UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2008
Commission File Number: 001-16423
-----------------------------------
ISA INTERNATIONALE INC.
(Name of small business registrant 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) 484-9850
Securities registered under Section 12(g) of the Exchange Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock OTC Bulletin Board
----------------------------------------------------------------------------
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No []
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company.
Large accelerated filer [] Accelerated filer [] Smaller Reporting Company [X]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act) Yes [] No [X]
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
On August 19, 2008 there were 23,999,612 shares of the Registrant's common
stock, par value $.0001 per share and 545,000 shares of Convertible Preferred
Stock, par value $.0001 per share outstanding. The Convertible Preferred Stock
would upon conversion at the option of the holder, require the issuance of an
additional 1,867,857 shares of common stock.
Transitional Small Business Disclosure Format (check one). Yes [] No [X]
ISA INTERNATIONALE INC.
FORM 10-Q
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheet as of June 30, 2008 (unaudited)
and September 30, 2007(audited) 3
Condensed Consolidated Statements of Operations for the three and
nine months ended June 30, 2008 (unaudited) and the three and
nine months ended June 30, 2007(unaudited) 4
Condensed Consolidated Statements of Cash Flows for the
nine months ended June 30, 2008 (unaudited) and
nine months ended June 30, 2007 (unaudited) 5
Notes to Condensed Consolidated Financial Statements 6-12
Item 2. Management's Discussion and Analysis of Financial Condition and
Result of Operations 13-19
Item 3. Controls and Procedures 20
PART II OTHER INFORMATION
Item 1. Legal Proceedings 21
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 21
Item 3. Defaults upon Senior Securities 21
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 21
Signatures 21
Page 2
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
ISA INTERNATIONALE INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) (Audited)
June 30, September 30,
2008 2007
ASSETS --------------------------------
Assets:
Cash and cash equivalents $ 21,880 $ 14,742
Trade receivables 2,240 3,967
-------------- --------------
Total current assets: 24,120 18,709
Office equipment, at cost less depreciation thereon 3,208 4,033
Other assets:
Finance contract receivables - net of collections 312,020 221,576
Notes receivable - non current portion 7,600 7,600
Organization costs - net of accumulated amortization 130 189
------------ ------------
Total Assets $ 347,078 $ 252,107
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade and taxes 139,850 77,112
Notes Payable -related party 160,695 -
Convertible notes payable - related party 30 39,839
Accrued interest payable related party -- 17,277
Accounts payable - related party -- 368
------------ ---------
Total current liabilities 300,575 134,596
------------ ---------
Total Liabilities $ 300,575 $ 134,596
------------ ------------
Stockholders' Equity:
Preferred convertible stock, par value $.0001
30,000,000 shares authorized, 545,000 shares
issued and outstanding at June 30, 2008 ,275,000
shares issued and outstanding at December 31,2007 55 27
Common stock, $.0001 par value,
300,000,000 shares authorized; 23,999,612
shares issued and outstanding at June 30, 2008 and
at June 30, 2007 2,400 2,400
Additional paid-in capital 9,417,488 9,131,751
Accumulated deficit (8,835,940) (8,479,167)
------------ -----------
Total Stockholders' Equity before Treasury Stock 584,003 655,011
Less: Treasury Stock (537,500) (537,500)
------------ ----------
Total stockholders' equity 46,503 117,511
------------ ---------
Total Liabilities and Stockholders' Equity $ 347,078 $ 252,107
============ ===========
The accompanying notes are an integral part of these financial statements.
Page 3
ISA INTERNATIONALE INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
June 30, 2008 June 30, 2007 June 30, 2008 June 30,2007
--------------- ------------- ------------- ------------
Operating revenue:
Portfolio collections $ -- $ -- $ -- $ --
Operating expenses:
Portfolio collection costs 4,142 10,154 18,526 43,942
General & administrative 83,292 79,546 284,448 289,349
--------- --------- -------- --------
Operating expenses 87,434 89,700 302,974 333,291
--------- --------- -------- --------
Operating loss (87,434) (89,700) (302,974) (333,291)
Other income (expense):
Interest expense (6,077) (10,176) (19,902) (25,394)
--------- ---------- --------- ----------
Net (loss) from operations (93,511) (99,876) (322,876) (358,685)
--------- ---------- ---------- ---------
Net (Loss) (93,511) (99,876) (322,876) (358,685)
========= ========= ========== =========
Net (Loss) attributable to
Common Shareholders (93,511) (99,876) (322,876) (358,685)
Basic and diluted (loss)
per share (0.004) (0.004) (0.013) 0.014)
========== ========= ========== =========
Weighted average common
Shares outstanding:
Basic & Assuming Diluted 23,999,612 23,989,912 23,999,612 23,989,912
========== ========== =========== ==========
Dividends per share of common stock none none none none
========== ========== =========== ==========
The accompanying notes are an integral part of these financial statements.
