UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal year ended September 30, 2007.
Commission File Number: 001-16423
Old Commission File Number: 000-27373
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ISA INTERNATIONALE INC.
(Exact name of registrant as specified in its charter)
Delaware 41-1925647
(State of Incorporation) (I.R.S. Employer Identification No.)
2564 Rice Street, St. Paul, MN 55113
(Mailing address of principal executive offices) (Zip Code)
Issuer's telephone number (651) 483-3114
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Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, $.0001 par value OTC Bulletin Board
(Title of each class) (Name of each exchange on which registered)
Check whether the issuer is not required to file reports pursuant to Section
13 or 15(d) of the Exchange Act. [ ]
Check whether the registrant (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 [ ]
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-
KSB or any amendment to this Form 10-KSB. [X]
Yes [ ] No [X]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in the Exchange Act Rule 12d-2).
Yes [ ] No [X]
State issuer's revenues for its most recent fiscal year:
None for continuing operations.
State the aggregate market value of the voting and non-voting common stock
held by non-affiliates of the Registrant computed by reference to the price
at which the common stock was sold, or the average bid and asked price of
such common stock, as of a specified date within the past 60 days (See
definition of affiliate in Rule 12b-2 of the Exchange Act):
$1,413,716 as of January 14, 2008, based upon the average bid price of $.36
as defined in the prior paragraph.
State the number of shares outstanding of each of the Issuer's classes of
common equity and preferred equity as of the latest practicable date:
The number of shares outstanding of the issuer's common stock as of January
11, 2008 were 23,999,612 shares, par value $0.0001.
There are 275,000 shares issued and outstanding of the issuer's cumulative
and convertible Series A preferred stock, par value $.0001 as of January 10,
2008. The preferred stock is convertible into common shares at the rate of
2.32 common shares for each preferred share for a total of 785,714 common
shares or a common price of $.35 per share. The preferred `shares shall be
convertible to common shares at any time upon the option of the holder,
Doubletree Capital Partners, Inc., a related party. The preferred share bear
a dividend rate of 12% per annum, dividends payable quarterly or annually at
the option of the Company, and cumulative in amount until such time as they
are paid to the holder by the Company.
Indicate by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act) Yes [ } No [X]
Transitional Small Business Disclosure Format: Yes [ ] No [X]
DOCUMENTS INCORPORATED BY REFERENCE:
NONE
TABLE OF CONTENTS
Page
PART I
Item 1. Description of Business 4
Item 1.1 Corporate History, Organization and Recapitalization 4-5
Item 1.2 Industry Overview and Trends 5-7
Item 1.3 Personnel 7
Item 1.4 Important Risk Factors 7-13
Item 2. Description of Property 13
Item 3. Legal Proceedings 14-16
Item 4. Submission of Matters to a Vote of Security Holders 16
PART II
Item 5. Market for Common Equity and Related Stockholder Matters 17
Item 5.A Market, Holders and Dividends 17
Item 5.B Sales History of Unregistered Securities 18-21
Item 6. Management's Discussion and Analysis or plan of operation 22-27
Item 7. Financial Statements and Supplementary Data 28
Table of Contents 28
Report of Independent Registered Public Accounting Firm 29
Consolidated Financial Statements 30-33
Notes to Consolidated Financial Statements 34-44
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 45
Item 8.A. Controls and Procedures 45
Item 8.B. Other Information 45
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act 46-47
Item 10. Executive and Director Compensation 48
Item 11. Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters 49
Item 12. Certain Relationships and Related Transactions 50
Item 13. Exhibits 50
Item 14. Principal Accountant Fees and Services 51
Signatures 52
Certification pursuant to section 302 53
Certification pursuant to 18 U.S.C. 1350 906 54
Index to Exhibits, Form 10-KSB 55
PART I
Item 1. DESCRIPTION OF BUSINESS
As used herein, the terms "ISAI" or "ISAT", the trading symbol of the Company
and the "Company" refer to ISA Internationale Inc. unless the context
indicates otherwise.
1.1 Corporate History, Organization and Recapitalization
ISA Internationale Inc. (the Company or 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 an acquisition of Internationale
Shopping Alliance Incorporated (Internationale), which was a wholly owned
subsidiary of ISAI. This subsidiary was acquired when the former shareholders
of Internationale 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 Internationale. This
transaction was effected as a reverse merger for financial statement and
operational purposes. Accordingly, ISAI regards its inception as being the
incorporation of Internationale on October 7, 1997. Subsequent to this
reverse merger, the name of Internationale Shopping Alliance Incorporated was
changed to ShoptropolisTV.com, Inc (Shoptropolis).
The primary business strategy of Shoptropolis, was to develop a multimedia
home shopping network for the purpose of offering in-home shoppers a
convenient electronic shopping experience through broadcast television,
cable, satellite or the Internet, and featuring a broad diversity of high
quality, moderately priced, unique consumer products.
ISAI incorporated its precious metals subsidiary, International Strategic
Assets, Inc. (ISA), in March 1999. The primary business strategy of ISA was
outbound direct telemarketing sales of precious commodities, primarily
including gold, silver, platinum and palladium in bullion form including bars
and coins of various types and face amounts.
On May 19, 2000, ISAI sold ISA to an individual who was an officer and
director of ISAI. In December 2000, due to a lack of capital, the Company
concluded that no further efforts would be expended to develop its planned
shopping network and the disposal of the Shoptropolis subsidiary was approved
by the Board of Directors. Shoptropolis was sold on March 29, 2001.
In May 2005, the Company consummated its first purchase of performing, sub-
performing and non-performing consumer receivables. These portfolios
generally consist of one or more of the following types of consumer
receivables:
- charged-off receivables -- accounts that have been written-off by the
originators and may have been previously serviced by collection
agencies;
- sub-performing receivables -- accounts where the debtor is currently
making partial or irregular monthly payments, but the accounts may have
been written-off by the originators; and are currently being serviced by
collection agencies;
- performing receivables - accounts where the debtor is making regular
payments or pays upon normal and customary procedures to collection
agencies.
The Company has acquired these receivables at a significant discount to the
amount actually owed by the debtors from a group of Companies in California.
The receivables purchased represented a portion of distressed debt the
companies owned and previously purchased as distressed consumer debt
receivables. The Company outsources its collections to one or more carefully
selected collection agencies and actively monitors collection and servicing
strategies accordingly. For the year ended September 30, 2007, The Company
recorded no collection revenue due to the Company's adoption of the "cost
recovery" method of recognizing debt collection income.
Due to various problems and characteristics of the distressed debt portfolios
purchased by the Company, no conclusive statistics of collection by the
Company can be realistic discerned to facilitate the development of reliable
collection conclusions as to the amount of income that can ultimately result
from these debt portfolios. The Company is obligated, in accordance with
industry standards and AICPA pronouncements regarding income recognition for
troubled asset purchases to adopt the "cost recovery" method of income
collection. Accordingly, the Company will recognize income from the
collection of its portfolios only after it has collected the full purchase
price of $1,094,900 less $378,287 of impairment write-downs, for the
portfolios purchased during the period from May 18, 2005 to September 30,
2006. At September 30, 2007, the remaining carrying cost of the Company's
portfolios was $221,576 compared to 373,028 at September 30, 2006.
The Company believes the earliest year revenues could be recognized would be
by the fiscal years 2009 or 2010, based upon the application of industry
recognized standards for receiving cash collections on its purchased debt
portfolios. For the year ended September 30, 2007, the Company received cash
collections in the gross amount of $151,452. Collections of $265,241 for the
year ended September 30, 2006 and $78,343 respectively for the year ended
September 30, 2005 have been received since the portfolios were purchased on
May 18, 2005. These were applied to reduce the initial gross portfolio
inventory cost of $1,094,900. There have also been impairment write-downs to
the carrying value of the portfolio inventory totaling $378,287 thereby
reducing the carrying cost to the Company to $221,576 as of September 30,
2007.
1.2 Industry Overview and Trends
The purchasing, servicing and collection of charged-off, sub-performing and
performing consumer receivables is a rapidly expanding industry driven by:
- levels of consumer debt;
- defaults of the underlying receivables; and
- utilization of third-party agency collectors providers to collect such
receivables.
- increasing use of computer technology to improve productivity in the
collection process.
As a result of the difficulty experienced by the originating lending
institutions in collecting these past due receivables and the desire to focus
on their core businesses and to generate accelerated cash revenue from these
receivables, originating institutions are increasingly electing to sell these
portfolios through a network of brokers in the debt collection industry.
1.2.a Credit Industry Trends
According to the U.S. Federal Reserve Board, the total outstanding consumer
credit balance has increased 103% in the last 10 years from $1.222 trillion
at August 1997 to $2.478 trillion at August 2007. Finance Companies
receivables have increased from $838.4 billion in July 1997 to $2,044.8
billion in July 2007 or 244%. According to the Nilson Report, a credit card
industry newsletter, goods and services purchased by all credit cards issued
in the U.S.A. reached $1.950 trillion in 2006. They also predict the consumer
credit market will increase to $2.8 trillion by 2010.. Recent statistics
from the FDIC showed a net charge-off rate for consumer loans for Credit Card
Lenders at 4.18% for the second quarter of 2007 compared to a rate of 3.56%
for the Second Quarter of 2006 indicating a decline in credit quality in the
last year.
As a result of the difficulty in collecting these past due receivables and
the desire of originating institutions to focus on their core businesses and
to generate revenue from these receivables, originating institutions are
increasingly electing to sell these portfolios. ISAT believes there is more
opportunity to expand its business as the debt collection industry matures
and grows but sees challenges ahead as a result of changing global economic
factors.
The consumer credit industry is becoming more complex and technology oriented
every year with new products being offered to consumers, lending
institutions, and the debt collection industry. Debit card transactions have
now surpassed credit card transactions with a 54% share in 2006. Bank cards
may offer the cardholder the option of choosing either a debit or credit type
of transaction. Because of security concerns on the internet, alternative
payment methods such as PayPal, Amazon, and Moneta offer consumers the option
to make purchases without using credit cards. Walk-in bill payments have
become more prevalent, growing at a rate of 2% to 3% a year, with companies
such as CheckFreePay, Western Union, and Moneygram offering consumers
convenient ways to pay bills and cash checks.
The current subprime and adjustable rate mortgage industry crisis will have a
significant impact on the consumer receivables industry as consumers who find
their payments on their adjustable rate mortgages skyrocketing will also have
difficulty keeping up with payments due on their credit card debt. This
combined with declining house values means fewer options are available for
the consumer to pay credit card debt by refinancing through home equity loans
or second mortgages. Our Company feels this may be an opportunity to purchase
more credit card debt at favorable rates as more consumers increase their
credit card spending and maintain higher balances.
1.2.b Strategy
The Company's current strategy is to acquire additional portfolios and
outsource the collections. The Company also intends to develop its own
collection staff and related call centers as the quantity and amount of
purchased portfolios increases. For these additional purchases, the Company
will need to secure suitable financing to allow for these purchases of
portfolios. As of the date of this report, the Company has not implemented
any new financing proposals; however, the Company will continue developing
strategies to acquire new financing.
1.2.c Competition in the industry
The business of collecting distressed consumer receivables is highly
competitive and we expect competition from new and existing companies will
increase. The Company will be competing with other purchasers of consumer
receivables, including third-party collection companies and other financial
services companies. Many of our competitors are larger, more established and
have substantially greater financial, technological, personnel and other
resources than we have, including greater access to capital sources and
markets.
1.3. Personnel
Mr. Bernard L. Brodkorb is the ISAI President, Chief Operating Officer, Chief
Financial Officer, and Chairman of the Board. He also serves as a consultant
to the Company and is a Certified Public Accountant. On the date of this
report December 29, 2007, the Company has one additional administrative full
time employee who is an attorney working on staff and one accountant retained
as an independent consultant. Additional staff persons are used part-time.
1.4. IMPORTANT RISK FACTORS
The following factors are important and should be considered carefully in
connection with any evaluation of the Company's business, financial
condition, results of operations and prospects. Additionally, the following
factors could cause the Company's actual results to materially differ from
those reflected in any forward-looking statements of the Company.
New Business Ventures
On August 18, 2004, the Company entered into a contract to purchase the debt
collection business assets of three California companies. The Company
believed that it would be purchasing in excess of $5,000,000 in various
assets such as cash, marketable securities, office furniture and fixtures and
consumer debt receivables having a charged-off face value in excess of
$200,000,000. The transaction was not completed in accordance with either the
original negotiated contract terms or the subsequent negotiated revised
terms. However, the Company did complete a purchase of a portion of these
collection consumer debt receivables in May for a price of $1,094,900 in
restricted common shares of the Company. The Company issued 1,250,000 in
restricted common shares to the California collection companies in order to
complete the purchase of the assets. This purchase of consumer receivables
allowed the Company to become operational in the financial services industry,
more specifically in the consumer debt collection business and intends to
purchase additional portfolios of distressed consumer debt receivables in the
future. The Company is currently creating its operational and marketing
strategy to further develop this business venture.
