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, 2006
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 14, 2006, there were
23,989,912 of the Registrant's common stock, par value $.0001 per share
outstanding.
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 Sheets as of
June 30, 2006 (unaudited) and September 30, 2005 (audited) 3
Condensed Consolidated Statements of Operations for the
three months ended June 30, 2006 (unaudited) and 2005
(unaudited) and nine months ended June 30, 2006 (unaudited)
and 2005 (unaudited) 4
Condensed Consolidated Statement of Stockholders'
Deficit (unaudited) 5
Condensed Consolidated Statements of Cash Flows for the
nine months ended June 30, 2006 (unaudited) and
2005 (unaudited) 6
Notes to Condensed Consolidated Financial Statements 7-15
Item 2. Management's Discussion and Analysis or Plan of Operation 16-23
Item 3. Controls and Procedures 24
PART II OTHER INFORMATION
Item 1. Legal Proceedings 25
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 25
Item 3. Defaults Upon Senior Securities 25
Item 4. Submission of Matters to a Vote of Security Holders 25
Item 5. Other Information 25
Item 6. Exhibits and Reports on Form 8-K 25-26
Signatures 26
Certifications 27-28
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
ISA INTERNATIONALE INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited) (audited)
June 30, 2006 September 30, 2005
ASSETS ------------ -----------------
Assets:
Cash and cash equivalents $ 15,098 18,963
Trade receivables 17,039 15,766
------------ ----------------
Total Current Assets: 32,137 34,729
Office Equipment, at cost less depreciation thereon 5,408 --
Other assets:
Finance contract receivables - net of collections 480,370 1,016,557
Organization costs - net of amortization 288 345
Notes receivable - non current portion 17,600 95,809
------------ ---------------
Total Assets $ 535,803 $ 1,147,440
============ ===============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accrued consulting expense -- 17,400
Accounts payable - trade and taxes 13,601 13,531
Convertible notes payable - related party 6,616 609,520
Accrued interest payable - related party -- 193,116
Accrued expense payable - related party -- 315,000
Indemnification agreement - related party -- --
------------ ---------------
Total Current Liabilities 20,217 1,148,567
Long-Term Liabilities: -- --
------------ ---------------
Total Liabilities 20,217 1,148,567
------------ ---------------
Stockholders' Equity (Deficit):
Preferred stock, $.0001 par value
30,000,000 shares authorized,
none at June 30, 2006, and 5,000,000
shares issued and outstanding -- 500
at September 30, 2005
Common stock, $.0001 par value,
300,000,000 shares authorized;
23,989,912 issued and outstanding at June 30, 2006
and 3,948,000 shares issued and outstanding
at September 30, 2005 2,399 394
Additional paid-in capital 8,826,315 7,314,523
Accumulated (deficit) (8,313,128) (7,316,544)
------------ ---------------
Total Stockholders' Deficit 515,586 (1,127)
------------ ---------------
Total Liabilities and Stockholders' Deficit $ 535,803 $ 1,147,440
============ ===============
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 Three Months Ended Nine Months Ended Nine Months Ended
June 30, 2006 June 30, 2005 June 30, 2006 June 30, 2005
----------------- ------------------ ----------------- ------------------
Operating revenue:
Portfolio collections $ -- $ -- $ -- $ --
Operating expenses:
Portfolio collection Costs 26,036 -- 84,682 --
General & administrative 386,345 38,427 541,336 209,022
Impairment charge on
Portfolio carrying Cost 85,661 -- 305,595 --
---------- ---------- ----------- ----------
Operating expenses 498,043 38,427 931,613 209,022
---------- ---------- ----------- ----------
Operating loss (498,043) (38,427) (931,613) (209,022)
Other income (expense):
Interest expense (17,746) (21,403) (64,971) (59,725)
---------- ---------- ----------- ----------
Net (loss) - operations (515,788) (59,830) (996,584) (268,747)
---------- ---------- ----------- ----------
Net (Loss) (515,788) (59,830) (996,584) (268,747)
========== ========== =========== ==========
Basic and fully diluted
(loss) per share $ (0.05) $ (0.02) $ (0.18) $ (0.10)
========== ========== =========== ==========
Total net gain (loss)
per share $ (0.05) $ (0.02) $ (0.18) $ (0.10)
========== ========== =========== ==========
Weighted average common
Shares outstanding:
(restated for reverse
Stock split)Basic
& Assuming Diluted 9,722,645 2,821,277 5,480,322 2,658,058
========== ========== =========== ==========
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. and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
NINE MONTHS ENDED JUNE 30, 2006
(UNAUDITED)
c>
Preferred Stock Common Stock Additional Total
Number of Par Numbers of par Paid-in Accumulated Stockholders
shares Value Shares value Capital Deficit Deficit
-------------------------------------------------------------------------------------------------------------
Balance, September 30, 2005 5,000,000 $500 3,948,000 $395 $7,314,523 $(7,316,544) $(1,127)
Indemnification Agreement
additional interest for two
debenture holders 15,707 15,707
Issuance of common stock to
Consultants for services 53,560 6 24,614 24,620
Issuance of common stock to
Doubletree Capital Partners
for debt settlement 1,709,418 171 854,799 854,970
Issuance of common stock to
President for debt settlement 740,000 74 369,926 370,000
Issuance of common stock to
Directors and related party
consultants for services 484,000 48 247,952 248,000
Doubletree Capital Partners,
Inc. conversion of preferred
stock into common Stock in
accordance with November
2000 agreement (5,000,000) (500) 17,054,934 1705 (1,205)
Net (loss) for
nine months ended (996,584) (996,584)
--------------------------------------------------------------------------------------------------------------
Balance June 30, 2006 -- $-- 23,989,912 $2,399 $8,826,315 $(8,313,128) $515,586
==============================================================================================================
The accompanying notes are an integral part of these financial statements.
