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 December 31, 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 February 20, 2007 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 Sheet as of
December 31, 2006 (unaudited) 3
Condensed Consolidated Statements of Operations for the
three months ended December 31, 2006 (unaudited) and 2005
(unaudited) 4
Condensed Consolidated Statements of Cash Flows for the
three months ended December 31, 2006 (unaudited) and
2005 (unaudited) 5
Notes to Condensed Consolidated Financial Statements 6-15
Item 2. Management's Discussion and Analysis or Plan of Operation 16-22
Item 3. Controls and Procedures 23
PART II OTHER INFORMATION
Item 1. Legal Proceedings 24
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 24
Item 3. Defaults Upon Senior Securities 24
Item 4. Submission of Matters to a Vote of Security Holders 24
Item 5. Other Information 24
Item 6. Exhibits and Reports on Form 8-K 24
Signatures 25
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
ISA INTERNATIONALE INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(unaudited)
December 31, 2006
ASSETS -----------------
Assets:
Cash and cash equivalents $ 8,883
Trade receivables 8,116
------------
Total Current Assets: 16,999
Office Equipment, at cost less depreciation thereon 4,858
Other assets:
Finance contract receivables - net of collections 321,059
Notes receivable - non current portion 17,600
Organization costs - net of amortization 258
------------
Total Assets $ 360,774
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade and taxes 72,581
Convertible notes payable - related party 67,125
Accrued interest payable - related party 1,632
Indemnification agreement - related party --
------------
Total Current Liabilities 141,338
Long-Term Liabilities: --
------------
Total Liabilities 141,338
------------
Stockholders' Equity:
Common stock, $.0001 par value,
300,000,000 shares authorized;
23,989,912 issued and outstanding 2,399
Additional paid-in capital 8,836,901
Accumulated (deficit) (8,619,864)
------------
Total Stockholders' Equity 219,436
------------
Total Liabilities and Stockholders' Equity $ 360,774
============
The accompanying notes are an integral part of these financial statements.
ISA INTERNATIONALE INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Three Months Ended
December 31, 2006 December 31, 2005
- ------------------ -----------------
Operating revenue:
Portfolio collections $ -- $ --
Operating expenses:
Portfolio collection costs 18,460 28,199
General & administrative 117,939 78,512
---------- -----------
Operating expenses 136,399 106,711
---------- -----------
Operating loss (136,399) (106,711)
Other income (expense):
Interest expense (6,926) (23,744)
---------- -----------
Net (loss) - operations (143,325) (130,485)
---------- -----------
Net (Loss) (143,325) (130,485)
========== ===========
Basic and diluted (loss) per share $ (0.01) $ (0.03)
========== ===========
Total net gain (loss) per share $ (0.01) $ (0.03)
========== ===========
Weighted average common
Shares outstanding:
Basic & Assuming Diluted 23,989,912 3,956,880
========== ===========
Dividends per share of common stock none none
========== ===========
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)
Three Months Ended Three Months Ended
December 31, 2006 December 31, 2005
------------------ ------------------
Cash flows from operating activities:
(Loss) before extraordinary item from
continuing operations $ (143,325) $ (130,485)
Adjustments to reconcile net (loss) from operations
to cash flow used in operating activities:
Deprecation, a non cash charge 275
Amortization of incorporation costs, a non-cash charge 10 21
Reduction of debt receivable purchase price
due to gross collections received 51,969 72,843
Changes in operating assets and liabilities:
Trade account receivables 119 4,287
Note receivable for incurred acquisition (14,000)
Common stock payable services (900)
Accounts payable, accrued expenses and
Common Stock issued for services 46,332 37,130
Accrued expenses - related party 23,000
Accrued interest payable - related party 1,632 18,481
----------- ----------
Cash provided by (used in) operating activities (42,988) 10,377
----------- ----------
Cash flows from financing activities:
Proceeds from issuance of convertible debt
to related party 26,310 3,001
----------- ----------
Cash provided by financing activities 26,310 3,001
----------- ----------
Increase (decrease) in cash and cash equivalents (16,678) 13,378
Cash at beginning of period 25,561 18,963
----------- ----------
Cash and cash equivalents at end of period $ 8,883 $ 32,341
=========== ==========
Non-cash investing in financing transactions:
Stock issued to related party for capital
contribution for Indemnification Agreement 5,293 5,178
---------- ----------
Total non-cash transactions $ 5,293 $5,178
========== ==========
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 Company's 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 cash collections are 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.
The Company believes that the remaining portfolio debt receivable carrying
costs of $321,059 will be recovered by the Company from future gross
collections to be received in the next 48 to 60 months commencing from January
1, 2007 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 December 31, 2006 were as
follows:
Quarter Ended
December 31, 2006
----------------
Balance at beginning of period, September 30, 2006 $ 373,028
Acquisition of debt receivables 0
Cash collections applied to principal (51,969)
Impairment write down to carrying cost 0
-----------------
Balance at the end of the period, December 30, 2006 $ 321,059
=================
Estimated Remaining Collections ("ERC")(Unaudited) * $ 521,730
=================
* 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 three months ended December 31, 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 December 31, 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 $360,574. Reference should be made to note 4.d in
these notes to financial statements for additional information as to
consolidated financial statement presentation at December 31, 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.
1.d) Revenue Recognition
There were no operating revenues through December 31, 2006. Revenue will be
recognized based on AICPA Statement of Position 03-3, if 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 10-QSB report.
1.f) Stock Based Compensation
No shares of the Company's common stock were issued for consulting services
and settlement expenses during the quarter ended December 31, 2006.
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). 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.
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 $8,619,864
at December 31, 2006. The net loss for the three month period ended December,
2006 was $143,325. The Company had convertible debenture debt in default in
the amount of $200,000, plus related accrued interest payable of $136,574.