The Company's prospects for its new business ventures must be considered in
light of the many risks, expenses and difficulties encountered frequently by
companies in the financial services industry.
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. 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 within the financial services industry. There can be no
assurance ISAI can find and attract new capital for this new business venture
and other 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.
Other Risk Factors
We may not be able to purchase consumer receivable portfolios at favorable
prices or on sufficiently favorable terms or at all and our success depends
upon the continued availability of consumer receivable portfolios that meet
our purchasing criteria and our ability to identify and finance the purchases
of such portfolios.
The availability of consumer receivable portfolios at favorable prices and on
terms acceptable to us depends on a number of factors outside of our control,
including:
- the continuation of the current growth trend in consumer debt;
- the continued volume of consumer receivable portfolios available for
sale; and
- competitive factors affecting potential purchasers and sellers of
consumer receivable portfolios.
We have seen at certain times that the market for acquiring consumer
receivable portfolios is becoming more competitive, thereby possibly
diminishing our ability to acquire such receivables at attractive prices in
future periods.
The growth in consumer debt may also be affected by:
- a slowdown in the economy;
- reductions in consumer spending;
- changes in the underwriting criteria by originators; and
- changes in laws and regulations governing consumer lending.
Any slowing of the consumer debt growth trend could result in a decrease in
the availability of consumer receivable portfolios for purchase that could
affect the purchase prices of such portfolios. Any increase in the prices we
are required to pay for such portfolios in turn will reduce the profit, if
any, we generate from such portfolios.
Because of the nature of our business, our quarterly operating results may
fluctuate, which may adversely affect the market price of our common stock.
Our results may fluctuate as a result of any of the following:
- the timing and amount of collections on our consumer receivable
portfolios;
- our inability to identify and acquire additional consumer receivable
portfolios;
- a decline in the estimated value of our consumer receivable
portfolio recoveries;
- increases in operating expenses associated with the growth of our
operations or legal expenses;
- and general and economic market conditions.
We may not be able to recover sufficient amounts on our consumer receivable
portfolios to recover the costs associated with the purchase of those
portfolios and to fund our operations.
In order to operate profitably over the long term, which we have not yet been
able to do since our inception, we must continually purchase and collect on a
sufficient volume of receivables to generate cash that exceeds our costs.
Our ability to recover on our portfolios and produce sufficient returns can
be negatively impacted by the quality of the purchased receivables. In the
normal course of our portfolio acquisitions, some receivables may be included
in the portfolios that fail to conform to certain terms of the purchase
agreements and we may seek to return these receivables to the seller for
payment or replacement receivables. However, we cannot guarantee that any of
such sellers will be able to meet their payment obligations to us. Accounts
that we are unable to return to sellers may yield no return. If cash flows
from operations are less than anticipated as a result of our inability to
collect sufficient amounts on our receivables, our ability to satisfy our
debt obligations, purchase new portfolios and our future growth and
profitability may be materially adversely affected.
We are subject to intense competition for the purchase of consumer receivable
portfolios and, as a result of this competition, if we are unable to purchase
receivable portfolios, our profits, if any, will be limited.
We will be competing with other purchasers of consumer receivable portfolios,
with third-party collection agencies and with financial services companies
that manage their own consumer receivable portfolios. We compete on the basis
of reputation, industry experience and performance. Some of our competitors
have greater capital, personnel and other resources than we have. The
possible entry of new competitors, including competitors that historically
have focused on the acquisition of different asset types, and the expected
increase in competition from current market participants may reduce our
access to consumer receivable portfolios. Aggressive pricing by our
competitors could raise the price of consumer receivable portfolios above
levels that we are willing to pay, which could reduce the number of consumer
receivable portfolios suitable for us to purchase or if purchased by us,
reduce the profits, if any, generated by such portfolios. If we are unable to
purchase receivable portfolios at favorable prices or at all, our revenues
and earnings could be materially reduced.
Failure of our third party recovery partners to adequately perform collection
services could materially reduce our revenues and our profitability, if any.
We are dependent upon outside collection agencies to service all our consumer
receivable portfolios. Any failure by our third party recovery partners to
adequately perform collection services for us or remit such collections to us
could materially reduce our revenues and our profitability. In addition, our
revenues and profitability could be materially adversely affected if we are
not able to secure replacement recovery partners and redirect payments from
the debtors to our new recovery partner promptly in the event our agreements
with our third-party recovery partners are terminated, our third-party
recovery partners fail to adequately perform their obligations or if our
relationships with such recovery partners adversely change. Our collections
may decrease if bankruptcy filings increase.
During times of economic recession, the amount of defaulted consumer
receivables generally increases, which contributes to an increase in the
amount of personal bankruptcy filings. Under certain bankruptcy filings, a
debtor's assets are sold to repay credit originators, but since the defaulted
consumer receivables we purchase are generally unsecured we often would not
be able to collect on those receivables. We cannot assure you that our
collection experience would not decline with an increase in bankruptcy
filings.
If our actual collection experience with respect to a defaulted consumer
receivables portfolio is significantly lower than we projected when we
purchased the portfolio, our earnings could be negatively affected. We may
not be able to continue our operations if we are unable to generate funding
from third party financing sources.
If we are unable to access external sources of financing, we may not be able
to fund and grow our operations. The failure to obtain financing and capital
as needed would limit our ability to purchase consumer receivable portfolios
and achieve our growth plans.
We will possibly use estimates for recognizing revenue on a portion of our
consumer receivable portfolio investments and our earnings would be reduced
if actual results are less than estimated.
The loss of any of our executive officers may adversely affect our operations
and our ability to successfully acquire receivable portfolios.
Our Chairman and President and two other officers or directors are
responsible for making substantially all management decisions, including
determining which portfolios to purchase, the purchase price and other
material terms of such portfolio acquisitions. These decisions are
instrumental to the success of our business. The loss of these services by
these individuals could disrupt our operations and adversely affect our
ability to successfully acquire receivable portfolios until such time as
replacement expertise can be found and utilized in the Company management
process.
Government regulations may limit our ability to recover and enforce the
collection of our receivables.
Federal, state and municipal laws, rules, regulations and ordinances may
limit our ability to recover and enforce our rights with respect to the
receivables acquired by us. These laws include, but are not limited to, the
following federal statutes and regulations promulgated there under and
comparable statutes in states where consumers reside and/or where creditors
are located:
- the Fair Debt Collection Practices Act;
- the Federal Trade Commission Act;
- the Truth-In-Lending Act;
- the Fair Credit Billing Act;
- the Equal Credit Opportunity Act; and
- the Fair Credit Reporting Act.
Additional laws may be enacted that could impose additional restrictions on
the servicing and collection of receivables. Such new laws may adversely
affect the ability to collect the receivables.
Because the receivables were originated and serviced pursuant to a variety of
federal and/or state laws by a variety of entities and involved consumers in
almost all 50 states, there can be no assurance that all original servicing
entities have at all times been in substantial compliance with applicable
law. Additionally, there can be no assurance that we or our recovery partners
have been or will continue to be at all times in substantial compliance with
applicable law. The failure to comply with applicable law could materially
adversely affect our ability to collect our receivables and could subject us
to increased costs and fines and penalties. In addition, our third-party
recovery partners may be subject to these and other laws and their failure to
comply with such laws could also materially adversely affect our revenues and
earnings.
Certain originators and recovery partners in the consumer credit industry
have been subject to class actions and other litigation. Claims include
failure to comply with applicable laws and regulations and improper or
deceptive origination and servicing practices. If we become a party to such
class action suits or other litigation, our results of operations and
financial condition could be materially adversely affected.
If a significant portion of our shares available for resale are sold in the
public market, the market value of our common stock could be adversely
affected.
Sales of a substantial number of shares of our common stock in the public
market could cause a decrease in the market price of our common stock. We had
approximately 23,999,612 shares of common stock issued and outstanding as of
the date of this Form 10-KSB report. In addition, options to purchase
approximately 6,000,000 shares of our common stock were outstanding as of
September 30, 2007. All of these options were vested and the exercise prices
of such options were substantially lower than the current market price of our
common stock.
If a significant portion of these shares were sold in the public market, the
market value of our common stock could be adversely affected.
History of Losses and Anticipated Further Losses
ISAI has generated no revenues to date and has an accumulated deficit as of
September 30, 2007 of $8,479,167. Further, the Company expects to continue to
incur losses until it establishes a means of generating revenues at
appropriate margins to achieve profitability. There can be no assurance the
Company will ever generate revenues or that it will achieve profitability, or
that its future operations will prove commercially successful, or that it
will establish any means of generating revenues at appropriate margins to
achieve profitability.
Need for Additional Financing
The Company's current capital resources are not sufficient to support the
Company's anticipated day-to-day operations. As such, the Company must obtain
significant additional capital in order to support the Company's anticipated
day-to-day operations and settle the debt incurred by ISAI during its past
operations until it establishes a means of generating revenues at appropriate
margins to achieve profitability
The debt collection business the Company recently entered into is being
analyzed and appropriate business strategy models are being developed. The
Company still needs to secure additional financing and is investigating new
financing strategies.
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 debts 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. Additional financing from DCP 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,
2007 include an explanatory paragraph concerning the Company's ability to
continue as a going concern.
Reliance on Key Personnel
The Company's future success will be dependent upon the ability to attract
and retain executive officer(s) and certain other key persons. The inability
to attract such individuals or the loss of services of one or more of such
persons would have a material adverse effect on ISAI's ability to implement
its current plans or continue its operations. There can be no assurance the
Company will be able to attract and retain qualified personnel as needed for
its business control by existing management.
One principal shareholder, Doubletree Capital Partners, Inc., a related party
corporation owned 50% by the Company's President and 50% by an affiliated
stockholder, beneficially owns approximately 89.2% of ISAI's outstanding
common stock as of September 30, 2007 and accordingly has complete control of
the business and development, including the ability to manage all operations,
establish all corporate policies, appoint future executive officers,
determine management salaries and other compensation, and elect all members
of the Board of Directors of ISAI.
Effects of Trading in the Over-the-Counter Market
The Company's common stock is traded in the over-the-counter market on the
OTC Electronic Bulletin Board. The Company's stock symbol is ISAT.
Consequently, the liquidity of the Company's common stock may be impaired,
not only in the number of shares that may be bought and sold, but also
through delays in the timing of transactions, and coverage by security
analysts and the news media may also be reduced. As a result, prices for
shares of the Company's common stock may be lower than might otherwise
prevail if the Company's common stock were traded on a national securities
exchange or listed on the NASDAQ Stock Market. Further, new eligibility
standards and rules for broker dealers who make a market in shares listed on
the OTC Election Bulletin Board may limit the number of brokers willing to
make a market in the Company's common stock.
Limited Market For Securities
There is a limited trading market for the Company's common stock, which is
not listed on any national stock exchange or the NASDAQ stock market. The
Company's securities are subject to the "penny stock rules" adopted pursuant
to Section 15(g) of the Securities Exchange Act of 1934, which applies to
non- NASDAQ companies whose common stock trades at less than $5 per share or
has tangible net worth of less than $2,000,000. These "penny stock rules"
require, among other things, that brokers who sell covered "penny stock" to
persons other than "established customers" complete certain documentation,
make suitability inquiries of investors and provide investors with certain
information concerning trading in the security, including a risk disclosure
document and quote information under certain circumstances.
Many brokers have decided not to trade "penny stock" because of the
requirements of the "penny stock rules" and, as a result, the number of
broker-dealers willing to act as market makers in such securities is 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.
Item 2. DESCRIPTION OF PROPERTY
The principal executive office of the Company is located at 2564 Rice St.,
St. Paul, MN 55113. The President of ISAI, at the location of his own
accounting business, rents office space to the Company for a monthly charge
of $700.
Item 3. LEGAL PROCEEDINGS
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 proof of claims filed by the
Company, ISA Internationale, Inc., subsequent in January 2006.
The Company believes that the Trustee's summons and complaint positions are
without merit and will vigorously defend its actions in the debt receivable
purchase and seek recovery of all damages incurred, expenses advanced and
related losses thereto since August 19, 2004, the date the relationship with
the debtor companies commenced through and including the date of May 18,
2005, the date of the debt receivable purchases by the Company and further
through the date of suit commencement and termination. See settlement
agreement below.