ISA INTERNATIONALE INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
(UNAUDITED)
Nine Months Ended Nine Months Ended
June 30, 2006 June 30, 2005
------------------ ------------------
Cash flows from operating activities:
(Loss) before extraordinary item from
continuing operations $ (996,584) $ (268,746)
Adjustments to reconcile net (loss) from operations
to cash flow used in operating activities:
Deprecation, a non cash charge 91 -
Amortization of incorporation costs, a non-cash charge 59 29
Reduction of debt receivable purchase price
due to gross collections received 230,591 -
Impairment charge on debt receivable purchase
price carrying cost, a non-cash charge 305,595 -
Charge off of costs incurred for unsuccessful
acquisition 105,114 -
Consulting expenses incurred, a non-cash charge 259,085 -
Costs incurred for pending acquisition - (81,775)
Trade account receivables (1,274) -
Note receivable for incurred acquisition (17,600) -
Common stock payable services 9,416 3,900
Accounts payable and accrued expenses 70 39,077
Accrued expenses - related party 55,000 105,000
Accrued interest payable - related party 49,004 44,018
----------- ----------
Cash used in operating activities (1,433) (158,497)
----------- ----------
Cash flow from investing activities:
Incorporation costs - new subsidiary - (158)
Purchase of equipment (5,500) -
----------- ----------
Cash (used in) investing activities (5,500) (158)
----------- ----------
Cash flows from financing activities:
Proceeds from issuance of convertible debt
to related party 3,068 157,821
----------- ----------
Cash provided by financing activities 3,068 157,821
----------- ----------
Increase (decrease) in cash and cash equivalents (3,865) (834)
Cash at beginning of period 18,963 2,655
----------- ----------
Cash and cash equivalents at end of period $ 15,098 $ 1,821
=========== ==========
Non-cash investing in financing transactions:
Additional Paid-in Capital for
Indemnification Agreement 15,707 15,707
Payment of convertible debentures and accrued
Interest thereon with common stock - 70,001
Payment of convertible and secured loans and accrued
Interest thereon with common stock to relate party 854,970 -
Payment of accrued consulting payable to President of
Company with common stock 370,000 -
Stock issuance for investments in subsidiary to
purchase debt receivables - 1,094,900
Stock issued to creditors and directors for services 272,620 21,210
---------- ----------
Total non-cash transactions $1,513,297 $1,201,818
========== ==========
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.
These condensed consolidated financial statements included the parent Company,
ISA Internationale, Inc., its wholly owned subsidiary, ISA Financial Services,
Inc. (formerly ISA Acquisition Corporation), and further its wholly owned
subsidiary, ISA Acceptance Corporation. As a result of a distressed consumer
debt receivable that commenced on May 18, 2005 and completed in September
2005, the Companies currently operate as debt collection companies.
On August 19, 2004, the Company signed an asset purchase agreement with five
California Companies, wherein common shares of the Company would be used to
purchase the assets being acquired. Terms of the agreement, as previously
reported in 8K filings by the Company on August 23, 2004, November 3, 2004,
January 14, 2005 and recently April 30, 2005, were not complied with by the
seller of the assets enumerated in the agreement and, accordingly, the Company
was not able to complete the asset purchase agreement. Certified audits of the
seller companies were required by the agreement and the seller companies were
not able to deliver these required certified audits for the years 2003 and
2004. However, on May 18, 2005, the Company did consummate the purchase of a
portion of the companies consumer receivable portfolios for $1,094,900.The
Company accounts for its debt receivables under the guidance of Statement of
Position ("SOP") 03-3, "Accounting for Loans or Certain Debt Securities
Acquired in a Transfer." This SOP limits the yield that may be accreted
(accretable yield) to the excess of the Company's estimate of undiscounted
expected principal, interest and other cash flows (cash flows expected at the
acquisition to be collected) over the Company's initial investment in the debt
receivables. Subsequent increases in cash flows expected to be collected are
recognized prospectively through adjustment of the debt receivables yield over
its remaining life. Decreases in cash flows expected to be collected are
recognized as impairment to the debt receivable portfolios. The Company's
proprietary collections model is designed to track and adjust the yield and
carrying value of the debt receivables based on the actual cash flows received
in relation to the expected cash flows. This method is commonly referred to as
the "cost recovery method" for revenue recognition under which no revenue is
recognized until the investment amount of $1,094,900 has been recovered.
In the event that cash collections would be inadequate to amortize the
carrying balance and the resulting estimated remaining fair market value of
the remaining portfolio debt receivables were to be less than the carrying
value, an impairment charge would need to be taken with a corresponding write
-off of the "impaired" or deficient receivable carrying value with a
corresponding charge to profit and loss of the Company at that time.
At March 31, 2006, the Company did record a write-down of its portfolio
carrying costs and a related charge to profit and loss of the Company in the
amount of $219,934 to record estimated unrecoverable investments and worthless
portions of the portfolio debt receivables purchased on May 18, 2005.
On June 30, 2006, the Company made an additional impairment write-down of the
portfolio carrying costs and a related charge to profit and loss of the
Company in the amount of $85,661 for estimated additional unrecoverable
investments and worthless portions of the portfolio debt receivables purchased
on May 18, 2005.
