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, 2007
Commission File Number: 001-16423
-----------------------------------
ISA INTERNATIONALE INC.
(Exact name of Small Business Issuer 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 [ ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act. Yes [ ] No [X]
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practical date. On August 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 June 30, 2007 (unaudited)
and September 30, 2006 (audited) 3
Condensed Consolidated Statements of Operations for the three
months and nine months ended June 30, 2007 (unaudited)
and June 30, 2006 (unaudited) 4
Condensed Consolidated Statements of Cash Flows for the nine months
ended June 30, 2007 (unaudited) and June 30, 2006 (unaudited) 5
Notes to Condensed Consolidated Financial Statements 6-12
Item 2. Management's Discussion and Analysis or Plan of Operation 13-19
Item 3. Controls and Procedures 20
PART II OTHER INFORMATION
Item 1. Legal Proceedings 21
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 22
Item 3. Defaults Upon Senior Securities 22
Item 4. Submission of Matters to a Vote of Security Holders 22
Item 5. Other Information 22
Item 6. Exhibits and Reports on Form 8-K 22
Signatures 23
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
ISA INTERNATIONALE INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited) (audited)
June 30, 2007 September 30, 2006
ASSETS ------------- -------------
Current Assets:
Cash and cash equivalents $ 16,697 $ 25,561
Trade receivables 5,885 8,235
------------ -----------
Total Current Assets: 22,582 33,796
Fixed assets, less accumulated depreciation of $917 4,308 5,133
Other Assets:
Finance contract receivables - net of collections 250,017 373,028
Notes receivable - non current portion 7,600 17,600
Organization costs - net of amortization 209 268
------------ ------------
Total Other Assets 257,826 390,896
------------ ------------
Total Assets $ 284,716 $429,825
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade and taxes $ 73,554 $ 31,543
Convertible notes payable - related party 186,985 40,814
Accrued interest payable - related party 9,688
------------ ------------
Total Current Liabilities 270,227 72,357
Long-Term Liabilities: 0 0
------------ -----------
Total Liabilities 270,227 72,357
------------ -----------
Stockholders' Equity:
Common stock, $.0001 par value,
300,000,000 shares authorized;
23,989,912 issued and outstanding at
June 30, 2007 and at June 30, 2006 2,399 2,399
Additional paid-in capital 8,847,315 8,831,608
Accumulated (deficit) (8,835,225) (8,476,539)
------------ -----------
Total Stockholders' Equity 14,489 357,468
------------ -----------
Total Liabilities and Stockholders' Equity $ 284,716 $ 429,825
============ ===========
The accompanying notes are an integral part of these financial statements.
ISA INTERNATIONALE INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
June 30, 2007 June 30 2006 June 30 2007 June 30 2006
--------------- ------------- ------------- ------------
Operating revenue:
Portfolio collections $ 0 $ 0 $ 0 $ 0
Operating expenses:
Portfolio collection costs 10,154 26,036 43,942 84,682
General & administrative 79,546 386,345 289,349 541,336
Impairment charge on portfolio 0 85,661 0 305,595
--------- --------- -------- --------
Operating expenses 89,700 498,042 333,291 931,613
--------- --------- -------- --------
Operating loss (89,700) (498,042) (333,291) (931,613)
Other income (expense):
Interest expense (10,176) (17,746) (25,394) (64,971)
--------- ---------- --------- ----------
Net (loss) from operations ( 99,876) (515,788) (358,685) (996,584)
--------- ---------- ---------- ---------
Net (Loss) $ ( 99,876) $ (515,788) $ (358,685) $ (996,584)
========= ========= ========== =========
Basic and diluted (loss)
per share $ (0.004) $ (0.05) $ (0.01) $ (0.18)
========== ========= ========== =========
Weighted average common
Shares outstanding:
Basic & Assuming Diluted 23,989,912 9,722,645 23,989,912 5,480,322
========== ========== =========== ==========
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.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended Nine Months Ended
June 30, 2007 June 30, 2006
------------------ ------------------
Cash flows from operating activities:
(Loss) from continuing operations $ (358,685) $ (996,584)
Adjustments to reconcile net (loss) from operations
to cash flow used in operating activities:
Deprecation 825 91
Amortization of incorporation costs, 59 59
Reduction of debt receivable purchase price
due to gross collections received 123,011 230,591
Impairment charge on debt receivable purchase
price carrying charge 0 305,595
Charge-off costs incurred for unsuccessful acquisition 0 105,114
Consulting expenses incurred as non-cash charge 0 259,085
Interest charge for indemnification agreement 15,707 0
Changes in operating assets and liabilities:
Trade account receivables 2,350 (1,274)
Note receivable for incurred acquisition 10,000 (17,600)
Accounts payable and accrued expenses 42,011 9,486
Accrued interest payable, related party 9,687 49,004
Accrued expenses, related party 0 55,000
----------- ----------
Cash provided by (used in) operating activities (155,035) (1,433)
----------- ----------
Cash flows from investing activities:
Purchase of equipment 0 (5,500)
----------- ----------
Cash provided by investing activities 0 (5,500)
----------- ----------
Cash flows from financing activities:
Proceeds from issuance of convertible debt