Since July 18, 2006, the Trustee in the U.S. Bankruptcy Court Case has also
sued the Company's President in his capacity as President for civil
conspiracy. On September 11, 2006, the Trustee filed their first amended
complaint and suing the Company's President for civil conspiracy. On
September 25, 2006, the Company and its President filed counterclaims against
the Trustee and third party claims against Dante Fala, former President and
current sole shareholder of the "seller" collection companies and the third
party collection company, their predecessor business and their officers.
On November 22, 2006, a motion to dismiss adversary proceeding for failure to
state a claim was filed by the Company's President. The motion was
subsequently granted with leave to amend by the Bankruptcy Judge in December
2006.
On June 20, 2007, ISA Internationale Inc. (ISAI), its wholly owned subsidiary
ISA Financial Services, Inc. (ISAF), and Bernard L. Brodkorb entered into an
agreement with Amy L. Goldman, Chapter 7 Trustee of the bankruptcy estates of
Harrison Asset Management, Inc., Money Asset Management, Inc., and Cash Asset
Management, Inc., to settle an adversary complaint filed against them on or
about July 14, 2006. The Company has denied all relevant allegations against
itself but felt it was in its own best interest to agree to settle rather
than sustain the expense of protracted litigation.
The settlement agreement includes the following condensed terms:
(The complete contract agreement is attached as exhibit 99-1.)
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 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
estate's right, title and interest (including the Trustee's tolling rights
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.
Dismissal of Lawsuit against ISAI as a third party defendant.
On August 15, 2007, the United States Bankruptcy Court, Central District of
California, San Fernando Valley Division approved a Settlement Agreement
("Agreement") and Mutual Releases in its entirety made by and among Amy L.
Goldman, Chapter 7 Trustee of the jointly administered bankruptcy estates of
Harrison Asset Management, Inc., Money Asset Management, Inc., and Cash Asset
Management, Inc., on the one hand, and ISA Internationale Inc. ("ISAI"), its
wholly owned subsidiary ISA Financial Services, Inc. ("ISAF"), and Bernard L.
Brodkorb (collectively, the "Defendants"),on the other hand. The Agreement
settles an adversary complaint filed against the Defendants on or about July
14, 2006. A court order granting trustee's motion to approve the compromise
of controversy with ISAI, ISAF, and Bernard Brodkorb was issued. The Trustee
is authorized to compromise with ISAI, ISAF and Bernard Brodkorb pursuant to
the terms of the Agreement. This was announced in the Form 8-K filing of the
Company on August 21, 2007.
The Settlement Agreement was previously announced and included all of the
terms of the agreement in the Form 8-K filing of the Company on June 26,
2007. None of the terms of the Agreement changed. The Company paid to the
Trustee the initial sum of $75,000 on September 26, 2007 as required by the
Agreement. Then the Bankruptcy Court returned to ISAT the 1,250,000 shares of
ISAI common stock it had held as Trustee of the Estate.
Presently the Company is a party to litigation involving the former principal
owner of the California collection companies named Harrison Asset Management,
Inc., Money Asset Management, Inc., and Cash Asset Management, Inc., to
recover losses sustained by the Company in its execution of an agreement to
purchase assets of those companies. The Company is actively pursuing this
case in cooperation with the United States Bankruptcy Court, Central District
of California, San Fernando Valley Division.
Other than the above cases, the Company is not a party to any other pending
legal or administrative proceeding, and is not aware of any threatened
litigation or administrative proceeding being considered against the Company.
In addition, there is no material proceeding to which any director, officer
or affiliate of the issuer, any owner of record or beneficially of more than
5% of any class of voting securities of the Company, or security holder is a
party adverse to the Company or has a material interest adverse to the
Company.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fiscal year ended September 30, 2007, there were no submissions of
any matters to a vote of the Company's security holders.
PART II
Item 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
5-A. Market, Holders and Dividends
The Company's Common Stock traded publicly on the NASDAQ Over-The-Counter
Electronic Bulletin Board (OTCBB) under the symbol "ISAI" since May 11, 1998
to January 21, 2004. From January 22, 2004 to present it has traded and
quoted under the symbol "ISAT". Information provided regarding periods prior
to January 2001 is not an indication an active market existed for the
Company's common stock during such periods. Further, there can be no
assurance the current market for the Company's common stock will be sustained
or grow in the future.
The following Table sets forth the high and low bid closing prices for the
Company's Common Stock as reported by the OTC Bulletin Board during this
period of time after giving effect of the reverse stock split that occurred
on January 12, 2004, effective as of January 22, 2004. These bid quotations
reflect inter-dealer prices, without retail mark-up, mark-down or commission
and may not represent actual transactions.
YEAR QUARTER HIGH BID LOW BID
2004 First Quarter $2.80 $0.52
2004 Second Quarter $0.55 $0.52
2004 Third Quarter $1.01 $0.55
2004 Fourth Quarter $1.25 $0.55
2005 First Quarter $1.10 $0.35
2005 Second Quarter $1.25 $0.35
2005 Third Quarter $0.90 $0.55
2005 Fourth Quarter $1.01 $0.70
2006 First Quarter $0.61 $0.61
2006 Second Quarter $1.00 $0.61
2006 Third Quarter $1.00 $0.61
2006 Fourth Quarter $1.15 $0.61
2007 First Quarter $0.85 $0.65
2007 Second Quarter $0.84 $0.35
2007 Third Quarter $0.51 $0.35
2007 Fourth Quarter $0.51 $0.35
For the period ending September 30, 2007, there were approximately 4
beneficial owners and approximately 338 registered holders of record of the
Company's common stock. The Company has not declared or paid any cash
dividends on its common stock since its inception and does not anticipate
declaring or paying any such dividends on its common stock in the foreseeable
future. To date, the Company has incurred losses and presently expects to
retain its future earnings to finance development and expansion of its
business. The declaration of dividends is within the discretion of the Board
of Directors of the Company. There are no current restrictions limiting the
Company's ability to pay dividends if the Company becomes profitable.
5-B. Sales History of Unregistered Securities
The following information includes a history of all securities sold by the
Company from January 2000 to present:
B.1 From November 1997 to June 1998, the Company sold a total of 1,579,535
(pre-split) Units at a purchase price of $.6536 per Unit, a total amount of
$1,032,376, to a limited number of 16 investors (most of whom are accredited
investors) in a private placement, with each Unit consisting of one share of
Common Stock of the Company and a five-year warrant to purchase two shares of
Common Stock exercisable at $1.00 per share. In December 2003, and in
exchange for mutual releases to the Company, these investors were granted
price concessions in the purchase of their original shares wherein all of the
common share purchases were re-priced to $.02 per share and the Company did
issue an additional 1,547,142 common shares, par value $.0001. Exemption for
this transaction is claimed under Section 4(2) of the Securities Act of 1933
since it was strictly a private placement whereby all investors agreed to
accept the shares for long-term investment and to have the certificates
therefore legended to prevent further distribution or resale of the
securities unless pursuant to registration or an appropriate exemption there
from.
B.2 In November 2000, the Company issued 5,000,000 shares of its Preferred
Stock to Doubletree Capital Partners, Inc., a Minnesota Corporation, in a
private sale at $0.0002 per share, for total consideration of $1,000, and,
2,999,999 (pre-split) shares of its common stock to Doubletree Capital
Partners, Inc. in a private sale at $0.0097 per share, for total
consideration of $29,000. The preferred stock is convertible into common
shares at a conversion rate of 3.5 common shares for each preferred share
being converted. Furthermore, there is an anti-dilution provision clause in
the preferred shares that states upon exercise, the preferred shares will
ultimately convert into no less than a 75% ownership of the then common
shares to be outstanding. The timing of the conversion is at the discretion
of the holder. As a result of the reverse stock split that was declared in
January 2004, effective as of January 22, 2004, the conversion feature has
changed to .025 common shares for every preferred shared being converted the
dimension, however, remains the same and Doubletree Capital Partners The
anti-dilution will convert into no less than a 75% ownership of the then
common shares outstanding. This was an isolated private transaction and
exemption from registration is claimed under Section 4(2) of the Securities
Act of 1933, with the stock certificate being legended to prevent further
disposition without registration or an appropriate exemption there from.
B.3 The Company previously issued 71,270 (post-split) shares of common stock
during the year ended December 31, 2002, as part of a troubled debt
restructuring to satisfy $1,105,644 in principal and accrued interest on
convertible Debentures.
B.4 The Company also authorized 41,376 (post-split) shares of common stock
at the negotiated rate of $0.70 per share during the year ended December 31,
2003, as part of its troubled debt restructuring, for conversion of
convertible debt and related interest accruals of $115,823 combined. These
shares were issued in 2004.
B.5 In December, 2003, The Company's Board of Directors approved for
issuance 513,328 (post-split) common stock shares for issuance to all
previously converted debenture holders for the express purpose of equalizing
their respective share conversion price received for debenture principal and
interest due on debenture investments. Debenture holders will receive common
shares at the revised price of $0.70 per share (post-split) for the period
ended September 30, 2003, their final date of conversion. This transaction
resulted in settlement expense charge to the income statement of the Company
of $359,329 for the year ended December 31, 2003. Of these shares, 273,220
shares were issued in May 2004, 160,850 shares were issued in September 2004
due to a delay in receiving correspondence from the debenture holder and
100,002 are still remaining to be issued due to the non-timely receipt of
certain required paperwork to complete their issuance. These additional
100,002 common shares were issued in 2005.
B.6 In addition, the Company's Board of Directors approved the issuance of
523,572 (post-split) common shares that were given as following: 166,429
(post-split) shares for payment for services rendered by the Company's Board
of Directors for the entire reorganization process and two consultants who
rendered additional reorganization services to the Company and 357,143 (post-
split) common shares to the Company's President as a partial payment for
accrued consulting services due as of December 31, 2003. These shares were
issued in 2004.
B.7 On January 12, 2004, by written action of the holders of a majority of
the common stock outstanding, and at a duly called special meeting of its
shareholders, the Company approved a 1 for 140 reverse stock split, effective
January 22, 2004, for the purpose of reducing the number of shares
outstanding to a more manageable level and make trading volume levels more
relevant to the price of the Company's common stock on the NASDAQ OTC
Bulletin Board. At the same meeting the shareholders also approved the
increase of the aggregate number of shares of preferred stock authorized from
5,000,000 to 30,000,000.
B.8 In July 2004, the Company approved an Indemnification Agreement between
the Company and Doubletree Liquidation Corporation (DLC),a related party,
wherein the Company issued to DLC 1,200,000 unregistered shares of common
stock for the express purpose of receiving as consideration from DLC, a
guarantee from DLC that this issue of common shares will completely and
finally settle the Company's liability to two debenture holders, including
their respective accrued interest that is currently due, and or may be due on
an estimated basis, upon completion of negotiations between the Company and
these creditors whenever it occurs and also included the attempt to resolve
the settlement of any and all liabilities that did arise from the operation
of ShoptroplisTV.com during its final months of operations back in the years
of 1999, 2000 and 2001. The payment of these shares finalized the Company's
payment of these bills and related liabilities and allowed the Company to
proceed with new acquisition efforts to bring shareholder value to the
Company. These shares provide a buffer to protect the assets of any new
acquisition candidate and preserve and protect the acquirees' assets and
insure that their assets are not used to pay off old creditors and
liabilities of ISAI or the Company. The Company chose to reorganize its
finances mainly through frank, friendly negotiations with its creditors
trading debt for equity in the Company.
DLC will use the shares to pay certain specific liabilities, as documented by
the Indemnification Agreement. The estimated total amount of these potential
liabilities that are involved in this action is approximately $329,714
including estimated legal and administrative costs to settle the liabilities
and provide the Company with legal defense services against these bills and
expenses previously incurred by the Company and its former operating
subsidiary, ShoptropolisTV.com.
The 1,200,000 common shares were valued based upon the consideration given to
the Company in the indemnification agreement, which also approximated the
value of the Company's common stock. The issuance of these shares should
constitute full and final resolution by the Company of these potential
liabilities. Whenever DLC settles or completes payment of these liabilities
the Company will be allowed to remove these debts from its financial
statements with no additional obligation to DLC by the Company.
B.9 Subsequent to the recording of the Indemnification Agreement (reference
should be made to note 1(b) of notes to financial statements at September 30,
2004) in July 2004, the Company through DLC settled with Mr. Gerard Ferri for
a $20,000 unpaid trade payable and DLC did issue to him 7,143 shares from the
1,200,000 shares held by DLC for indemnification purposes. The Company
removed the $20,000 accounts payable from its books as of September 30, 2004.