The Company also recorded a bad debt expense provision of $95,809 to establish
an allowance for 100% of the possible non-collectible note receivable due from
the California collection companies from which the debt portfolios were
obtained. The Company was served in July 2006 with a summons and complaint
from the U.S. Bankruptcy Court Trustee on behalf of the U.S. Bankruptcy Court
in California in an adversarial proceeding. Although the suit commenced after
the date of these financial statements, June 30, 2006, the reserve allowance
adjustment in the amount $95,209 has been made in these financial statements
with a related charge to operations in a similar amount. The Company contends
the suit is without supportable merit and will not result in any further loss
to the Company other than legal costs to defend the Company's secured with
priority rights claim in the Bankruptcy Court.
The Company believes that the remaining portfolio debt receivable carrying
costs of $480,370 will be recovered by the Company from future gross
collections to be received in the next 48 to 60 months commencing from July 1,
2006 and forward.
The agreements to purchase the aforementioned receivables include general
representations and warranties from the sellers covering account holder death
or bankruptcy, and accounts settled or disputed prior to sale. The
representation and warranty period permitting the return of these accounts
from the Company to the seller is typically 90 to 180 days. Any funds received
from the seller of debt receivables as a return of purchase price are referred
to as buybacks. Buyback funds are simply applied against the debt receivable
balance received. They are not included in the Company's cash collections from
operations nor are they included in the Company's cash collections applied to
principal amount.
Gains on sale of debt receivables, representing the difference between sales
price and the unamortized value of the debt receivables, are recognized when
debt receivables are sold.
Changes in debt receivables for the quarter ended June 30, 2006 were as
follows:
Quarter Ended
June 30, 2006
----------------
Balance at beginning of period, April 1, 2006 $ 637,382
Acquisition of debt receivables 0
Cash collections applied to principal (71,351)
Impairment write down to carrying cost (85,661)
-----------------
Balance at the end of the period, June 30, 2006 $ 480,370
=================
Estimated Remaining Collections ("ERC")(Unaudited) * $ 791,973
=================
* The Estimated Remaining Collection refers to the sum of all future projected
cash collections from acquired portfolios. ERC is not a balance sheet item,
however, it is provided for informational purposes. There was no revenue
recognized on debt receivables for the nine months ended June 30, 2006.
Under SOP-03-3 debt security impairment is recognized only if the fair market
value of the debt has declined below its amortizable costs. Currently no
additional amortizable costs are below fair market value.
1.b) Presentation
The condensed consolidated balance sheet at June 30, 2006 contains contra
account statement presentation for certain convertible debenture notes
payable, related accrued interest payable and accounts payable-disposed
business in the amount of $349,988. Reference should be made to note 4.d in
these notes to financial statements for additional information as to
consolidated financial statement presentation at June 30, 2006.
1.c) Use of Estimates
The preparation of the financial statements in conformity with accounting
principles generally accepted in the United States of America 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 corporation owned 50% by the company's President and
50% by an affiliated stockholder and the 1,200,000 shares to DLC a related
party corporation owned 50% by the company's President and 50% by an
affiliated stockholder 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, for consummated agreements through June 30, 2006, they
used alternative valuations of estimates.
1.d) Revenue Recognition
There were no operating revenues in 2005 and through June 30, 2006. Revenue
will be recognized based on AICPA Statement of Position 03-3, if the
management is reasonably comfortable with expected cash flows. In the event,
expected cash flows cannot be reasonably estimated, the Company will use the
"Recovery Method" under which revenues are only recognized after the initial
investment has been recovered.
1.e) 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 2006 and 2005, all potentially
issuable shares 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 and those that may have been issuable at
the end dates of the financial statements included in this 10QSB report.
1.f) Stock Based Compensation
Shares of the Company's common stock were issued for consulting services and
settlement expenses. The common stock share issuances for the settlement
expenses were computed using a common stock price of $0.65 per share for
19,680 shares issued during the quarter ended June 30, 2006 and $.875 for
8,880 shares issued prior to April 1, 2006, which was then considered a fair
recording issuance price for these shares. All other common shares issued
subsequent to April 1, 2006 and their related recording issuance prices are
summarized on Note 3. These specific stock issuances were valued based upon
the fair value of the consideration of debt relief or services rendered to the
Company. See Note 1.c) above for discussion of the use of estimates in share
valuation.
1.g) Fair Value of Financial Instruments
The Company uses the following methods and assumptions to estimate the fair
value of each class of financial instruments for which it is practicable to
estimate such value:
Cash and short-term investments: The carrying amount approximates fair value
because of the short maturity of those instruments.
Accounts payable: The carrying value of accounts payable approximates fair
value due to the short-term nature of the obligations.
Convertible debentures and notes payable: The carrying value of the Company's
convertible debentures and notes payable, which are in default, approximates
fair value due to the short-term nature of the obligations.
1.h) New Accounting Pronouncements
In December 2004, the FASB issued SFAS No.153, "Exchanges of Nonmonetary
Assets, an amendment of APB Opinion No. 29, Accounting for Nonmonetary
Transactions."The amendments made by Statement 153 are based on the principle
that exchanges of nonmonetary assets should be measured based on the fair
value of the assets exchanged. Further, the amendments eliminate the narrow
exception for nonmonetary exchanges of similar productive assets and replace
it with a broader exception for exchanges of nonmonetary assets that do not
have commercial substance. Previously, Opinion 29 required that the accounting
for an exchange of a productive asset for a similar productive asset or an
equivalent interest in the same or similar productive asset should be based on
the recorded amount of the asset relinquished. Opinion 29 provided an
exception to its basic measurement principle (fair value) for exchanges of
similar productive assets. The Board believes that exception required that
some nonmonetary exchanges, although commercially substantive, be recorded on
a carryover basis. By focusing the exception on exchanges that lack commercial
substance, the Board believes this Statement produces financial reporting that
more faithfully represents the economics of the transactions. The Statement is
effective for nonmonetary asset exchanges occurring in fiscal periods
beginning after June 15, 2005. Earlier application is permitted for
nonmonetary asset exchanges occurring in fiscal periods beginning after the
date of issuance. The provisions of this Statement shall be applied
prospectively. The Company has evaluated the impact of the adoption of SFAS
153, and does not believe the impact will be significant to the Company's
overall results of operations or financial position.