to related party 146,171 3,068
----------- ----------
Cash provided by financing activities 146,171 3,068
----------- ----------
Increase (decrease) in cash and cash equivalents ( 8,864) (3,865)
Cash at beginning of period 25,561 18,963
----------- ----------
Cash and cash equivalents at end of period $ 16,697 $ 15,098
=========== ==========
Non-cash investing in financing transactions:
Additional paid in capital for
Indemnification Agreement 15,707 15,707
Payment of convertible and secured loans and accrued
interest thereon with common stock to related party. 0 854,970
Payment of accrued consulting payable to President of
Company with common stock. 0 370,000
Stock issued to creditors and directors for services 0 272,620
---------- -----------
Total non-cash transactions $ 15,707 $1,513,297
========== ===========
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) Description 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. (ISAI), its wholly owned subsidiary, ISA Financial
Services, Inc. (ISAF) (formerly ISA Acquisition Corporation), and its wholly
owned subsidiary, ISA Acceptance Corporation (ISAA). As a result of a
distressed consumer debt asset purchase agreement 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. The 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 purchased of a portion of the
Company's consumer receivable portfolios for stock valued at $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 the remaining portfolio debt receivables of $250,017 will
be recovered by the Company from future net collections to be received in the
next 48 months commencing from June 30, 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. There was no revenue recognized on debt receivables
for the nine months ended June 30, 2007.
The Company has not had additional portfolio debt impairment write downs for
the current nine month period ended June 30, 2007. Last year's operating
expenses for the nine month period ended June 30, 2006 included an impairment
write down charge against the asset value of the debt receivables in the
amount of $305,595.
Changes in debt receivables for the quarter ended June 30, 2007 were as
follows:
Balance at beginning of period, March 31, 2007 $ 277,894
Acquisition of debt receivables 0
Cash collections applied to principal (27,877)
Impairment write down to carrying cost 0
--------------
Balance at the end of the period, June 30, 2007 $ 250,017
==============
Estimated Remaining Collections ("ERC")(Unaudited) * $ 401,307
==============
Estimated Remaining Collections refers to the sum of all future projected cash
collections from acquired portfolios less estimated direct costs of collection
including fees charged by third party collection firms by the Company. ERC is
not a balance sheet item, however, it is provided for informational purposes.
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, 2007 contains contra
account statement presentation for certain convertible debenture notes
payable, related accrued interest payable and accounts payable-disposed
business in the amount of $370,988. 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, 2007.
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 for the nine month period through June 30,
2007. Revenue will be recognized based on AICPA Statement of Position SOP 03-3
and PB-6, as amended. When expected cash flows results in an increase in the
internal rate of return (IRR) the effect of the cash flow increase is
recognized as increased revenue prorated over the remaining life of the
affected pool of receivables. Conversely, when the expected cash flows are
lower than prior projections, SOP 03-3 requires that the expected decrease be
recognized as an impairment write-off to receivables, decreasing the inventory
value of the affected pool so the pool will amortize over its expected life
using the original IRR. A pool can become fully amortized with no balance on
the Balance Sheet while still generating cash collections that are recognized
as revenue.
In the event management believes expected cash flows cannot be reasonably
estimated, the Company will use the "Cost Recovery Method" under which
revenues are only recognized after the initial investment cost has been
recovered. The Company has been using the "Cost Recovery Method" of revenue
recognition.
1.e) Earnings per Common Share
Basic loss per common 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 2007 and 2006, all
potentially issueable 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 issueable 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 June 30, 2007.
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) Recently Issued Accounting Standards
In February 2007 the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") 159, "The Fair Value
Option for Financial Assets and Financial Liabilities - including an amendment
of FASB Statement 115", that provides companies with an option to report
certain financial assets and liabilities in their entirety at fair value. This
statement is effective for fiscal years beginning after November 15, 2007. The
fair value option may be applied instrument by instrument, and may be applied
only to entire instruments. A business entity would report unrealized gains
and losses on items for which the fair value option has been elected in
earnings at each subsequent reporting date. We are evaluating SFAS 159 and
have not yet determined the impact the adoption will have on the consolidated
financial statements.