B.10 On August 13, 2004, the Company issued 1,854 shares to two investors to
settle additional interest liabilities in the conversion of Convertible
Debentures to stock at a negotiated price of $.70 per share for an addition
to paid in capital of $1,298.
B.11 On September 14, 2004, the Company issued 160,850 common shares to an
investor to settle convertible debenture liabilities and accrued interest
amounting to $112,595 and previously approved by the Company in December
2003.
B.12 On July 1, 2004 the Board of Directors approved the issuance to
Doubletree Capital Partners, Inc. a 6,000,000 common stock shares option to
be effective as of July 1, 2004. The conversion price was set at $.60 per
common share of common stock exercised. This common stock option will have a
term of five years from July 1, 2004 and will be similar in all respects to a
cashless exercise common stock option. DCP was awarded the common stock
option as a means to preserve ownership interests as required in preliminary
acquisition discussions. The Company recorded $60,000 of expense during the
period ended September 30, 2004 for the granting of these options.
B.13 On June 29, 2005, The Company issued 100,002 shares to an investor to
settle convertible debenture liabilities and accrued interest amounting to
$100,301 and previously approved by the Company on December 2003 And July
2004.
B.14 On June 29, 2005, The Company issued 24,240 common shares to a
consultant for accounting and financing services rendered to the Company in
the amount of $30,300.
B.15 On June 29, 2005, The Company issued 1,250,000 common shares to a
subsidiary company, ISA Financial Services Inc., to complete their purchase
of $43,733,000 of debt contract receivables from three California debt
Collection Companies.
B.16 On or about June 6, 2006, The Company issued 1,709,418 shares of its
restricted common stock to the financial company, Doubletree Capital
Partners, Inc., a related party, as consideration for the repayment and
conversion of $854,970 of loan advances and related interest due thereon, as
of May 31, 2006.
B.17 On or about June 6, 2006, the Company issued 740,000 shares of its
restricted common stock as payment for the conversion of $370,000 of accrued
consulting fees due Bernard L. Brodkorb, President and CEO of the Company.
B.18 On or about June 6, 2006, the Company issued 142,000 shares of
restricted common stock to Charles J. Newman as compensation for services
rendered to the Company in its reorganization efforts. Donald G. Kampmann, a
Director, was issued 142,000 shares of restricted common stock for services
rendered. Other outside consultants were issued 98,560 shares of restricted
common stock in payment for services rendered. These shares were issued at a
price of $.50 per share.
B.19 On or about June 26, 2006, the Company issued 155,000 shares of its
restricted common stock to the Directors of the Company as compensation for
services rendered to the Company in their positions as Directors to the
Company. These shares were issued at a price of $.50 per share for Directors
expense totaling $77,500.
B.20 On or about June 26, 2006, the Company issued 17,054,934 of its
restricted common stock pursuant to the terms of a November 2, 2000 funding
agreement between The Company, as agreed and executed by its prior management
and Board of Directors on that date, and Doubletree Capital Partners, Inc.
The issuances of these common shares are in exchange for conversion of
5,000,000 preferred stock shares, previous issued to Doubletree Capital
Partners, Inc. on November 7, 2000, and are in accordance with the conversion
terms of the November 2, 2000 funding agreement.
B.21 On September 30, 2007, the Company issued 9,700 shares to Doubletree
Capital Partners, Inc., a related party, for consulting services rendered.
B.22 On September 30, 2007 the Company issued 275,000 shares of Series A
Cumulative Convertible Preferred Stock , par value $0.0001 to Doubletree
Capital Partners, Inc., a related party.
As a result of the above issuances of common stock, the total outstanding
common shares of the Company as of September 30, 2007 totals 23,999,612 common
shares, $.0001 par value and 275,000 shares outstanding of Convertible
Preferred Stock, $.0001 par value. No stock repurchase transactions have
occurred during the reporting period. The preferred shares will convert into
785,714 common shares at the rate of 2.32 common shares for each preferred
share outstanding or a common price of $.35 per share.
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Forward Looking Statements
The information herein contains certain forward looking statements within the
meaning of 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 achievements 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 that the forward-looking statements included in
this Form 10-KSB 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," "anticipate," "expect," "will,"
"believes," "intends," "estimates," "plans," or other comparable terminology.
Overview
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 an acquisition of Shoptropolis, which was a wholly owned subsidiary
of ISAI. ISAI acquired its home shopping network business through such
purchases, after which 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 transaction was
effected as a reverse merger for financial statement and operational
purposes, and accordingly, ISAI regards its inception as being the
incorporation of ShoptropolisTV.com, Inc. on October 7, 1997. ISAI's strategy
since December 2000 to 2005 has been the restructuring of its financial
affairs.
On May 2005, ISAI completed a contract to purchase distressed consumer debt
Receivables. ISAI has outsourced the collection of these debts to an outside
collection agency. The purchase price of $1,094,900 was paid to three
California collection companies via the issuance of 1,250,000 restricted
common shares. ISAI now considers its restructuring to be completed and will
concentrate its efforts in the financial services industry, specifically in
the debt collection business.
Results of Operations for the Twelve Months ended September 30, 2007.
Sales and Gross Profit
As a result of the discontinuance of its two business segments in prior years
and no collection revenues being recognized from the collection efforts of
the purchased portfolios, no sales or collection revenues were recorded for
the twelve month period ended September 30, 2007, for the Company. The
Company is using the "cost recovery" for collection revenue recognition and
until such time as the entire cost of the purchased portfolios is recovered
or written off, no income will be recognized as collection revenue.
Operating and Interest Expenses
General and administrative expenses were $450,824, for the twelve months
ended September 30, 2007, a decrease of 27% from the prior year. The expenses
for the fiscal year were principally for office occupancy, telephone charges,
consulting costs ($137,884), President's consulting fees ($68,500) and salary
($31,500), accounting ($33,026), legal ($179,913) and bad debt ($95,809)
costs. Interest expenses decreased to $38,277 in the twelve months ended
September 30, 2007 from $70,264 for the twelve months ended September 30,
2006 primarily the result of the decreased borrowings from the related and
affiliated finance company (DCP) that has been the sole source of required
working capital needs as well as the conversion of all loans and advances and
related accrued interest from the related and affiliated finance company into
common shares in June 2006.
No impairment charge against the carrying value of the collections portfolio
inventory was recorded as an expense in the period ending September 30, 2007
compared to $378,287 in period ending September 30, 2006.
Interest charges continue to be recorded as interest expense due on
previously non-converted and defaulted convertible debt obligations of the
Company. These charges will continue until the Company is successful in
converting this debt to equity shareholdings for two remaining debenture
holders. The Company does not have the cash liquidity to redeem these notes.
The Company anticipates new operating expenses in future periods including
third party collections cost's which have been approximately 35% of gross
collections. Additionally the Company will have legal expenses and settlement
expenses related to the bankruptcy court suit whereby ISAI will be required
to pay the court trustee 40% of all future cash collections, net after third
party collection costs until the case is closed but no later than June 30,
2008. This will reduce our profit margins on our existing portfolio for the
next fiscal year. New portfolios purchased will not be affected by this
surcharge.
Additionally, new current expenses are being incurred for office, telephone,
consulting and legal and professional expenses relating to proposed
additional debt portfolio acquisitions and the Company efforts in developing
new business operations in the debt collection business and related financial
services industries.
Comments on Income and Expenses
A net loss of $2,627 was recorded for the fiscal year ended September 30,
2007 comprised of an operating loss of $540,127 and an extraordinary item
gain of $537,500. This compares to an operating loss of $1,159,995 for the
period ended September 30, 2006. The operating loss in 2007 decreased
primarily due to five factors:
1. There were no deferred costs write-offs in 2007, whereas in 2006 the
Company wrote off $95,809 in deferred costs related to an asset purchase
agreement.
2. The Company reduced its use of outside consultants resulting in a $192,500
reduction in cost in 2007 compared to 2006.
3. No director fees were paid in 2007 which reduced costs $77,500 in stock
based compensation.
4. $275,000 in loans to a related party were converted to Preferred Common
Stock, thereby reducing interest costs by approximately $32,000, computed on
an annual basis.
5. No portfolio debt impairment write-downs were recorded in the fiscal year
ended September 30, 2007 whereas in 2006 there was a write-down of $378,287.
6. An extra-ordinary income gain of $537,500 was recorded due to the receipt
and return of 1,250,000 shares ISAI common stock to the Company which were
held by the Trustee of United States Bankruptcy Court, Central District of
California, San Fernando Valley Division. The returned common shares are part
of the terms of a settlement agreement between the Court and ISAI. This stock
was previously issued as consideration for the revised asset purchase
agreement with three California companies now in Chapter 7 bankruptcy. See
our note under item 3 Legal Proceedings for more details and history of the
transactions also reported under Form 8-K filings and prior 10-KSB filings of
the registrant. ISAI had previously valued the 1,250,000 shares of its common
stock when issued at approximately $.87 per share. The returned common shares
are being valued at $.43 which represents the average of the bid prices
during the quarter ended September 30, 2007. At September 30, 2007, these
shares are being held as Treasury Stock until they are finally retired by the
Company in the future. Subsequent to their retirement, it is the intention to
resell an equal and equivalent quantity of common shares for future financing
needs for the Company.
Factors increasing operating costs in the fiscal year ended September 30,
2007 were:
1. Legal fees increased by $60,188 or 135% higher than 2006 due to the
bankruptcy court lawsuit.
2. A settlement fee of $75,000 was paid in 2007 to the bankruptcy court to
settle the lawsuit in addition to the legal fees paid to counsel above.
There were also interest expenses incurred in the amount of $38,277 during
the year ended September 30, 2007 related to defaulted convertible debentures
still existing at September 30, 2007 and related-party convertible notes
payable of the Company that were converted to common shares in June 2006.
Liquidity and Capital Resources
For the fiscal year ended September 30, 2007 the Company raised $275,000
respectively from secured demand notes payable from a related investor. The
demand loans bear interest at the rate of 12% per annum and are
collateralized by all the assets of the Company. At September 30, 2007 these
notes were redeemed by the Company issuing $275,000 in 12% Cumulative and
Convertible Series A Preferred Stock, par value $.0001, valued at $1.00 per
share to the financing company.
The Company received net collections from its distressed debt portfolios of
$151,452, net after related direct collection costs, for the fiscal year
ended September 30, 2007. The Company believes net collections from the
current debt portfolios will be substantially reduced in the next year. As a
result, the Company will need to find additional sources of liquidity and
capital resources in the near future to sustain its current level of
operations. Further, the actions and related results of the U.S. Bankruptcy
Court Trustee will have a direct major effect on all liquidity and capital
resources of the Company in the year ended September 30, 2007 and the next
fiscal year.
As of September 30, 2007, the Company had current assets of $18,709
consisting of $14,742 in cash and $3,967 in trade receivables due from its
third party collector (net of the third party collection fee of approximately
35%). At the same time, the Company had $134,596 in current liabilities
consisting of $77,480 in accounts payable and demand secured notes and
interest payable of $57,116. Accordingly, the Company had a working capital
deficit of $115,887 as of September 30, 2007.
The Company's current capital resources are not sufficient to supports its
development and operations. Capital will be necessary to support the ongoing
operation of the Company's general and administrative expenses and interest
expenses now currently due. The Company cannot continue its existence without
full and complete reorganization effort of all of its financial affairs and
obligations. The Company is currently utilizing the cash collections being
received from the gross collections being made on its purchased debt
collection portfolios, however, the cash collections being generated are not
sufficient to support its future development of the financial services
business strategy being developed as well as the costs associated with the
month to month operations of the Company.
The Company will be seeking new additional sources of debt or equity
financing other than additional convertible notes payable issued by a related
party. Until the answers to new financing needs are solidified, the
reorganization process is not completed and the Company cannot provide
assurances as to its future viability or its ability to prevent the
possibility of filing a bankruptcy petition, either voluntary or involuntary,
by any creditor 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 twelve months ended September 30, 2007 and 2006 include explanatory
notes 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, if any,
which is available to offset any future operating profits. None of this
benefit was recorded in the accompanying financial statements as of September
30, 2007. Federal tax laws impose significant restrictions on the utilization
of net operating loss carry-forwards in the event of a change in ownership of
the Company which constitutes an "ownership change", as defined by the
Internal Revenue Code, Section 382. The Company's net operating loss carry-
forward will be subject to the above limitations.
Cash Flows and Expenditures
During the year ended September 30, 2007, the Company did not acquire any new
distressed debt receivable portfolios. The Company collected $151,452 in
gross collections during the year. After the collections fees were applied
and related verification costs, the Company received, on a net basis,
$100,425 from portfolio collections.