In December 2004, the FASB issued SFAS No.123 (revised 2004), "Share-Based
Payment". Statement 123(R) will provide investors and other users of financial
statements with more complete and neutral financial information by requiring
that the compensation cost relating to share-based payment transactions be
recognized in financial statements. That cost will be measured based on the
fair value of the equity or liability instruments issued. Statement 123(R)
covers a wide range of share-based compensation arrangements including share
options, restricted share plans, performance-based awards, share appreciation
rights, and employee share purchase plans. Statement 123(R) replaces FASB
Statement No. 123, Accounting for Stock-Based Compensation, and supersedes APB
Opinion No. 25, Accounting for Stock Issued to Employees. Statement 123, as
originally issued in 1995, established as preferable a fair-value-based method
of accounting for share-based payment transactions with employees. However,
that Statement permitted entities the option of continuing to apply the
guidance in Opinion 25, as long as the footnotes to financial statements
disclosed what net income would have been had the preferable fair-value-based
method been used. Public entities (other than those filing as small business
issuers) will be required to apply Statement 123(R) as of the first interim or
annual reporting period that begins after June 15, 2005. The Company has
evaluated the impact of the adoption of SFAS 123(R), and does not believe the
impact will be significant to the Company's overall results of operations or
financial position.
In March 2004, the FASB approved the consensus reached on the Emerging Issues
Task Force (EITF) Issue No. 03-1, "The Meaning of Other-Than-Temporary
Impairment and Its Application to Certain Investments." The objective of this
Issue is to provide guidance for identifying impaired investments. EITF 03-1
also provides new disclosure requirements for investments that are deemed to
be temporarily impaired. In September 2004, the FASB issued a FASB Staff
Position
(FSP) EITF 03-1-1 that delays the effective date of the measurement and
recognition guidance in EITF 03-1 until after further deliberations by the
FASB. The disclosure requirements are effective only for annual periods ending
after June 15, 2004. The Company has evaluated the impact of the adoption of
the disclosure requirements of EITF 03-1 and does not believe the impact will
be significant to the Company's overall results of operations or financial
position. Once the FASB reaches a final decision on the measurement and
recognition provisions, the company will evaluate the impact of the adoption
of EITF 03-1.
In November 2004, the FASB issued SFAS No. 151 "Inventory Costs, an amendment
of ARB No. 43, Chapter 4". The amendments made by Statement 151 clarify that
abnormal amounts of idle facility expense, freight, handling costs, and wasted
materials (spoilage) should be recognized as current-period charges and
require the allocation of fixed production overheads to inventory based on the
normal capacity of the production facilities. The guidance is effective for
inventory costs incurred during fiscal years beginning after June 15, 2005.
Earlier application is permitted for inventory costs incurred during fiscal
years beginning after November 23, 2004. The Company has evaluated the impact
of the adoption of SFAS 151, and does not believe the impact will be
significant to the Company's overall results of operations or financial
position.
In December 2004, the FASB issued SFAS No.152, "Accounting for Real Estate
Time-Sharing Transactions, an amendment of FASB Statements No. 66 and 67"
(SFAS 152). The amendments made by Statement 152 This Statement amends FASB
Statement No. 66, Accounting for Sales of Real Estate, to reference the
financial accounting and reporting guidance for real estate time-sharing
transactions that is provided in AICPA Statement of Position (SOP) 04-2,
Accounting for Real Estate Time-Sharing Transactions.
This Statement also amends FASB Statement No. 67, Accounting for Costs and
Initial Rental Operations of Real Estate Projects, to state that the guidance
for (a) incidental operations and (b) costs incurred to sell real estate
projects does not apply to real estate time-sharing transactions. The
accounting for those operations and costs is subject to the guidance in SOP
04-2. This Statement is effective for financial statements for fiscal years
beginning after June 15, 2005, with earlier application encouraged.
The Company has evaluated the impact of the adoption of SFAS 152, and does not
believe the impact will be significant to the Company's overall results of
operations or financial position.
1.i) 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.
2.) LIQUIDITY AND GOING CONCERN MATTERS
The Company has had limited operations and only recently entered into new
operations in the debt collection business. The Company has incurred losses
since its inception and, as a result, has an accumulated deficit of $8,054,044
at June 30, 2006. The net loss for the nine month period ended June 30, 2006
was $996,584. The Company had convertible debenture debt in default in the
amount of $200,000, plus related accrued interest payable of $125,988. 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 has been in reorganization and at the
present time is entering into the debt collection business within the
financial services industry and remains in default on certain debenture
obligations amounting to $325,988.
The accompanying consolidated 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 consolidated
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 continue to insert itself into the debt collection industry as a result
of its recent consumer debt asset acquisition agreement. The Company has begun
again to resume operations after an approximate five year reorganization
period. However, there can be no assurance that these actions will be
successful.
Recent acquisition agreement contracts were previously announced in the
Company's 8-K filings that did not result in successful asset acquisitions as
originally planned. Due to the inability of the Company to receive certified
audits of the assets of the acquired companies, as required in the asset
acquisition agreement, none of the acquisition companies assets were acquired
except for a smaller purchase of $43,733,000 in consumer debt assets that was
completed as of September 30, 2005.