In September 2006, the FASB issued SFAS 157, "Fair Value Measurements". This
statement defines fair value, establishes a framework for measuring fair value
for both assets and liabilities through a fair value hierarchy, and expands
disclosure requirements. SFAS 157 is effective for financial statements issued
or fiscal years beginning after November 15, 2007 and interim periods within
those fiscal years. We are evaluating SFAS 157 and have not yet determined the
impact the adoption will have on the consolidated financial statements.
In September 2006, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 108, "Considering the Effects of Prior Year
Misstatements when Quantifying Misstatements in Current Year Financial
Statements" (SAB 108), which addresses how to quantify the effect of financial
statement errors. The provisions of SAB 108 become effective as of the end of
our 2007 fiscal year. We do not expect the adoption of SAB 108 to have a
significant impact on our financial statements.
In July 2006, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 48 (FIN 48), "Accounting for Uncertainty in Income Taxes,"
an interpretation of FASB Statement No. 109, "Accounting for Income Taxes."
FIN 48 prescribes a minimum recognition threshold and measurement attribute
for the financial statement recognition of a tax position taken or expected to
be taken in a tax return. FIN 48 also provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods,
disclosure, and transition for tax related positions. FIN 48 becomes effective
for the Company on January 1, 2007. The Company is currently in the process of
determining the effect, if any, the adoption of FIN 48 will have on the
consolidated financial statements.
2.) LIQUIDITY AND GOING CONCERN MATTERS
The Company has incurred losses since its inception and, as a result, has an
accumulated deficit of $8,835,225 at June 30, 2007. The net loss for the nine
month period ended June 30, 2007 was $358,685. The Company had convertible
debenture debt in default in the amount of $200,000, plus related accrued
interest payable of $146,988. 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 $401,907.
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 June 30, 2007 there are no shares of Preferred Stock issued and
outstanding.
(4.b) Common Stock
As of June 30, 2007, 23,989,912 shares of common stock were issued and
outstanding, No additional shares were issued during the quarter ended June
30, 2007.
(4.c) Stock Options
There were no options issued during the quarter ended June 30, 2007.
(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 $146,988, (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, 2007:
Description of debt indemnification: Current Long-term
Defaulted convertible debenture payable $ 150,000 $ 0
Defaulted accrued interest payable 146,988 0
Account payable-disposed business 24,000 0
Convertible debenture payable 50,000 0
Less, contra-indemnification receivable (370,988) 0
--------- ---------
Balances per Balance Sheet, at
June 30, 2007: $ 0 $ 0
========= =========
The Company believes that beyond the $370,988 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, 2007, the Company was in default on the terms of payment of
quarterly interest on these debentures amounting to $146,988. Accordingly,
two remaining convertible debentures have been classified as a current
liability amounting to $200,000. Reference should be made to note 4.d in these
notes to financial statements as this amount has been offset by a contra-
indemnification receivable. The principal and interest due on these debenture
notes continue to remain unpaid.
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.
(5.b) Convertible or Secured Notes Payable - Related Party
During the nine months ended June 30, 2007, additional monies in the amount of
$76,219 were loaned to the Company by an entity owned by two of the Company's
stockholders. As of June 30, 2007, the loans total $186,985 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 June 30, 2007 amounted to $4,941.
(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 June
30, 2007 and salary expenses in the amount of $10,500.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Forward Looking Statements
This report 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.
The Company undertakes no obligation to update the result of any revisions to
these forward-looking statements which may be made to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events, conditions, or circumstances.
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 an original face value of $36,097,726 in
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 face value amount of $7,635,274 bringing the total
consumer debt receivable purchase to $43,733,000 in face value debt
receivables 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 shares of the Company's restricted common
stock.
At March 31, and June 30, 2006, respectively, the Company determined that
portions of the purchased debt receivables in the final group as finally
received had 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. The Company 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 June 30, 2007, 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 $250,017. The Company believes this carrying value
on its Balance Sheet is a fair carrying value and the amount as stated 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, 2007 and 2006.
Sales and Gross Profit
No net revenue was recorded for the nine months ended June 30, 2007 for
collection of debt receivables using the cost recovery method of revenue
recognition. The Company has engaged the services of third party collection
companies to assist in the collection efforts on the purchased debt
receivables. Gross collection receipts from the debt portfolios in the amount
of $123,011 were collected in the nine months ended June 30, 2007. For the
nine month period ended June 30, 2006 gross collection receipts were $198,061.
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 $289,349 for the nine months ended
June 30, 2007 compared to $541,336 for nine months ended June 30 2006. The
remaining expenses in 2007 and 2006 were principally for audit, legal, other
recurring consulting, office, wages and salaries. Legal costs for the nine
month period represented $83,649 or 29% of the total general and
administrative costs due to high legal fees associated with our defense in a
legal proceeding (see Part II, Item 1 - Legal Proceedings). Last fiscal year
Legal Costs amounted to $18,848 for the nine months ended June 30, 2006.