During the year ended September 30, 2006, the Company collected $265,245 in
gross collections through that date. After the collections fees were applied
and related verification costs, the Company received, on a net basis,
$168,273 from portfolio collections.
The Company currently utilizes outside collection agencies for the collection
of the distressed debt receivables and utilizes one law firm on a contingency
basis.
Portfolio Data
The following table shows the Company's portfolio buying activity during the
years ended September 30, 2007, 2006 and 2005 including the purchase price,
impairment write downs, actual cash collections and estimated future cash
collections value as of September 30, 2007, 2006 and 2005.
Year ended Year ended Year ended
9/30/2007 9/30/2006 9/30/2005
---------- --------- ---------
Purchase Price Actual Cost (1): 0 $1,094,900
Beginning of Year Carrying Value: 373,028 $1,016,557 0
Impairment Write downs (3) 0 (378,287) 0
Collections Reduction to Portfolio Value (151,452) (265,242) (78,343)
--------- ---------- ----------
End of Year Carrying Value: 221,576 373,028 1,016,557
========= ========== ==========
Gross Collections 151,452 265,242 78,343
Direct Collection Costs 51,027 (96,972) (17,919)
Net Cash Collections (2) 100,425 168,270 60,424
Estimated Future Collection Values (4): $ 318,450 $ 606,180 $1,797,780
(1) Purchase price refers to the cost paid to a seller to acquire defaulted
receivables, plus certain capitalized expenses, less the purchase price
refunded by the seller due to the return of non-compliant accounts (also
defined as buybacks). Non-compliant refers to the contractual representations
and warranties between the seller and the buyer. These representations and
warranties from the sellers generally cover account holders' death or
bankruptcy and accounts settled or disputed prior to sale. The seller has the
option to replace or repurchase these accounts.
(2) Actual cash collections, net of recovery costs or sale.
(3) The Company will take an impairment charge if the actual recoveries fall
short of expected recoveries or the Company determines the portions of the
portfolio carrying value requires a write down in value due to worthlessness
of portions of the portfolio.
(4) Total estimated future collection values refers to managements estimate
of the amount potentially remaining to be collected, including cash sales of
portfolios.
Inflation
The Company's management believes inflation has not had a material impact on
our results of operations for the year ended September 30, 2007.
Critical Accounting Policies
The Company utilizes the cost recovery method under guidance provided by the
AICPA issued Statement of Position ("SOP") 03-03 to determine income
recognized on finance receivables.
In October 2003, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 03-03, "Accounting for Loans or Certain
Securities Acquired in a Transfer." This SOP proposes guidance on accounting
for differences between contractual and expected cash flows from an
investor's initial investment in loans or debt securities acquired in a
transfer if those differences are attributable, at least in part, to credit
quality. This SOP is effective for loans acquired in fiscal years beginning
after December 15, 2004.
The SOP would limit the revenue that may be accrued to the excess of the
estimate of expected future cash flows over a portfolio's initial cost of
accounts receivable acquired. The SOP would require that the excess of the
contractual cash flows over expected cash flows not be recognized as an
adjustment of revenue, expense, or on the balance sheet. The SOP would freeze
the internal rate of return, referred to as IRR, originally estimated when
the accounts receivable are purchased for subsequent impairment testing.
Rather than lower the estimated IRR if the original collection estimates are
not received, the carrying value of a portfolio would be written down to
maintain the original IRR. Increases in expected future cash flows would be
recognized prospectively through adjustment of the IRR over a portfolio's
remaining life. The SOP provides that previously issued annual financial
statements would not need to be restated.
Other Going Concern matters
One remaining officer, Bernard L. Brodkorb, is currently managing the
Company. The Company is still in default under the terms of its obligation to
make quarterly interest payments of certain defaulted convertible 12%
debentures issued between September 1999 and June 2000. The debentures in
default total $200,000 in principal and $152,281 in related accrued interest
expense as of September 30, 2007. No cash interest payments were ever made by
the Company on the debentures. These debentures are classified as current
liabilities. The Company converted $940,000 of principal and accrued interest
in the amount of $165,644 into 15,794,917 (pre-split) common shares of the
Company at the rate of $0.07 per share during the year ended December 31,
2001. The Company also converted during the year ended December 31, 2002,
$386,640 in principal and $112,247 in related interest into 9,977,750 (pre-
split) shares of common stock at the rate of $0.05 per share.
During the twelve months ended December 31, 2003, $65,000 in debentures
payable plus additional accrued interest due on extended debentures payable
of $50,000 in the amount of $21,633 were converted into common shares at a
negotiated price of $0.70 per share. Accordingly, 41,358 (post-split) common
shares were issued to these debenture holders. The Company and its financial
partner are presently attempting to convert the remaining $200,000 in
defaulted debenture notes to common shares.
Item 7. FINANCIAL STATEMENTS
The following consolidated financial statements of ISA Internationale Inc.
and its wholly owned subsidiaries and Independent Auditor's Reports thereon
are included herein:
TABLE OF CONTENTS Page
Report of Independent Registered Public Accounting Firm---------------29
Consolidated Balance Sheets as of September 30, 2007 and 2006---------30
Consolidated Statements of Operations for the twelve months ended
September 30, 2007 and 2006-----------------------------------------31
Consolidated Statement of Stockholders' Equity for the twelve months
ended September 30, 2007 and 2006 ----------------------------------32
Consolidated Statements of Cash Flows for the twelve months ended
September 30, 2007 and 2006 ----------------------------------------33
Notes to Consolidated Financial Statements-------------------------34-45
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To: The Board of Directors
ISA Internationale Inc.
St. Paul, MN
We have audited the accompanying consolidated balance sheets of ISA
Internationale Inc. and subsidiaries as of September 30, 2007 and 2006, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for the years then ended. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of ISA Internationale Inc. and subsidiaries as of September 30, 2007 and 2006
and the results of its consolidated operations and its consolidated cash
flows for the years then ended in conformity with accounting principles
generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared
assuming the Company will continue as a going concern. As discussed in note 2
to the consolidated financial statements, the Company has had virtually no
operations, suffered recurring losses and has debt in default. These matters
raise substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in note 2.
The consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
De Joya Griffith & Company, LLC
Henderson, NV
December 27, 2007
ISA INTERNATIONALE INC. and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Audited) (Audited)
Sept 30, 2007 Sept 30, 2006
ASSETS -------------------------------
Current assets:
Cash and cash equivalents $ 14,742 $ 25,561
Trade receivables 3,967 8,235
------------ -----------
Total Current assets 18,709 33,796
Office equipment, at cost less depreciation 4,033 5,133
Other assets:
Finance contract receivables, net of collections 221,576 373,028
Note receivable 7,600 17,600
Other assets 189 268
------------ -----------
Total Assets $ 252,107 429,825
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade and taxes $ 77,480 31,543
Convertible notes payable - related party 39,839 40,814
Accrued interest payable - related party 17,277 0
------------ -----------
Total Current Liabilities 134,596 72,357
------------- ------------
Stockholders' Equity:
Preferred convertible stock, par value $.0001;
30,000,000 shares authorized,
275,000 shares issued and outstanding at September
30, 2007 and none at September 30, 2006 27 0
Common stock, par value $.0001; 300,000,000
shares authorized; 3,999,612 shares issued and
outstanding at September 30, 2007 and 23,989,912
at September 30, 2006 2,400 2,399
Additional paid-in capital 9,131,751 8,831,608
Treasury Stock (537,500) 0
Accumulated deficit (8,479,167) (8,476,539)
------------- ------------
Total Stockholders' Equity 117,511 357,468
------------- ------------
Total Liabilities and Stockholders' Equity $252,107 $ 429,825
============= ============
The accompanying notes are an integral part of these consolidated financial
statements.
ISA INTERNATIONALE INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
TWELVE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
(Audited) (Audited)
Twelve Months Ended Twelve Months Ended
September 30, 2007 September 30, 2006
------------------- -------------------
Operating revenues
Portfolio collections $ 0 $ 0
Operating expenses:
Portfolio collection Costs 51,027 96,972
General & administrative 450,824 614,472
Impairment charge on portfolio carrying cost 0 378,287
------------ -----------
Operating expenses 501,851 1,089,731
------------ -----------
Operating loss (501,851) (1,089,731)
Other income (expense):
Interest expense (38,276) (70,264)
------------ -----------
Net loss - operations (540,127) (1,159,995)
Net Gain from Extraordinary item-(1) 537,500 0
Net loss (2,627) $ (1,159,995)
============ ===========
Basic and diluted (loss) per share $ (0.00) (0.12)
============ ===========
Weighted Average common shares outstanding:
(restated for reverse stock split)
Basic & Assuming Diluted 23,924,392 9,373,146
============ ===========
The accompanying notes are an integral part of these consolidated financial statements.
(1) Income from stock recovery from a lawsuit settlement.
ISA INTERNATIONALE INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
TWELVE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
Convertible Preferred Stock Common Stock Treasury Additional
Par Par Stock Paid-in Accumulated
Shares Value Shares Value Value Capital Deficit Total
---------------------------------------------------------------------------------------------------------------------------
Balance, September 30, 2005 5,000,000 $500 3,948,000 $394 $7,314,523 ($7,316,544) $(1,127)
Issuance of common stock
for services 382,560 39 195,081 195,120
Indemnification agreement additional
interest for two debenture holders 21,000 21,000
Issuance of common stock to related
party for debt conversions
of $854,970 1,709,418 171 854,799 854,970
Issuance of common stock to President
for debt conversions of $370,000 740,000 74 369,926 370,000
Issuance of common stock to Directors
for services 155,000 15 77,485 77,500
Issuance of common stock in exchange
of preferred stock, as per November
2000 agreement (5,000,000) (500) 17,054,934 1,706 (1,206) 0
Net (loss) for period (1,159,995)(1,159,995)
-----------------------------------------------------------------------------------------
Balance, September 30, 2006 0 $0 23,989,912 2,399 $8,831,608 (8,476,539) $357,468
Receive lawsuit settlement shares (537,500) (537,500)
Issuance of common stock to relate
party for services 9,700 1 4,170 4,171
Indemnification agreement additional
interest for debenture holders 21,000 21,000
Issuance of Preferred stock in exchange
for secured debt to a related party 275,000 27 274,972 275,000
Net (loss) for period (2,627) (2,627)
Balance, September 30, 2007 275,000 27 23,999,612 2,400 (537,000) $9,131,751 ($8,479,167) $117,511
==========================================================================================
The accompanying notes are an integral part of these consolidated financial statements.
ISA INTERNATIONALE INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Twelve Months Ended September 30, 2007 and 2006
(AUDITED) (AUDITED)
Twelve Months Ended Twelve Months Ended
September 30, 2007 September 30, 2006
------------------ -----------------
Cash flows from operations:
Net loss $ (2,627) (1,159,995)
Less: Gain from extraordinary item (537,500) 0
----------- ----------
Net loss - operations (540,127) (1,159,995)
Adjustments to reconcile net loss from operations
to cash flow used in operating activities:
Depreciation and amortization 1,179 446
Consulting expense charge, a non cash charge 275,689
Interest on contributed capital 21,000 21,000
Issuance of common stock for services 4,171
Reduction of debt receivable purchase price
on gross collections received 151,452 265,241
Impairment charge on debt receivable purchase
price carrying cost 378,287
Charge off of costs incurred for unsuccessful
acquisitions 95,809
Trade account receivables 4,268 7,531
Note receivable for incurred acquisition costs 10,000 (17,600)
Common stock payable - services 0 (17,400)
Accounts payable & accrued expenses 45,937 18,012
Accrued expenses - related party 55,000
Convertible notes, related party (975) 0
Accrued interest payable, related party 17,276 49,264
---------- ----------
Cash provided by (used in) operations (285,819) (28,716)
---------- ----------
Cash flow from investing activities:
Purchase of office equipment 0 (5,500)
---------- ----------
Cash provided by (used in) investing activities 0 (5,500)
---------- ----------
Cash flows from financing activities
Proceeds from issuance of convertible
and secured debt to related party 0 40,814
Proceeds from Convertible Preferred Stock 275,000 0
---------- ----------
Cash provided by (used in) financing activities 275,000 40,814
---------- ----------
Net Increase (decrease) in cash and cash equivalents (10,819) 6,598
Cash and cash equivalents, beginning of period 25,561 18,963
---------- ----------
Cash and cash equivalents, end of period 14,742 25,561
========== ==========
Non-cash investing in financing transactions:
Issuance of common stock for services by
directors and consultants 0 272,620
Payment of convertible and secured loans and
accrued interest thereon with common stock
to related party 0 854,970
Issuance of preferred stock in exchange of secured
debt with related party 275,000 0
Payment of accrued consulting payable to President
with common stock 0 370,000
Additional paid in capital for indemnification
agreement 21,000 21,000
---------- ----------
Total non-cash transactions $ 296,000 1,518,590
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
ISA INTERNATIONALE INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TWELVE MONTHS ENDED SEPTEMBER 30, 2007
1.) NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
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 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.