The Company provided audit and bookkeeping assistance to enable the completion
of the agreement for the certified audits for the years 2004 and 2003 as
required by the contract terms. The Company incurred costs of $192,582 as of
June 30, 2006 related to this acquisition activity. Of these amounts, incurred
costs had been recorded as a non-current note receivable in the amount of
$95,809, and a related receivable from the seller in the amount of $50,946. At
June 30, 2006, both amounts totaling $146,755 were offset by an allowance for
uncollectible debts due from the Companies from whom the assets were to be
purchased from having filed Chapter 7 Petition in the U.S. Bankruptcy Court in
California. Reference should be made to note 1.a above for additional
information.
Additional costs of $45,827 since October 31, 2005, have been charged to
profit and loss of the Company for additional legal, consulting and travel
costs regarding these same matters.
Additionally, the Company has recorded impairment write-downs of $219,934 and
$85,661 at March 31, 2006 and June 30, 2006, respectively on the purchased
debt receivable total costs of $1,094,900. These impairment cost write-downs
of $305,595 and the $192,582 for incurred acquisition costs are the subject of
a priority and secured claim submitted to the United States Bankruptcy Court
in California. The Company is attempting to assert and protect its filed claim
rights against the former collection companies with whom it previously sought
to purchase various debt collection assets that were represented to be owned
by them. The Company is a party as a defendant in an adversarial lawsuit that
was commenced in July, 2006 against the Company by the Trustee for the debtor
collection companies in the Chapter 7 proceeding as filed in the U.S.
Bankruptcy in California. The Company does not believe that the Trustee's
adversarial proceeding lawsuit position, and asserted claims, will prevail and
the Company is continuing to assert its priority and secured creditor status,
and obtain recovery of its losses, incurred expenses, and related damages
included therein with a vigorous legal defense.
NOTE 3) STOCK ISSUANCE:
(4.a) Preferred Stock
The preferred stock may be issued from time to time in one or more series.
Each series is to be distinctly designated. All shares of any series of the
preferred stock shall be alike in all rights. Each series will identify the
rights to preference in liquidations, voting rights, dividend and other
powers, qualifications, or restrictions.
During 2000, the Company issued 5,000,000 shares of preferred stock with
voting rights equivalent to the number of shares of common stock the
shareholder would be entitled to under the conversion feature of the stock.
The conversion feature allows the shareholder to convert to 125,000 (post-
split) common shares (after giving effect to the reverse stock split that was
effective on January 22, 2004) or 75% ownership of the common stock to be
outstanding, based upon an anti-dilution provision clause that states upon
exercise, the preferred shares will ultimately convert into no less than a 75%
ownership of the then common shares to be outstanding.
On January 12, 2004, by written action of the stockholders of a majority of
the common stock outstanding, and at a duly called special meeting of its
shareholders, the Company approved the increase of the aggregate number of
shares of preferred stock authorized from 5,000,000 to 30,000,000. The
principal purpose of the authorizing of a preferred share increase was to
enable the Company to have additional means to facilitate new capital
attraction at the time of the completion of the reorganization process.
In June, 2006, the holder of the 5,000,000 preferred shares exercised their
right to convert their preferred shares into common shares. In accordance with
the terms as specified in the second paragraph of this footnote and the terms
of the re-organization agreement consummated on November 2, 2000, the holder,
prior management of the Company, and the Board of Directors on that date
issued 17,054,934 common shares in exchange for the preferred shares that have
been retired by the Company.
(4.b) Common Stock
As of June 30, 2006, 23,989,912 shares of common stock were issued and
outstanding, of which 20,041,912 shares were issued during the nine month
period ending June 30, 2006.
As discussed in Note 1, the Company had entered into an asset purchase
agreement with five California Companies which was subsequently terminated as
a result of the failure to provide required certified audits by the California
Companies. The Company, however, had issued approximately 8,000,000 shares of
common stock related to this unsuccessful asset purchase agreement. These
shares have not been returned from an escrow account designated to facilitate
the transaction.
The Company is currently seeking the return of these shares from the escrow
account related to the original non-completed purchase agreement and believes
it will be successful. The Company has not included these shares in the
accompanying consolidated financial statements as either issued, or
outstanding, since there was no consideration given for these shares and the
asset purchase agreement was terminated.
In June 2006, the following common shares were issued in exchange for services
rendered to the Company or liabilities extinguished by the Company:
To whom issued: Common shares issued: Value:
Consultants $ 44,680 $ 25,292
Related Party and Directors 484,000 242,000
President of Company 740,000 370,000
Doubletree Capital Partners $1,709,418 854,790
Totals: $2,978,098 $1,492,082
In June, 2006, the Company also issued 17,054,934 common shares to the holder
(a related party) of the 5,000,000 preferred shares as they exercised their
right to convert their preferred shares into common shares in accordance with
the terms as specified in the second paragraph of this footnote and the terms
of the re-organization agreement consummated on November 2, 2000. See note 4.a
above for additional information. The preferred shares previously outstanding
have been retired by the Company.
(4.c) Stock Options
On July 1, 2004, the Company's Board of Directors granted a stock option for
6,000,000 common shares to a related party, Doubletree Capital Partners, Inc.
(DCP), at an exercise price of $.60 per share for a five year term commencing
July 1, 2004. The option was granted to DCP as a means to preserve ownership
interest as required in preliminary acquisition discussions. As of June 30,
2006, the stock options were still outstanding and none of the options had
been exercised.
The Company made a charge to the Company's income statement in the amount of
$60,000 for the estimated value of the options at the date of issuance on July
29, 2004. The options carry a five year term from the date of issuance and a
related exercise price of $0.60 per common share exercised. Using a
conservative risk-free rate of return for a five year investment of 2.25%, we
further discounted the exercise price by 2.25% to arrive at the present value
of $0.54. Using an average then current stock bid price of $.55 and expected
dividends of zero from the Company, we calculated a minimum present value of
the stock option to be $0.01 for the issuance of the 6,000,000 options. The
Company feels this approach is very conservative based upon the current status
of the Company's operations, the lack of trading volume and active market for
the Company's common stock.
