the Asset
Purchase Agreement, previously filed with the SEC in an 8-K dated 8-23-04,
stated ISA Internationale Inc. would be provided audited financial
statements within 70 days of closing and such audited statements would be used
to apportion the 5,000,000 shares of common stock of ISAI among the three
companies in accordance with the asset values being transferred from each of
the companies to ISAI.
Subsequent to the amended agreement of October 29, 2004, the parties have again
determined that audited financial statements for the periods covered by the
revised agreement can not be provided as required by the agreement.
On November 4, 2004, the Company announced it changed its fiscal year end to
September 30. Formerly it was December 31, 2004. Fiscal year 2004 will have
only three quarters of activity from January 1, 2004 to September 30, 2004.
ISAI reported its year-end results in Form 10-KSB. The Board of Directors of
the Company approved the resolution to change its fiscal year as authorized
under Article IX of its corporation bylaws on November 2, 2004.
On January 14, 2005, the Company announced it amended again its agreement to
complete and finalize the acquisition of the assets of a privately held network
of financial services companies composed of Harrison Asset Management Inc.
(HAMI), Money Asset Management, Inc. (MAMI), Cash Asset Management Inc. (CAMI),
E-commerce Bank, First American Financial Family Services (FAFFS), and United
Recovery Inc. (URI) - a wholly-owned subsidiary of MAMI to April 30, 2005. A
related Stock Acquisition Agreement was also amended.
On May 18, 2005 the Company filed a Form 8-K announcement that ISA Acquisition
Corporation (a Minnesota Corporation), a wholly owned subsidiary of ISAI, has
signed a new Asset Purchase Agreement and amended again its agreements
originally dated August 19, 2004, amended on October 29, 2004 and January 13,
2005 to complete and finalize the acquisition of the assets of a privately-held
network of financial service companies located in California. The group of
related companies are composed of Harrison Asset Management Inc. (HAMI), Money
Asset Management, Inc. (MAMI), Cash Asset Management Inc. (CAMI), E-commerce
Bank, First American Financial Family Services (FAFFS), and United Recovery
Inc. (URI) - a wholly-owned subsidiary of MAMI (the "companies").
Amendments to original agreements
The original Asset Purchase Agreement is being amended to:
1.) change the closing date to September 30, 2005 from April 30, 2005 as
stipulated in the prior amended agreement (See exhibit 99.1),
2.) change Schedule A - List of Deliverable Assets to exclude assets now
included in a new Portfolio Debt Purchase Agreement dated May 11, 2005,
3.) revise the purchase price in common shares of ISAI from 5,250,000 shares to
4,000,000 shares to be delivered on or before September 30, 2005 when the
seller satisfies the deliverable conditions of the agreement, satisfactory to
the Board of Directors of ISAI, including the transfer of assets and certified
audits of the companies accounting records for the years 2003 and 2004.
Also being amended is a Stock Purchase Agreement between ISAI and the seller
companies to purchase the common stock of one of the seller companies held by
the principal owner changing the effective closing date to September 30, 2005
or earlier if the seller can deliver the consideration and requirements of the
original purchase agreement as amended on May 11, 2005. A copy of these
amendments are attached hereto as Exhibits and incorporated herein by
reference.
New Portfolio Debt Purchase Agreement
On May 18, 2005, the Company filed an 8-K announcement wherein it announced
that on May 11, 2005, the Company did complete a Portfolio Debt Purchase
Agreement with two of the five Companies wherein ISAI did purchase $36,097,726
of face value Receivables for 1,250,000 restricted common shares of ISA
Internationale Inc. This purchase agreement does change the original asset and
stock purchase agreements wherein, if the "Collection Companies" can complete
and deliver the certified audits of their Companies for the two years 2003 and
2004 on or before September 30, 2005, ISAI will compensate the Companies,
pursuant to the terms of the Agreement, as amended, wherein 3,750,000 (revised
from 5,000,000) common stock shares will be delivered to the Companies in
exchange for the assets listed in Schedule 1.0 of the Asset Purchase Agreement
by and between the Companies and ISA Acquisition Corporation, a Minnesota
wholly owned subsidiary of ISA Internationale Inc., as adjusted on May 11,
2005.
On July 28, 2005 the Company filed a Form 8-K announcement that it has
completed the New Portfolio Debt Purchase Agreement as described in our Form 8-
K filing on May 12, 2005.
The only change from the original agreement signed on May 12, 2005 was the
amount of face value of Portfolio Debt Receivables purchased was increased to
$38,724,836 from $36,097,726 for the same 1,250,000 common shares due to
various valuation differences.
Name Change in Subsidiary and formation of New Subsidiary
On July 28, 2005, the Company also announced that ISA Acquisition Corporation
(a Minnesota Corporation), a wholly owned subsidiary of ISAT, has changed its
name to ISA Financial Services Inc. Additionally, ISA Financial Services Inc.
announced it has formed a 100% wholly owned subsidiary named ISA Acceptance
Corporation (a Nevada Corporation), after receiving notification from the State
of Nevada as to its formation on July 26, 2005. ISA Acceptance Corporation will
actively manage debt portfolios with the assistance of third party collection
agency servicers upon commencement of business operations within the next 30
days. ISA Acceptance Corporation is also considering a private preferred stock
equity offering under Rule 506 of Regulation D of the Securities Act.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
ISA INTERNATIONALE INC.
/s/ Bernard L. Brodkorb
By: Bernard L. Brodkorb
President, Chief Executive Officer, and Chief Financial Officer
Date: August 24, 2005
Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a):
I, Bernard L. Brodkorb, certify that:
1. I have reviewed the Quarterly Report on Form 10-QSB of ISA Internationale
Inc.;
2. Based on my knowledge, this report does not contain any untrue statements
of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered
by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this report;
4. I am responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this report (the "Evaluation Date"); and
c) presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. I have disclosed, based on my most recent evaluation, to the registrant's
auditors and the audit committee of registrant's board of directors:
a) all significant deficiencies in the design or operation of internal
controls, which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses
in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls.
6. I have indicated in this report whether there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.
/s/ Bernard L. Brodkorb
By: Bernard L. Brodkorb
President, Chief Executive Officer, and Chief Financial Officer
Date: August 24, 2005
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of ISA Internationale Inc.,
(the "Company") of Form 10-QSB for the period ending June 30, 2005,
as filed with the Securities and Exchange Commission on the date hereof
(the "Report"), I, Bernard L. Brodkorb, President, Chief Executive Officer,
and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act
of 2002, that to the best of my knowledge and belief:
(1.) the report fully complies with the requirements of Section 13(a)
or 15 (d) of the Securities Exchange Act of 1934; and
(2.) the information contained in the Report fairly presents, in all material
respects, the financial condition and result of operations of the Company.
/s/ Bernard L. Brodkorb
By: Bernard L. Brodkorb
President, Chief Executive Officer, and Chief Financial Officer
Dated: August 24, 2005