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
(accretive 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.
During the fiscal year ended September 30, 2006, the Company recorded an
impairment write-down of its debt portfolio carrying cost in the amount of
$378,287. The Company determined large portions of the purchased debt
receivables are virtually uncollectible beyond what was originally
forecasted. The Company further discovered portions of the purchased accounts
had been previously sold by the "seller" collection companies prior to the
Company's purchase of the debt receivables in May 2005. Legal recovery action
is being sought for these losses.
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.
At September 30, 2007, the "seller" collection companies are in chapter 7
bankruptcy proceedings and no recoveries for incurred expenses or costs to
date are provided for in these financial statements.
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 year ended September 30, 2007 were
as follows:
Year Ended
September 30, 2007
----------------
Balance at beginning of period October 1, 2006 $ 373,028
Acquisition of debt receivables 0
Gross collections applied to principal (151,452)
Impairment write down 0
-----------------
Balance at the end of the period $ 221,576
=================
Estimated Remaining Collections ("ERC")(unaudited) * $ 318,450
=================
* 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 year ended September 30, 2007.
Under SOP-03-3 debt security impairment is recognized only if the fair market
value of the debt has declined below its amortized costs. The Company
recorded impairment write downs of $378,287 in 2006 and no amortized costs
are in excess of fair market value. Therefore, no further impairment for the
finance receivables is needed at September 30, 2007.
1.b) Stock split
On January 12, 2004, the Company's Board of Directors approved a reverse
stock split of 1 to 140, effective on common shares outstanding as of January
22, 2004. The accompanying financial statements and notes reflect all shares
and per share amounts on a post-split basis.
1.c) Presentation
The Consolidated Balance Sheet at September 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 $376,281. Reference should be made to note 4.e. in these notes
to consolidated financial statements for additional information as to
consolidated financial statement presentation at September 30, 2007.
1.d) USE OF ESTIMATES
The preparation of the consolidated financial statements is 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.
Significant estimates of the fair value of the Company's common stock were
computed under FASB Statement No. 123, Accounting for Stock-Based
Compensation, and used in 2004 to value the 6,000,000 shares stock option for
DCP, a related party corporation owned 50% by the company's President and 50%
by an affiliated stockholder and the 1,200,000 shares to DLC a related party
corporation owned 50% by the company's President and 50% by an affiliated
stockholder for an indemnification agreement to the Company in the amount of
$329,714. The valuations were based upon the Company's estimates of the goods
or services or transactional related value of consideration received by the
Company. Since no established market exists for the Company's common shares,
the Company used alternative valuations of estimates for consummated
agreements and approved actions for stock issuances by the Company's Board of
Directors through September 30, 2007.
1.e) REVENUE RECOGNITION
There were no operating revenues in 2007. Revenue will be recognized based on
AICPA Statement of Position 03-3, if the management is reasonably comfortable
with expected cash flows. In the event, expected cash flows cannot be
reasonably estimated, the Company will use the "Recovery Method" under which
revenues are only recognized after the initial investment has been recovered.
1.f) ADVERTISING COSTS
No advertising expenses were incurred in 2007.
1.g) 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 2007 and 2006, 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. potentially
issuable.
1.h) INCOME TAXES
The Company has adopted the asset and liability method of accounting for
income taxes. Deferred tax assets and liabilities are recognized for the
expected future tax consequences of temporary differences between the
financial statement carrying amount and tax basis of assets and liabilities.
The Company provides for deferred taxes at the enacted tax rate that is
expected to apply when the temporary differences reverse.
1.i) STOCK-BASED COMPENSATION
Shares of the Company's common stock were issued for consulting services and
settlement expenses. The common stock share issuances for the settlement
expenses were computed using a common stock price of $0.43 per share. These
stock issuances were valued based upon the fair value of the consideration of
debt relief or services rendered to the Company. See Note 1.d) above for
discussion of the use of estimates in share valuation. The common stock
shares issued for consulting services were issued utilizing a negotiated
common stock price of $0.43 per share.
1.j) 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.k) NEW ACCOUNTING PRONOUNCEMENTS
In February 2006, FASB issued SFAS No. 155, "Accounting for Certain Hybrid
Financial Instruments". SFAS No. 155 amends SFAS No 133, "Accounting for
Derivative Instruments and Hedging Activities", and SFAF No. 140, "Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities". SFAS No. 155, permits fair value remeasurement for any hybrid
financial instrument that contains an embedded derivative that otherwise
would require bifurcation, clarifies which interest-only strips and
principal-only strips are not subject to the requirements of SFAS No. 133,
establishes a requirement to evaluate interest in securitized financial
assets to identify interests that are freestanding derivatives or that are
hybrid financial instruments that contain an embedded derivative requiring
bifurcation, clarifies that concentrations of credit risk in the form of
subordination are not embedded derivatives, and amends SFAS No. 140 to
eliminate the prohibition on the qualifying special-purpose entity from
holding a derivative financial instrument that pertains to a beneficial
interest other than another derivative financial instrument. This statement
is effective for all financial instruments acquired or issued after the
beginning of the Company's first fiscal year that begins after September 15,
2006. The Company has not evaluated the impact of this pronouncement its
financial statements.
In March 2006, FASB issued SFAS No. 156, "Accounting for Servicing of
Financial Assets -an amendment to FASB Statement No. 140." The new standard
requires recognition of servicing assets in connection with any obligation to
service a financial asset arising from 1) a servicing contract entered into
as part of a transfer of assets meeting the requirements for sale accounting,
2) the transfer of assets to a special purpose entity in a guaranteed
mortgage securitization where the transferor retains a controlling interest
in the securitized asset, or 3) an acquisition or assumption of obligations
to service financial assets not related to the servicer or its consolidated
affiliates. The servicing assets and liabilities must be measured at fair
value initially, if practicable, and the assets or liabilities must either be
amortized or recorded at fair value at each reporting date. The statement
allows a one-time reclassification for entities with servicing rights and
subsequently requires separate presentation of servicing assets and
liabilities at fair value in the statement of financial position. This
statement is effective for the first fiscal year beginning after September
15, 2006, with earlier adoption permitted. The Company does not expect this
implementation to have a material effect on our consolidated financial
statements.
In September 2006, FASB issued SFAS 157 "Fair Value Measurements". This
Statement defines fair value, establishes a framework for measuring fair
value in generally accepted accounting principles (GAAP), and expands
disclosures about fair value measurements. This Statement applies under other
accounting pronouncements that require or permit fair value measurements, the
Board having previously concluded in those accounting pronouncements that
fair value is the relevant measurement attribute. Accordingly, this Statement
does not require any new fair value measurements. However, for some entities,
the application of this Statement will change current practice. This
Statement is effective for financial statements issued for fiscal years
beginning after November 15, 2007, and interim periods within those fiscal
years. The management is currently evaluating the effect of this
pronouncement on financial statements.
In September 2006, FASB issued SFAS 158 "Employers' Accounting for Defined
Benefit Pension and Other Postretirement Plans, an amendment of FASB
Statements No. 87, 88, 106, and 132(R)". This Statement improves financial
reporting by requiring an employer to recognize the overfunded or underfunded
status of a defined benefit postretirement plan (other than a multiemployer
plan) as an asset or liability in its statement of financial position and to
recognize changes in that funded status in the year in which the changes
occur through comprehensive income of a business entity or changes in
unrestricted net assets of a not-for-profit organization. This Statement also
improves financial reporting by requiring an employer to measure the funded
status of a plan as of the date of its year-end statement of financial
position, with limited exceptions. An employer with publicly traded equity
securities is required to initially recognize the funded status of a defined
benefit postretirement plan and to provide the required disclosures as of the
end of the fiscal year ending after December 15, 2006. An employer without
publicly traded equity securities is required to recognize the funded status
of a defined benefit postretirement plan and to provide the required
disclosures as of the end of the fiscal year ending after June 15, 2007.
However, an employer without publicly traded equity securities is required to
disclose the following information in the notes to financial statements for a
fiscal year ending after December 15, 2006, but before June 16, 2007, unless
it has applied the recognition provisions of this Statement in preparing
those financial statements. The requirement to measure plan assets and
benefit obligations as of the date of the employer's fiscal year-end
statement of financial position is effective for fiscal years ending after
December 15, 2008. The management is currently evaluating the effect of this
pronouncement on financial statements.
FASB Staff Position on FAS No. 115-1 and FAS No. 124-1 ("the FSP"), "The
Meaning of Other-Than-Temporary Impairment and Its Application to Certain
Investments", was issued in November 2005 and addresses the determination of
when an investment is considered impaired, whether the impairment on an
investment is other-than-temporary and how to measure an impairment loss. The
FSP also addresses accounting considerations subsequent to the recognition of
other-than-temporary impairments on a debt security, and requires certain
disclosures about unrealized losses that have not been recognized as other-
than-temporary impairments. The FSP replaces the impairment guidance on
Emerging Issues Task Force (EITF) Issue No. 03-1 with references to existing
authoritative literature concerning other-than-temporary determinations.
Under the FSP, losses arising from impairment deemed to be other-than-
temporary, must be recognized in earnings at an amount equal to the entire
difference between the securities cost and its fair value at the financial
statement date, without considering partial recoveries subsequent to that
date. The FSP also required that an investor recognize other-than-temporary
impairment losses when a decision to sell a security has been made and the
investor does not expect the fair value of the security to fully recover
prior to the expected time of sale. The FSP is effective for reporting
periods beginning after December 15, 2005. The adoption of this statement
will not have a material impact on our consolidated financial statements.
FASB Interpretation 48 prescribes a recognition threshold and a measurement
attribute for the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return. Benefits from tax
positions should be recognized in the financial statements only when it is
more likely than not that the tax position will be sustained upon examination
by the appropriate taxing authority that would have full knowledge of all
relevant information. The amount of tax benefits to be recognized for a tax
position that meets the more-likely-than-not recognition threshold is
measured as the largest amount of benefit that is greater than fifty percent
likely of being realized upon ultimate settlement. Tax benefits relating to
tax positions that previously failed to meet the more-likely-than-not
recognition threshold should be recognized in the first subsequent financial
reporting period in which that threshold is met or certain other events have
occurred. Previously recognized tax benefits relating to tax positions that
no longer meet the more-likely-than-not recognition threshold should be
derecognized in the first subsequent financial reporting period in which that
threshold is no longer met. Interpretation 48 also provides guidance on the
accounting for and disclosure of tax reserves for unrecognized tax benefits,
interest and penalties and accounting in interim periods. Interpretation 48
is effective for fiscal years beginning after December 15, 2006. The change
in net assets as a result of applying this pronouncement will be a change in
accounting principle with the cumulative effect of the change required to be
treated as an adjustment to the opening balance of retained earnings on
January 1, 2007, except in certain cases involving uncertainties relating to
income taxes in purchase business combinations. In such instances, the impact
of the adoption of Interpretation 48 will result in an adjustment to
goodwill. While the Company analysis of the impact of adopting Interpretation
48 is not yet complete, it do not currently anticipate it will have a
material impact on the Company's 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 provides interpretive guidance on the
consideration of the effects of prior year misstatements in quantifying
current year misstatements for the purpose of a materiality assessment. The
Company adopted SAB 108 in the fourth quarter of 2006 with no impact on its
consolidated financial statements.
In February of 2007 the FASB issued SFAS 159, "The Fair Value Option for
Financial Assets and Financial Liabilities-including an amendment of FASB
Statement No. 115." The statement permits entities to choose to measure many
financial instruments and certain other items at fair value. The objective is
to improve financial reporting by providing entities with the opportunity to
mitigate volatility in reported earnings caused by measuring related assets
and liabilities differently without having to apply complex hedge accounting
provisions. The statement is effective as of the beginning of an entity's
first fiscal year that begins after November 15, 2007. The company is
analyzing the potential accounting treatment.
(2.) LIQUIDITY AND GOING CONCERN MATTERS
The Company has become operational for the past two years in the debt
collection business and has incurred losses since its inception. As a result,
the Company has an accumulated deficit of $8,479,167 at September 30, 2007.
The net loss for the twelve month period ended September 30, 2007 was $2,627.
The Company had convertible debenture debt in default in the amount of $
200,000, plus related accrued interest payable of $152,281. 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 had 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 $200,000.