(4.d) 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. As the
remaining liabilities are paid or resolved, The Company will receive such
notification of the resolution and may be allowed to reduce the carrying value
of the indemnification receivable. 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 the
related accrued interest payable in the amount of $125,988, (2) One account
payable-disposed business in the amount of $24,000 is also covered by this
indemnification agreement.
The following is summary of the presentation of the liabilities in the Balance
Sheet at June 30, 2006:
Description of debt indemnification: Current Long-term
Defaulted convertible debenture payable $ 150,000 $ 0
Defaulted accrued interest payable 125,988 0
Account payable-disposed business 24,000 0
Convertible debenture payable 50,000 0
Less, contra-indemnification receivable (349,988) 0
--------- ---------
Balances per Balance Sheet, at
June 30, 2006: $ 0 $ 0
========= =========
The Company believes that beyond the $349,988 referred to above, 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.
Note 5) CONVERTIBLE DEBT
(5.a) Convertible Debentures
The Company issued convertible debentures in a private placement between
November 1999 and May 2000. These debentures were convertible at the option
of the holder into common stock at $1.50 per share and bear interest, which is
payable quarterly beginning June 30, 2000 at 12%. The debentures had a term
of three years and mature between November 2002 and May 2003. The issuance of
these debentures included a beneficial conversion feature with intrinsic value
resulting from the market price for common stock being greater than the option
price. The beneficial conversion feature amounted to $422,920, which was
greater than the proceeds of the related debentures by $25,000. The amount of
the beneficial conversion feature not exceeding the proceeds from the
debentures is immediately recognized as interest expense because the right to
convert to common stock is vested upon issuance of the debentures.
Accordingly, interest expense for the year ended December 31, 2000 included
$397,920 related to the beneficial conversion feature.
As of June 30, 2006, the Company was in default on the terms of payment of
quarterly interest on these debentures amounting to $125,988. Accordingly,
two remaining convertible debentures have been classified as a current
liability amounting to $200,000. Reference should be made to note 4.e in these
notes to financial statements as this amount has been offset by a contra-
indemnification receivable.
During 2003, the Company extended one previously defaulted $50,000 convertible
debenture to a future due date of March 31, 2006 with interest payable at that
date. The interest rate was also lowered to 6% par annum. The debenture is
also convertible into common shares of the Company at the rate of $3.00 per
share at the option of the holder. It is classified as a current liability and
has been offset by a contra-indemnification receivable.
As of the date of this report May 12th, 2006, the currently due $50,000
convertible debenture principal has not yet been paid nor has the related
interest due thereon in the amount of %9,750. The $150,000 previous defaulted
debenture notes and their related interest both continue to remain unpaid.
(5.b) Convertible Notes Payable - Related Party
The Company issued convertible notes payable during the three months ended
December 31, 2005 to an entity owned by two of the Company's stockholders.
These notes are due on demand, 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 convertible 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 notes for the nine
months ended June 30, 2006 amounted to $49,264.
On June 6, the convertible notes had an unpaid loan balance due by the Company
in the amount of $612,590 and unpaid total interest due also by the Company in
the amount of $242,380. These notes and their unpaid interest were converted
into common shares of the Company at the reduced price of $.50, as approved by
the Company's Board of Director's at a duly held meeting and the notes and
related interest are now paid in full.
(6.) RELATED PARTY TRANSACTIONS
Convertible Notes Payable - See note 5 b.
The Company incurred expenditures with its President who is also a stockholder
for consulting services amounting to $59,000 in the nine months ended June 30,
2006 and salary expenses in the amount of $21,000.
In December 2003, the Company's Board of Directors approved the issuance of
357,143 common shares as partial payment for services rendered to date. The
unpaid consulting services that existed at March 31, 2006 in the amount of
$356,000 and an additional $14,000 for the months of April and May, 2006 were
paid by the Company with the issuance of 740,000 restricted common shares in
full payment of the liability to the Company.
As a Director, the President received an additional 35,715 common shares
authorized to him during the year ended December 31, 2003 for his services as
a director of the Company and issued in 2004. Three other directors received a
total of 107,145 shares for their services.
In June 2006, the Company authorized the issuance of 155,000 shares of common
stock to the directors for their services as directors. Included in this
issuance was 50,000 common shares issued to Company's President for his
services as a director of the Company.
Also issued during the month of June 2006 were an additional 329,000
restricted common share to related parties of the Company who had rendered
services that are being valued in accordance with generally accepted
accounting principles at $.50 per share issued. Accordingly, there has been a
charge to the operations of the Company for $164,500 for these related party
stock issuances and $77,500 for the services of the directors of the Company,
as referred to in the prior paragraph.
See Notes 4.a and 4.b for additional information regarding related party
transactions for the nine months ended June 30, 2006.
NOTE 7) SUBSEQUENT EVENTS
Other than the reporting of the summons and complaint received by the Company
from the United States Bankruptcy Court Trustee as referred to note 1.a and
note 2 above, there are no additional reportable events subsequent to June 30,
2006 to the date of this report, August 14, 2006.
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 10QSB
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 has been 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 and through May 2005, 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 May 2005, 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 commenced operations in the troubled debt collection business. Upon a
detailed examination of the individual debts and accounts purchased, the
Company determined that it should receive replacement debt receivables from
the Seller companies due to substitutions and replacement debt considered to
be non-collectible, as determined by the Company prior to September 30, 2005.