For the nine months ended June 30, 2007, the Company incurred $43,943 in
direct debt collection costs including third party agency collection costs.
Debt collection costs incurred by the Company in the nine months ended June
30, 2006 were $84,682.
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 2007 or 2006.
Liquidity and Capital Resources
As of June 30, 2007, the Company had Total Assets of $284,716 consisting of
$16,697 in cash, $5,885 in Trade Receivables, $4,308 in Office Equipment net
of depreciation, $250,017 in Purchased Receivables - net, $7,600 in Notes
receivables, and $209 for organization costs net of amortization. It had
$270,277 in Current Liabilities consisting of $73,554 in accounts payable and
accrued expenses, $9,686 in Accrued interest payable - related party, and
$186,985 in collateralized 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 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, 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, 2007 of $8,835,225. 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
The Company's principal shareholder, Doubletree Capital Partners, Inc. (DCP),
it's owners, and a related company beneficially owns approximately 89.22% of
the Company's outstanding common stock at June 30, 2007 compared to 95.06% on
June 30, 2006. 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 $8,835,225 at June 30, 2007. The net loss for the nine
month period ended June 30, 2007 was $358,686. The Company currently owes
$186,985 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 $146,988 in accrued interest as of June 30, 2007 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. These debenture
liabilities have been offset by an indemnification agreement designed to cover
these liabilities and offset them on the Balance Sheet. 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 nine months ending June 30, 2007, the Company was not sued in any
new legal matters. 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, filed 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.
On June 26, 2007 the Company reported by filing Form 8-K an agreement with the
bankruptcy court to settle the complaint filed against them in the above
mentioned case. Terms of agreement include the following:
1. Defendants will pay to the bankruptcy trustee an initial settlement sum of
$75,000 within 16 days of court approval of the settlement agreement.
2. ISAI will retain the portfolio accounts ("Accounts") purchased by and
delivered to it including any of the Accounts recovered by third parties, and
shall continue collecting on those Accounts at its own costs, with 40% of all
future cash collections, net after third party collection costs to be paid on
a quarterly basis to the Trustee until the case is closed, but no later than
June 30, 2008. After June 30, 2008, ISAI shall retain the Accounts for its own
benefit.
3. Trustee will return all of the bankruptcy estates' right, title and
interest in the ISAI shares held in their possession and in escrow under the
original asset purchase agreement with the companies in bankruptcy.
4. Trustee and ISAI will share 50%/50% in the net recovery (after application
of attorney fees and costs) by settlement or enforcement of judgment if any
lawsuits or claims are commenced or pursued by the Trustee against Third Party
Defendants.
5. ISAI will reasonably cooperate with the prosecution of any claims against
Third Party defendants.
6. ISAI will continue to prosecute its Third Party Complaint, and the Trustee
and ISAI shall share 50%/50% in the net recovery (after application of
attorneys' fees and costs) from settlements or enforcements of judgments
against those parties.
7. If the Trustee does not elect to pursue claims against the Third Party
Defendants within 120 days after the execution of this agreement, Then ISAI
may elect to pursue those claims upon written notification to the Trustee of
such election, unless an earlier date is agreed upon by the parties. In such
event, the Trustee without further need for court order, shall assign the
pursuant to Sections 108(a) of the Bankruptcy Code) in any claims against the
Third Party Defendants to ISAI, and ISAI shall share with the bankruptcy
estate, 50%/50%, all net proceeds after fees and costs of collection. ISAI
shall have the ability to settle or dismiss the claims in its sole discretion.
8 ISAI and the Trustee and Debtors each waive any and all claims against each
other, and any claims against the Debtors now existing are deemed withdrawn.
9. Within 5 business days after receipt of the initial sum, The Trustee and
the Defendants shall lodge a stipulation dismissing the Second Amended
Complaint against ISAI.
The Company has denied all relevant allegations against itself but felt it was
in its own best interest to settle the claim rather than sustain the expense
of protracted litigation.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None during the quarter ended June 30, 2007.
Item 3. Defaults Upon Senior Securities
The defaults previously present on the Convertible Debentures as of December
31, 2003 continue as of June 30, 2007, 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 $146,988 as of June
30, 2007 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 of Principal Executive Officer and Principal
Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act.
EX-32.1 Certification of the Principal Executive Officer and Principal
Financial Officer pursuant to 18 U.S.C. Section 1350 per Sarbanes-Oxley Act. (
(b) Form 8-K reports filed during quarter:
Form 8-K filed on June 26, 2007.
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,
Chief Financial Officer
Date: August 20, 2007