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 resumed operations after an approximate five year reorganization
period. However, there is no assurance these actions will be successful.
(3.) INCOME TAXES
The Company has incurred significant net operating losses. The Company has
not reflected any benefit of such net operating loss carry-forwards in the
accompanying financial statements. The income tax expense benefit differed
from the amount computed by applying the U.S. federal income tax rate of 34%
to income before income taxes as a result of the following:
2007 2006
--------- ---------
Computed "expected" tax benefit 34.0% 34.0%
State income tax, net of federal benefit 3.8% 3.8%
Change in valuation allowance (37.8%) (37.8%)
--------- ---------
The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets for the period ended September 30, 2007
and September 30, 2006 is presented below:
2007 2006
--------- ---------
Deferred tax assets:
Net operating loss carry forward $2,547,216 $2,546,515
Start up costs - -
Other - -
--------- ---------
Total gross deferred tax assets $2,547,216 2,546,515
Valuation allowance (2,547,216) (2,546,515)
----------- -----------
Net deferred tax assets $ -- $ --
============ ===========
In assessing the realization of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred
tax assets will not be realized. The ultimate realization of deferred tax
assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Based on the
level of historical taxable income and projections of future taxable income
over the periods in which the deferred tax assets are deductible, management
does not believe that it is more likely than not the Company will realize the
benefits of these deductible differences. Accordingly, the Company has
provided a valuation allowance against the gross deferred tax assets as of
September 30, 2007.
For the period ended September 30, 2007, the Company reported a net operating
tax loss carry-forwards of approximately $6,738,668. The federal net
operating loss carry-forwards begin to expire in the year 2011.
Federal tax laws impose significant restrictions on the utilization of net
operating loss carry-forwards in the event of a change in ownership of the
Company that constitutes an "ownership change" as defined by the Internal
Revenue Code, Section 382. The Company's net operating loss carry-forward
will be subject to the above limitations.
(4.) STOCK ISSUANCE
(4.a) PREFERRED STOCK
Preferred stock may be issued from time to time in one or more series. Each
series is to be distinctly designated. All shares of any series of the
preferred stock shall be alike in all rights. Each series will identify the
rights to preference in liquidations, voting rights, dividend and other
powers, qualifications, or restrictions.
In September 2007, the Company issued 275,000 12% Cumulative and Convertible
Series A Preferred Shares, par value $0.0001, to Doubletree Capital Partners,
Inc. in exchange for current loans and accumulated interest payable valued at
$1.00 per share. The preferred stock is convertible into common shares at the
rate of 2.32 common shares for each preferred share for a total of 785,714
common shares or a common price of $.35 per share. The preferred shares shall
be convertible to common shares at any time upon the option of the holder,
Doubletree Capital Partners, Inc., a related party. The preferred shares bear
a dividend rate of 12% per annum, dividends payable quarterly or annually at
the option of the Company, and cumulative in amount until such time as they
are paid to the holder by the Company.
(4.b) COMMON STOCK
As of September 30, 2007, 23,999,612 shares of common stock, par value
$0.0001, were issued and outstanding.
During 2007, the following common shares were issued in exchange for services
rendered to the Company or liabilities extinguished by the Company:
To whom issued: Common shares issued: Value:
Doubletree Capital Partners 9,700 $ 4,171
(4.c) STOCK OPTIONS
On July 1, 2004, the Company's Board of Directors granted a stock option for
6,000,000 common shares to a related party Doubletree Capital Partners,
Inc.(DCP) at an exercise price of $.60 per share for a five year term
commencing July 1, 2004. The option was granted to DCP as a means to preserve
ownership interest as required in preliminary acquisition discussions. As of
September 30, 2006, the stock options were still outstanding and none of the
options had been exercised.
The Company values its stock options awards under SFAS 123(R). The amount was
determined using the Black-Scholes option pricing model, which values options
based on the stock price at the grant date, the expected life of the option,
the estimated volatility of the stock, the expected dividend payments, and
the risk-free interest rate assumed over the expected life of the option.
As of September 30, 2007, the following table is a summary of the stock
options outstanding on that date adjusted for the reverse stock split of 1
for 140 that occurred in January 2004
Weighted Average
Number of Exercise
Stock Options Shares Price
----------------------------------------- --------- ---------
Outstanding & exercisable at September 30, 2006 6,000,000 $ .60
========= =========
Granted 0 0
Exercised 0 0
Expired or cancelled 0 0
--------- ---------
Outstanding & exercisable at September 30, 2007 6,000,000 $ .60
========= =========
(4.e) 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 on that date 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,
now also defaulted as to payment at September 30, 2007. Both of these notes
are included on the books of the Company along with related accrued interest
payable in the amount of $152,281 (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 September 30, 2007:
Description of debt indemnification: Current Long-term
Defaulted convertible debenture payable $ 150,000 $ 0
Defaulted accrued interest payable 152,281 0
Account payable-disposed business 24,000 0
Convertible debenture payable 50,000 0
Less, contra-indemnification receivable (376,281) 0
--------- ---------
Net Balances per Balance Sheet, at
September 30, 2007: $ 0 $ 0
========= =========
The Company believes that beyond the $376,281 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.
(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 September 30, 2007, the Company was in default on the terms of payment
of quarterly interest on these debentures amounting to $152,281. Accordingly,
two remaining convertible debentures have been classified as a current
liability amounting to $150,000. 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 related interest has not yet been paid. The $150,000
previous defaulted debenture notes and related interest both remain unpaid.
(5.b) CONVERTIBLE or SECURED NOTES PAYABLE - RELATED PARTY
During the fiscal year ended September 30, 2007, the financial company
provided the funds necessary to maintain operations by loaning an additional
$274,025 to the Company. On September 30, 2007, current liabilities including
accrued interest due the financial company were converted to 12% Cumulative
Convertible Series A Preferred Stock valued at $275,000. At September 30,
2007, the Company owed to the related financial company an additional $57,116
in accrued loans for cash advances and related interest payable.
(6.) OTHER RELATED PARTY TRANSACTIONS
The Company incurred expenditures with its President who is also a
stockholder for consulting services amounting to $68,500 in the year ended
September 30, 2007 and salary expenses in the amount of $31,500.
On September 30, 2007 the Company issued 9,700 shares of Common Stock to
Doubletree Capital Partners, Inc. for services rendered.
See Notes 4.a and 4.b for additional information regarding related party
transactions for the year ended September 30, 2007.
(7.) EXTRAORDINARY GAIN AND SUBSEQUENT EVENTS
An extra-ordinary income gain of $537,500 was recorded due to the return of
1,250,000 shares ISAI common stock to the Company held by the Trustee of
United States Bankruptcy Court, Central District of California, San Fernando
Valley Division as part of the terms of a settlement agreement between the
Court and ISAI. This stock was previously issued as consideration for the
revised asset purchase agreement with three California companies now in
Chapter 7 bankruptcy. ISAI valued the 1,250,000 shares of its common stock
returned at $0.43 per share. This value approximates the market value on the
date of return on September 30, 2007 determined by the average of the bid
prices of the Company's stock during the quarter ended September 30, 2007 and
in accordance with SFAS 157. In September 2006, FASB issued SFAS 157 'Fair
Value Measurements'. This Statement defines fair value, establishes a
framework for measuring fair value in generally accepted accounting
principles (GAAP), and expands disclosures about fair value measurements. The
Company previously adopted the use of SFAS 157 in the year ended September
30, 2004. At September 30, 2007, these shares are being held as Treasury
Stock until they are finally retired by the Company in the future. Subsequent
to their retirement, it is the intention to resell an equal and equivalent
quantity of common shares for future financing needs for the Company.
On June 20, 2007, ISA Internationale Inc. (ISAI), its wholly owned subsidiary
ISA Financial Services, Inc. (ISAF), and Bernard L. Brodkorb entered into an
agreement with Amy L. Goldman, Chapter 7 Trustee of the bankruptcy estates of
Harrison Asset Management, Inc., Money Asset Management, Inc., and Cash Asset
Management, Inc., to settle an adversary complaint filed against them on or
about July 14, 2006. The Company has denied all relevant allegations against
itself but felt it was in its own best interest to agree to settle rather
than sustain the expense of protracted litigation.
The settlement agreement includes the following condensed terms:
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. This
was done by September 30, 2007.
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 escrow under the original asset purchase
agreement with the companies in bankruptcy. This provision was completed by
the trustee with the return of the 1,250,000 shares on September 30, 2007.
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
estate's right, title and interest (including the Trustee's tolling rights
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. Trustee elected not to pursue these claims and subsequent to
September 30, 2007, assigned these claims to ISAI. The Company has commenced
litigation against the Third Party defendants as of the date of this report.
No provision has been made in the financial statements for any possible
recovery of monetary damage claims.
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. This was completed subsequent to September 30, 2007.
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
Item 8.a. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Within the 90 days prior to the end of the period covered by this report, the
Registrant carried out an evaluation of the effectiveness of the design and
operation 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 upon that evaluation, they concluded that the
Registrant's disclosure controls and procedures are effective in gathering,
analyzing and disclosing information needed to satisfy the Registrant's
disclosure obligation under the Exchange Act. There were no significant
changes in the Registrant's disclosure Controls and procedures, or in its
factors that could significantly affect those controls since the most recent
evaluation of such controls. The Company has implemented accounting and
administrative procedures documentation and controls recommended by outside
consultants.
As a non-accelerated filer with a fiscal year end of September 30, the
Company must first begin to comply with the requirements of Section 404 of
the Sarbanes-Oxley Act of 2002 ("Section 404") for the fiscal year ending
September 30, 2007. During fiscal 2007, management will review and evaluate
the effectiveness, and where necessary, enhance the Company's internal
controls over financial reporting. The Company anticipates it may need to
engage a third party to assist it with the design of such internal controls
over financial reporting. As of the date of this report, the Company has not
yet engaged any such third party. This review and any enhancements, if
necessary, will likely involve significant time and expense by the Company
and its independent auditors. Accordingly, there can be no assurances that
the Company will be in compliance with the requirements of Section 404 by
September 30, 2007.
Item 8.b. OTHER INFORMATION
None
PART III
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Directors and Executive Officers of the Company
Set forth below are the names of the directors and executive officers of the
Company as of September 30, 2007, their ages, the year first elected as an
executive officer and/or director of the Company, and employment history for
the past five years.
Also set forth below are the changes to names of the directors and executive
officers of the Company as of January 1, 2004 through September 30, 2005,
their ages, the year first elected as an executive officer and/or director of
the Company, and employment for the past five years.
Name Positions with the Company Age Since
Bernard L. Brodkorb, President, Chief Executive Officer,
Chief Financial Officer and Director
Chairman of the Board of Directors [1] 66 January 2001
[1] (Note: Also served as Treasurer, Chief Financial Officer and Director
from October 1997 to July 2000.
Donald G. Kampmann Outside Director 53 January 2001
James S. Dixon Outside Director 59 January 2001
Directors:
BERNARD L. BRODKORB (October 1997 to July 2000 and January 2001 to present)
was the Treasurer, Chief Financial Officer and a director of the Company
since it's inception in October 1997. Mr. Brodkorb resigned as Treasurer,
Chief Financial Officer and Director on July 2000. He was elected to the
board of directors in January 2001, elected by the board of directors as
interim President, Chief Executive Officer, and Chief Financial Officer in
February 2001. Mr. Brodkorb is an independent practicing licensed Certified
Public Accountant (CPA) within the State of Minnesota for many years, and has
extensive experience in financial and accounting matters relating to both
private and public companies, including auditing, financial consulting and
advising on corporate taxation. He is a member of the Minnesota Society of
Certified Public Accountants and the American Institute of Certified Public
Accountants.
DONALD G. KAMPMANN (January 2000 to present) is an outside director of the
Company from January 2000 to present. Mr. Kampmann has been an allotted board
member by Doubletree Capital Partners, Inc. Mr. Kampmann is currently working
with JPMChase Bank in their mortgage division as a Senior Loan Officer. He
also is an independent commercial mortgage consultant assisting in equity
financing for small businesses and has extensive executive experience in the
mortgage and financial services industries.
JAMES S. DIXON (January 2000 to present) is an outside director of the
Company from January 2000 to present. Mr. Dixon is an allotted board member
by Doubletree Capital Partners, Inc. Mr. Dixon has been the Vice President
and Secretary of West America Securities, Inc. of Scottsdale, Arizona for
over six years.
Section 16(A) Beneficial Ownership Reporting Compliance
Section 16 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), requires the Company's directors, executive officers, and any persons
holding more than 10% of the outstanding common stock of the Company to file
reports with the Securities and Exchange Commission concerning their initial
ownership of common stock and any subsequent changes in that ownership.