Accordingly, the Company was given and did receive additional consumer debt
receivables considered to be replacement debt in the additional net amount of
$7,635,274 bringing the total consumer debt receivable purchase to $43,733,000
as of September 30, 2005.
The substituted debts, as revised, amount to a larger face value of debt
purchased but have the same computed fair market value due to different
categories of debts received as well as different ages of the debts. For the
most part, the new and revised group of debts received in accordance with the
original purchase agreement is now considered to be older in age and of
slightly less individual value. The Company, through its third party
collection agent, is evaluating this overall debt purchase for its current
fair market value, future collectibility and net estimated net realizable
value in comparison to the purchase price paid in the amount of $1,094,900
with the issuance of 1,250,000 of the Company's restricted common shares of
stock.
The Company does now consider itself to be out of the reorganization period
and now an operating company.
At March 31, and June 30, 2006, respectively, the Company determined that due
to portions of the purchased debt receivables in the final group as finally
received possessing reduced, diminished, reduced or no value due to debt
worthlessness and losses or further the existence of newly discovered prior
sales of portions of the debt receivables that were purchased, the Company has
recorded a fair market value impairment write down in the amount of $219,934
as of March 31, and additional $85,661 at June 30, 2006 to the carrying value
of the purchased debt receivables.
At June 30, 2006, the current carrying value of the Company's purchased debt
receivables, net after gross collections from date of original purchase in the
amount of $308,937 and an impairment write downs in the amount $305,595, was
$480,369. The Company believes that this carrying value on its Balance Sheet
is a fair carrying value and the amount as stated at June 30, 2006 will be
realized from the gross collections received after required third party
collection fees in the minimum amount of 35% of the gross collections
received.
Results of Operations for the nine months ended June 30, 2006 and 2005.
Sales and Gross Profit
No revenues were recorded for the nine months ended June 30, 2006 and 2005
while the Company again resumes its operations. The Company did resume
operations in the third quarter of 2005 in the troubled debt collection
business as a result of its purchase of face value debt receivables amounting
to $43,733,000 originally valued at $1,094,900. The Company has engaged the
services of third party collection companies to assist in the collection
efforts on the purchased debt receivables. Collection receipts from the debt
portfolios in the amount of $230,594 were collected in the nine months ended
June 30, 2006. This amount has been recorded as a reduction of the purchase
price carrying value of the purchased debt receivables. There were no
collections of debt receivables recorded as income in the nine months ended
June 30, 2005.
The Company does not believe that the net collection cash flows received from
the debt receivables recently purchased will be anywhere close to the amount
of cash flows 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 $541,336 for the nine months ended
June 30, 2006 compared to $209,022 for nine months ended June 30 2005. The
general and administrative expenses for the nine months ended June 30, 2006 do
include consulting expenses charges related to common shares issued in June
2006 in the amount of $254,500 and a bad debt expense provision in the amount
of $95,809 for potential uncollectible note receivables related to the non-
completed acquisition of the California collection Companies. The remaining
expenses in 2006 and 2005 were principally for audit, other recurring
consulting, office and salaries and new operating costs necessary to commence
business operations for the debt collection business.
For the nine months ended June 30, 2006, the Company incurred $84,682 in
direct debt collection costs including third party agency collection costs.
There were no debt collection costs incurred by the Company in the nine months
ended June 30, 2005.
Additionally, new current expenses are being incurred for interest, office,
telephone, consulting, and legal and professional expenses relating to
potential acquisitions and the Company's efforts in obtaining new business
operations. No advertising expense was incurred in 2006 or 2005. At this time,
the Company has no anticipation as to its specific 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. This
conversion did occur on June 5, 2006 with $854,970 of convertible notes and
unpaid accrued interest converted into 1,709,418 of restricted common shares.
As of June 30, 2006, the Company had Total Assets of $535,803 consisting of
$15,098 in cash, $17,039 in Trade receivables, $5,408 in Office equipment,
$480,370 in Purchased receivables - net, $17,600 in Notes receivables and $288
in other assets for organization costs. It had $20,217 in Current Liabilities
consisting of $13,601 in accounts payable and accrued expenses including
$6,616 in convertible notes payable-related party.
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 receivable 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 fully 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 year ended September
30, 2005, 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, 2006 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.
Prior 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, 2006 of $8,313,128. 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 new capital to support the Company's anticipated day-
to-day operations and fully 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 September 30, 2005, includes 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 89.33% of the Company's outstanding common stock at June
30, 2006 compared to 95.06% on June 30, 2005. 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 future 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 numbers 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 $8,313,128 at June 30, 2006. The net loss for the nine
month period ended June 30, 2006 was $996,584. The Company had convertible
debenture debt in default in the amount of $200,000, plus related accrued
interest payable of $125,988. 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 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.
One remaining officer is currently managing the Company. 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
$200,000 in principal and $125,988 in accrued interest as of June 30, 2006 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 currently 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 2006, 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 nine months ending June 30, 2006, the Company was not sued in any
new legal matters. However, on July 18, 2006, The Company was served a summons
and complaint in the commencement of an adversary proceeding in the U.S.
Bankruptcy Court Case(s) of Harrison Asset Management, Inc., Cash Asset
Management, Inc. and Money Asset Management, Inc. in the Central District of
California, San Fernando Valley Division. The U.S. Bankruptcy Court Trustee,
on behalf of the debtor collection companies, files the summons and complaint
against the Company seeking avoidance and recovery of fraudulent transfers;
civil conspiracy for fraudulent transfer; avoidance of unperfected sale;
determination of the validity, priority and extent of lien (as filed by the
Company); turnover (of debt receivables purchased) and objection to the claims
filed by the Company, ISA Internationale, Inc., subsequent in January 2006.