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 $336,574.
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
resumed operations after an approximate five year reorganization period.
However, there can be no assurance that these actions will be successful.
NOTE 3) INCOME TAXES
The Company has incurred significant net operating losses since its inception
but has not reflected any benefit of such net operating loss carry-forwards in
the accompanying financial statements.
NOTE 4) STOCK ISSUANCE:
(4.a) Preferred Stock
As of December 31, 2006 there are no shares of Preferred Stock issued and
outstanding.
(4.b) Common Stock
As of December 31, 2006, 23,989,912 shares of common stock were issued and
outstanding, No additional shares were issued during the quarter ended
December 31, 2006.
(4.c) Stock Options
There were no options issued during the quarter ended December 31, 2006.
(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 December 31, 2006:
Description of debt indemnification: Current Long-term
Defaulted convertible debenture payable $ 150,000 $ 0
Defaulted accrued interest payable 136,574 0
Account payable-disposed business 24,000 0
Convertible debenture payable 50,000 0
Less, contra-indemnification receivable (360,574) 0
--------- ---------
Balances per Balance Sheet, at
December 31, 2006: $ 0 $ 0
========= =========
The Company believes that beyond the $360,574 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 December 31, 2006, the Company was in default on the terms of payment of
quarterly interest on these debentures amounting to $136,574. 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 the currently due $50,000 convertible debenture
principal and the $150,000 defaulted debenture note and the related interest
due thereon continue to remain unpaid.
(5.b) Convertible or Secured Notes Payable - Related Party
During the three months ended December 31, 2006, additional monies in the
amount of $26,310 were loaned to the Company by an entity owned by two of the
Company's stockholders. As of December 31, 2006, the loans total $67,125 and
are payable on demand to the financial company, bear interest at the rate of
12% per annum, and are secured by the Company's assets for collateral
purposes, but are not convertible into common stock of the Company. Interest
expense on these notes for the three months ended December 31, 2006 amounted
to $1,632.
(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 $14,500 in the three months ended
December 31, 2006 and salary expenses in the amount of $10,500.
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 December
31, 2006 to the date of this report, February 19, 2007.
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
businesses: (1) the development of a multimedia home shopping network
generating direct retail sales of varied products from TV. 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 ShoptropolisTV.Com,
Inc. on March 29, 2001. 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.
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.
Between December 2000 and through May 2005, the Company was operationally
dormant and was 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.
Currently, the Company considers 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 $378,287
for the fiscal year ended September 30, 2006 to reduce the carrying value of
the purchased debt receivables.
At December 31, 2006, the current carrying value of the Company's purchased
debt receivables, net after gross collections from date of original purchase
and impairment write downs, is $321,059. The Company believes this carrying
value on its Balance Sheet is a fair carrying value and the amount as stated
at December 31, 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 three months ended December 31, 2006 and 2005.
Sales and Gross Profit
No net revenue was recorded for the three months ended December 31, 2006 and
2005 for collection of debt receivables using the cost recovery method of
revenue recognition. The Company resumed operations in the third quarter of
2005 in the troubled debt collection business as a result of its purchase of
$43,733,000 in original face value distressed debt receivables amounting at a
cost of $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
$51,969 were collected in the three months ended December, 2006. This amount
has been recorded as a reduction of the purchase price carrying value of the
purchased debt receivables. The Company believes the net cash flows received
from the debt receivables collected will not 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 $117,939 for the three months ended
December, 2006 compared to $78,512 for three months ended December 31 2005.
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 three months ended December, 2006, the Company incurred $18,460 in
direct debt collection costs including third party agency collection costs.
Debt collection costs incurred by the Company in the three months ended
December 31, 2005 were $28,199.
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.
Liquidity and Capital Resources
As of December 31, 2006, the Company had Total Assets of $360,774 consisting
of $8,883 in cash, $8,116 in Trade Receivables, $4,858 in Office Equipment
less depreciation, $321,059 in Purchased Receivables - net, $17,600 in Notes
receivables and $258 in other assets for organization costs. It had $141,338
in Current Liabilities consisting of $72,581 in accounts payable and accrued
expenses, $1,632 in Accrued interest payable - related party, and $67,125 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, 2006, 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 December 31, 2006 of $8,619,864. 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, 2006, 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. (DCP),
beneficially owns approximately 89.22% of the Company's outstanding common
stock at December 31, 2006 compared to 95.06% on December 31, 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 and its 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 $8,619,864 at December 31, 2006. The net loss for the
three month period ended December 31, 2006 was $143,325. The Company currently
owes $67,125 in Loans Payable to a related third party investment company.
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 $136,574 in accrued interest as of December 31, 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 ended September
30, 2007. During fiscal 2006, management reviewed and evaluated the
effectiveness, and where necessary, enhanced the Company's internal controls
over financial reporting. The Company anticipates it may need to engage a
third party to assist it with the improvement 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 the Company will
be in compliance with the requirements of Section 404 by September 30, 2007.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
During the three months ending December 31, 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 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
None during the quarter ended December 31, 2006.
Item 3. Defaults Upon Senior Securities
The defaults previously present on the Convertible Debentures as of December
31, 2003 continue as of December 31, 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. The accrued interest liability due on these notes combined amounts to
$136,574 as of December 31, 2006 has been assumed by an indemnification
agreement with a related investment party (see note 4(d).
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:
EX-31.1 Certification per Sarbanes-Oxley Act (Section 302)
EX-32.1 Certification per Sarbanes-Oxley Act (Section 906)
(b) Form 8-K reports filed during quarter:
None
The total outstanding common shares of the Company as of December 31, 2006
after all issuances total 23,989,912.
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: February 20, 2007