In 2006 and 2007, Bernard Brodkorb, Charles Newman, James Dixon, Donald
Kampmann, Doubletree Capital Partners, Inc., and Doubletree Liquidation
Corporation filed Annual Statements of Changes in Beneficial Ownership on
Form 5.
CODE OF ETHICS
We have adopted a code of ethics that applies to our principal executive
officers, principal financial officer, principal accounting officer or
controller, or persons performing similar functions as well as all Board of
Director's members.
Item 10. EXECUTIVE AND DIRECTOR COMPENSATION
For the twelve months ended September 30, 2007 and 2006, cash and non cash
compensation was paid to executive officers or directors.
The following table sets forth information on the remuneration of our chief
executive officer during any part of our last two fiscal years, including non
cash compensation.
SUMMARY EXECUTIVE AND DIRECTOR COMPENSATION
-------------------------------------------------------------------------------------------------
ANNUAL COMPENSATION LONG TERM COMPENSATION
AWARDS PAYOUTS
OTHER RESTRICTED SECURITIES
NAME AND ANNUAL STOCK UNDERLYING LTIP ALL OTHER
PRINCIPAL FISCAL COMPENSA AWARD OPTIONS PAYOUTS COMPENSA
POSITION YEAR SALARY ($) BONUS ($) TION ($) ($) SARS ($) ($) TION($)
-------------------------------------------------------------------------------------------------
Bernard L. 2007 $31,500(1) -0- 68,500 -0- -0- -0- -0-
Brodkorb
Bernard L. 2006 $28,000(1) -0- 77,000 -0- -0- -0- -0-
President, CEO
-------------------------------------------------------------------------------------------------
Directors 2005 -0- -0- -0- -0- -0- -0- -0-
Directors 2006 -0- -0- $77,500 -0- -0- -0- -0-
-------------------------------------------------------------------------------------------------
(1) Compensation for Bernard L. Brodkorb was recorded on the books of the
Company as compensation for consulting ($68,500) and salary ($31,500) for the
year 2007 and was paid either in cash or as an increase in loans payable to a
related party.
Director Compensation
In 2006, Directors received 155,000 shares of common stock as compensation
for their services as directors for the period from January 1, 2004 through
June 30, 2006. These shares were voted and approved by the Board of Directors
in December 2006 and were valued at $.50 per common share to be issued.
No additional Director compensation has been authorized for services for the
period from October 1, 2006 through September 30, 2007, and through the date
of this 10-KSB report filing.
Stock Options Granted for Compensation
In July 2004 the Company's Board of Directors granted a stock option for
6,000,000 common shares to a related party, Doubletree Capital Partners,
Inc., at an exercise price of $.60 per share for a five year term commencing
July 1, 2004. The option was granted to DCP as a means to preserve ownership
interests as required in preliminary acquisition discussions. As of September
30, 2007, the stock options were still outstanding and none of the options
had been exercised.
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of September 30, 2007, certain information
regarding the beneficial ownership of shares of common stock of the Company
by (1) each person or entity who is known by the Company to own more than 5%
of the Company's common stock, (2) each director of the Company, and (3) all
directors and executive officers of the Company as a group.
11-A. Security Ownership of Certain Beneficial Owners
11-B. Security Ownership of Management
Shares of Common Stock Percent of
Name and Address of Beneficial Owner Beneficially Owned Outstanding
-------------------------------------------------------------------------
Doubletree Capital Partners, Inc. (1) 26,858,338 90.94%
A Minnesota corporation
12201 Champlin Drive
Champlin, MN 55318
Bernard L. Brodkorb (2)(3) 28,041,025 94.94%
2560 Rice St.
St. Paul, MN. 55113
(1) Includes 21,428 common shares acquired in November, 2000; includes
warrants to purchase 6,000,000 shares exercisable at $.60 per share to
Doubletree Capital Partners, Inc (DCP). Includes 100% interest in 1,232,143
shares held by Doubletree Liquidation Corporation (DLC), an affiliated
company to be used for the resolution of any contingent, non-contingent or
real liabilities to creditors of a former subsidiary that may arise in the
future. Also includes 275,000 shares of Convertible Preferred Stock which at
a conversion value of $0.35 would equal 785,714 shares of common stock.
(2) Includes a 50% beneficial interest in warrants to purchase 6,000,000
shares exercisable at $0.60 per share issued to Doubletree Capital Partners,
Inc.; includes 50% beneficial interest in DCP.; includes 50% beneficial
interest in DLC; includes 8,929 common shares owned since 1998; 383,857
common shares issued in 2004, 790,000 shares issued in 2006, 50% interest in
9,700 shares issued in 2007 to DCP, and a 50% beneficial interest in 275,000
shares of Convertible Preferred Stock which at a conversion value of $0.35
would equal 785,714 shares of common stock.
Shares of Common Stock Percent of
Name and Address of Beneficial Owner Beneficially Owned Outstanding
Bernard L. Brodkorb, Jr. (3)(7) 14,611,956 49.47%
St. Paul, MN
Donald G. Kampmann (4) 227,715 0.949%
Henderson, NV
James S. Dixon (5) 85,715 0.357%
Scottsdale, AZ.
---------- -------
Directors and executive officers as a group 14,925,386 50.776%
(3) Includes 50% beneficial interest in options to purchase shares
exercisable at $.60 per share.
(4) Includes 35,715 common shares issued in 2004 and 192,000 issued in 2006.
(5) Includes 35,715 common shares issued in 2004 and 50,000 issued in 2006.
(6) Includes 50% beneficial interest in 9,700 common shares issued in 2007.
(7) Includes 50% beneficial interest in 275,000 shares of Convertible
Preferred Stock issued in 2007
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On September 30, 2007 the Company issued 9,700 shares to a related party,
Doubletree Capital Partners, Inc., in payment of $4,171 for services rendered.
On September 30, 2007 the Company issued 275,000 shares of 12% Cumulative
Convertible Series A Preferred Stock to Doubletree Capital Partners, Inc. at
$1.00 per share in settlement of current loan liabilities and accrued interest
valued at $275,000.
The total issued and outstanding common shares are 23,999,612 as of September
30, 2007. Issued and outstanding Preferred shares total 275,000 at September
30, 2007.
Item 13. EXHIBITS
(a) LISTING OF EXHIBITS
The exhibits required to be a part of this report are listed in the Index to
Exhibits on page 57.
(b) REPORTS ON FORM 8-K SUMMARY
On June 26, 2007 the Company filed Form 8-K stating the Company had entered
into an agreement with the Chapter 7 Trustee of the bankruptcy estates of
Harrison Asset Management, Inc. Money Asset Management, Inc., and Cash Asset
Management, Inc. to settle an adversary complaint filed against them on or
about July 14, 2006. The complete agreement is referenced as exhibit 99-1.
On August 21, 2007 the Company filed Form 8-K announcing that on August 15,
2007, the United States Bankruptcy Court, Central District of California, San
Fernando Valley Division approved a Settlement Agreement ("Agreement") and
Mutual Releases in its entirety made by and among Amy L. Goldman, Chapter 7
Trustee of the jointly administered bankruptcy estates of Harrison Asset
Management, Inc., Money Asset Management, Inc., and Cash Asset Management,
Inc., on the one hand, and ISA Internationale Inc. ("ISAI"), its wholly owned
subsidiary ISA Financial Services, Inc. ("ISAF"), and Bernard L. Brodkorb
(collectively, the "Defendants"),on the other hand. The Agreement settles an
adversary complaint filed against the Defendants on or about July 14, 2006. A
court order granting trustee's motion to approve the compromise of
controversy with ISAI, ISAF, and Bernard Brodkorb was issued. The Trustee is
authorized to compromise with ISAI, ISAF and Bernard Brodkorb pursuant to the
terms of the Agreement.
The approved Settlement Agreement included all of the terms of the agreement
announced in the Form 8-K filing of the Company on June 26, 2007. None of the
terms of the Agreement changed. The Company will be paying to the Trustee the
initial sum of $75,000 as one of the conditions of the settlement. The
Company received the stock back it used to purchase portfolio assets of HAMI,
MAMI, and CAMI and will keep the portfolio inventory purchased and be allowed
to continue collecting the debt receivables.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Audit Fees.
The aggregate fees billed for each of the two fiscal years for professional
services for the audit of the Registrant's annual financial statements, and
review of financial statements included in the company's Form 10-QSB's:
2007 - $45,000; 2006 - $50,944
Audit-Related Fees.
The aggregate fees billed in each of the last two fiscal years for assurance
and related services that are reasonably related to the performance of the
audit or review of the Registrant's financial statements and are not under
Audit Fees above: $0 and $0 in 2007 and 2006.
Tax Fees.
The aggregate fees billed in each of the last two fiscal years for
professional services rendered for tax compliance and tax planning: $0 and $0
in 2007 and 2006.
All Other Fees.
The aggregate fees billed in each of the last two fiscal years for products
and services other than the services reported above: $0 and $0 in 2007 and
2006.
Audit Committee's pre-approval policies and procedures.
The Registrant's committee consists of two Directors. The audit committee has
adopted a written charter. The Registrant's Board of Directors has determined
the Company does have a financial expert serving on its audit committee.
The Registrant does not have any pre-approval policies and procedures. The
audit committee makes recommendation concerning the engagements of independent
public accountants, review with the independent public accountants the scope
and results of the audit engagement, approves all professional services
provided by the independent accountants, reviews the independence of the
independent public accountants, considers the range of audit and non-audit
fees, and review the adequacy of the Registrant's internal accounting
controls.
Work performed by other than the principal accountant's engagement of full
time permanent employees.
The percentage of time expended by other than full time permanent employees of
the principal accountant did not exceed 50%.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on the dates
indicated, thereunto duly authorized.
ISA INTERNATIONALE INC.
_____________________________________
/s/Bernard L. Brodkorb
By Bernard L. Brodkorb January 14, 2008
President, Chief Executive Officer, and Director
______________________________________
/s/ Donald G. Kampmann January 14, 2008
By: Donald G. Kampmann Director
______________________________________
/s/ James S. Dixon January 14, 2008
By: James S. Dixon Director
SECTION 302 CERTIFICATION
I, Bernard L. Brodkorb, certify that:
1. I have reviewed the annual report on Form 10-KSB of ISA Internationale
Inc.;
2. Based on my knowledge, this report does not contain any untrue statements
of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered
by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this report (the "Evaluation Date"); and
c) presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses
in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls.
6. The registrant's other certifying officers and I have indicated in this
report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
/s/ Bernard L. Brodkorb
President, CEO, CFO, and Chairman of the Board Date: January 14, 2008
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of ISA Internationale Inc., (the
"Company") of Form 10-KSB for the period ending September 30, 2005, as filed
with the Securities and Exchange Commission on the date hereof (the "Report"),
I, Bernard L. Brodkorb, Chief Executive Officer of the Company, certify,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the
Sarbanes-Oxley Act of 2002, that to the best of my knowledge and belief:
(1.) the report fully complies with the requirements of Section 13(a) or 15
(d) of the Securities Exchange Act of 1934; and
(2.) the information contained in the Report fairly presents, in all material
respects, the financial condition and result of operations of the Company.
/s/ Bernard L. Brodkorb
By: Bernard L. Brodkorb
President, Chief Executive Officer, and Chief Financial Officer
Date: January 14, 2008
ISA INTERNATIONALE INC.
FORM 10-KSB
INDEX TO EXHIBITS
Exhibit 99-1 Settlement Agreement and Mutual release.
All of the following below are included in our Form 10-SB Registration
Statement (File No. 0-027373) and are incorporated by reference.
Item No. Description
3.1 Articles of Incorporation of the Company (incorporated by reference
to Exhibit 2(i) to the Company's registration statement on Form 10-SB (File
No. 0-27373)).
3.2 By-laws of the Company (incorporated by reference to Exhibit 2(ii) to
the Company's registration statement on Form 10-SB (File No. 0-27373)).
4.1 Form of Common Stock Certificate (incorporated by reference to
Exhibit 3 to the Company's Registration Statement on Form 10-SB (File No. 0-
27373)).
10.1 Agreement and Plan of Business Combination dated April 11, 1998
between ISA Internationale Inc. (formerly known as 1-800 Consumer
International Inc.), a Delaware corporation and Internationale Shopping
Alliance, Inc., a Minnesota corporation (now a wholly owned subsidiary of ISA
Internationale Inc. (incorporated by reference to Exhibit 6(i) to the
Company's registration statement on Form 10-SB (File No. 0-27373)).
End of Report
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