The Company believes that the Trustee's summons and complaint positions are
without merit and will vigorously defend its actions in the debt receivable
purchase and seek recovery of all damages incurred, expenses advanced and
related losses thereto since August 19, 2004, the date the relationship with
the debtor companies commenced through and including the date of May 18, 2005,
the date of the debt receivable purchases by the Company, through the date of
suit commencement and termination.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
During the quarter ended June 30, 2005, there were 20,033,032 common stock
shares issued as follows to various Consultants, Directors, and Officers:
To whom issued: Common shares issued: Value:
Consultants and Directors
(includes related parties) $ 528,680 $ 267,292
President of Company 740,000 370,000
Doubletree Capital Partners, Inc. 1,709,418 854,790
Doubletree Capital Partners, Inc.
Preferred stock conversion $17,054,934 500
Totals: $20,033,032 $1,492,582
Item 3. Defaults Upon Senior Securities
The defaults previously present on the Convertible Debentures as of December
31, 2003 continue as of June 30, 2006, 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 defaults
consist of short-term convertible debt principal amounting to $150,000 and one
additional short-term convertible debt in the amount of $50,000, which also is
now in default since as of the date of this report, May 8th, 2006, the
convertible debt has not been paid by the Company. Accrued interest due
thereon on these notes combined amounts to $125,988, as of June 30, 2006.
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 filed June 30, 2006; 8-K/A filed August 14, 2006; 8-K/A filed
August 18, 2006:
On or about June 6, 2006, ISA Internationale Inc. ("ISA" or the "Company")
issued 1,709,418 shares of its restricted common stock as consideration for
the repayment and conversion of $854,970 of loan advances and related interest
due thereon, as of May 31, 2006. These shares were issued under the auspices
of Rule 4(2).
On or about June 6, 2006, the Company issued 740,000 shares of its restricted
common stock as payment for the conversion of $370,000 of accrued consulting
fees due Bernard L. Brodkorb, President and CEO of the Company. These shares
were issued under the auspices of Rule 4(2).
On or about June 6, 2006 the Company issued 142,000 shares of restricted
common stock to Charles J. Newman as compensation for services rendered to the
Company in its reorganization efforts. These shares were issued at a price of
$.50 per share and under the auspices of Rule 4(2).
On or about June 26, 2006, the Company issued 322,000 share of its restricted
common stock to the Directors of the Company and an additional two persons as
compensation for services rendered to the Company in their positions as
directors or consultants to the Company. These shares were issued at a price
of $.50 per share and under the auspices of Rule 4(2).
On or about June 26, 2006, the Company issued 17,054,934 of its restricted
common stock pursuant to the terms of a November 2, 2000 funding agreement
between The Company, as agreed and executed by its prior management and Board
of Directors, on that date and Doubletree Capital Partners, Inc. The issuances
of these common shares are in exchange for conversion of 5,000,000 preferred
stock shares, previous issued to Doubletree Capital Partners, Inc. on November
7, 2000, and are in accordance with the conversion terms of the November 2,
2000 funding agreement.
The total outstanding common shares of the Company as of June 30, 2006 after
all issuances now total 23,989,912.
The Form 8-K/A filed on August 14, 2006 also removed the word "draft" from the
original filing made June 30, 2006.
The Form 8-K/A to be filed on August 21, 2006, corrects the share recording
price to the revised share prices as reflected above in the 8-K/A above.
ISA Internationale Inc. (ISA) filed its annual 10KSB report for the year ended
September 30, 2005 on January 13, 2006 without the permission of its previous
accountant, Stonefield Josephson Inc., to include their previous Accountant's
Report in the 10KSB, due to a communication misunderstanding between ISA
Internationale Inc., Stonefield Josephson Inc. and the ISA's new auditors,
DeJoya Griffith & Company, CPA's. ISA Internationale, Inc. was notified by
Stonefield Josephson on January 24, 2006 via email and later by a follow up
letter.
The financial statements referred to by Stonefield Josephson are the audited
financial statements for the nine month period ended September 30, 2004. The
financial statements that were included in the form 10KSB report filed on
January 13, 2006 are correct and can be relied upon as being correct.
The communication misunderstanding that led to the apparent unauthorized
inclusion of the Stonefield Josephson audit report in Form 10-KSB was due to a
misunderstanding of an email received on January 11, 2006 by ISA
Internationale Inc. and the Company's new auditors.
The Company's audit committee and two members of the board of directors were
made aware of these matters and were involved in the discussion and resolution
of this matter. One of these board members did discuss the matter with
representatives of Stonefield Josephson Inc. accounting firm.
The permission to file was received from Stonefield Josephson Inc. on February
3, 2006 and no changes were requested by Stonefield Josephson Inc. to be made
to the Form 10-KSB that does contain the Stonefield Josephson audit report for
the period ended September 30, 2004 that was previously filed by ISA
Internationale Inc. on January 13, 2006.
This 8-k filing has been submitted to Stonefield Josephson Inc. this 24th day
of February, 2006, for acknowledgement of their respective agreement of the
above facts. ISA Internationale, Inc. is requesting that ISA Internationale,
Inc. receive a letter of agreement with the above facts and upon receipt of
the letter, ISA Internationale, Inc. will file a copy of their agreement as an
exhibit to the above facts in a subsequent 8-K filing.
As of the date of this report on August 14, 2006, the Company has not yet
received any reply from Stonefield Josephson Inc. on this matter and has also
reported this fact to the SEC. The Company has further discussed the matter
with Stonefield Josephson Inc. and the SEC but has not yet received any
further correspondence from Stonefield Josephson Inc. to resolve this matter
with the SEC.
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 18th, 2006
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 18th, 2006
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 18th, 2006