Page 4
ISA INTERNATIONALE INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended Nine Months Ended
June 30, 2008 June 30, 2007
------------------ ------------------
Cash flows from operating activities:
Net (Loss) $ (322,876) $ (358,685)
Adjustments to reconcile net (loss) from operations
to cash flow used in operating activities:
Deprecation and amortization, a non cash charge 884 884
Reduction of debt receivable purchase price
due to gross collections received 51,251 123,011
Interest expense for indemnification agreement,
a non-cash charge 15,764 15,707
Changes in operating assets and liabilities:
Trade accounts receivable 1,727 2,350
Note receivable for incurred acquisition cost -- 10,000
Accrued expenses - related party (368) --
Accounts payable and Accrued Expenses 62,739 42,011
Accrued interest payable - related party (17,277) 9,687
----------- ----------
Cash provided by (used in) operating activities (208,156) (155,035)
----------- ----------
Cash flows from investing activities:
Debt receivables purchased (141,696) --
----------- ----------
Cash provided by investing activities (141,696) --
----------- ----------
Cash flows from financing activities:
Proceeds from issuance of convertible debt
to related party 196,294 146,171
Proceed from notes payable other 160,696
----------- ----------
Cash provided by financing activities 356,990 146,171
----------- ----------
Increase (decrease) in cash and cash equivalents 7,138 (8,864)
Cash at beginning of period 14,742 25,561
----------- ----------
Cash and cash equivalents at end of period $ 21,880 16,697
=========== ==========
Non-cash investing in financing transactions:
Stock issued to related party for capital
contribution for Indemnification Agreement 15,764 15,707
Payment of secured loans and accrued
interest with preferred stock to related party 236,103 --
Payment of accrued dividends with preferred stock
to related party 33,897 --
---------- ----------
Total non-cash transactions $ 285,764 15,707
========== ==========
The accompanying notes are an integral part of these condensed consolidated financial statements.
Page 5
ISA INTERNATIONALE INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1.) NATURE OF BUSINESS AND SIGNIFICANT EVENTS
1.a) Nature of Business
ISA Internationale Inc. (the Company or ISAI) was incorporated on June 2,
1989, under the laws of the State of Delaware under a former name and became a
reporting publicly held corporation on November 15, 1999. On May 8, 1998,
Internationale Shopping Alliance Incorporated (Internationale), a Minnesota
corporation, was merged with the Company, a Delaware corporation, pursuant to
a merger agreement dated April 23, 1998. Upon consummation of the merger,
Internationale became a wholly owned subsidiary of the Company. During 2000,
the Company sold its International Strategic Assets, Inc. subsidiary and
discontinued the operations of its ShoptropolisTV.com subsidiary. Since then,
reorganization specialists, Doubletree Capital Partners LLC, has internally
reorganized the Company's financial affairs and changed its direction to focus
on the financial services industry.
These condensed consolidated financial statements include the parent Company,
ISA Internationale, Inc., its wholly owned subsidiary, ISA Financial Services,
Inc. (formerly ISA Acquisition Corporation), and its wholly owned subsidiary,
ISA Acceptance Corporation. The companies resumed operations in September 2005
as a result of a distressed consumer debt purchase agreement commenced on May
18, 2005, and 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
(accretable yield) to the excess of the Company's estimate of undiscounted
expected principal, interest and other cash flows (cash flows expected at the
acquisition to be collected) over the Company's initial investment in the debt
receivables. Subsequent increases in cash flows expected to be collected are
recognized prospectively through adjustment of the debt receivables yield over
its remaining life. Decreases in cash flows expected to be collected are
recognized as impairment to the debt receivable portfolios. The Company's
proprietary collections model is designed to track and adjust the yield and
carrying value of the debt receivables based on the actual cash flows received
in relation to the expected cash flows. This method is commonly referred to as
the "cost recovery method" for revenue recognition under which no revenue is
recognized until the investment cost of $1,094,900 less write-offs has been
recovered.
In the event cash collections are inadequate to amortize the carrying balance
and the resulting estimated remaining fair market value of the remaining
portfolio debt receivables were to be less than the carrying value, an
impairment charge would need to be taken with a corresponding write off of the
"impaired" or deficient receivable carrying value with a corresponding charge
to profit and loss of the Company at that time.
The Company believes the remaining portfolio debt receivable carrying costs of
$312,020 will be recovered by the Company from future gross collections to be
received in the next 48 months commencing from July 1, 2008 and forward. The
Company cannot guarantee all of the remaining receivable costs can be
recovered due to the aging and future write-offs of the receivables.
Page 6
On June 30, 2008, the Company purchased $141,696 of distressed debt
receivables included in the carrying costs at June 30, 2008.
The agreements to purchase the aforementioned receivables include general
representations and warranties from the sellers covering account holder death
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 inventory
balance. They are not included in the Company's cash collections from
operations nor are they included in the Company's cash collections applied to
revenue.
Gains on sale of debt receivables, representing the difference between sales
price and the unamortized value of the debt receivables, are recognized when
debt receivables are sold.
Changes in debt receivables for the quarter ended June 30, 2008:
Quarter Ended
June 30, 2008
----------------
Balance at beginning of period, March 31, 2008 $ 181,987
Acquisition of debt receivables 141,696
Cash collections applied to principal (11,663)
Impairment write down to carrying cost --
-----------------
Balance at the end of the period, June 30, 2008 $ 312,020
=================
Estimated Remaining Collections ("ERC")(Unaudited) * $ 805,993
=================
* The Estimated Remaining Collection refers to the sum of all future projected
cash collections from acquired portfolios. ERC is not a balance sheet item,
however, it is provided for informational purposes. There was no revenue
recognized on debt receivables for the nine months ended June 30, 2008.
Under SOP-03-3 debt security impairment is recognized only if the fair market
value of the debt has declined below its amortizable costs. Currently no
additional amortizable costs are below fair market value.
1.b) Presentation
The condensed consolidated balance sheet at June 30, 2008, contains contra
account statement presentation for certain convertible debenture notes
payable, related accrued interest payable and accounts payable-disposed
business in the amount of $368,045. Reference should be made to note 4.d in
these notes to financial statements for additional information as to
consolidated financial statement presentation at June 30, 2008.
1.c) Use of Estimates
The preparation of the financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenue
Page 7
and expenses during the reporting period. Actual results could differ from
those estimates.
1.d) Revenue Recognition
There were no operating revenues through June 30, 2008. Revenue will be
recognized based on AICPA Statement of Position 03-3, if management is
reasonably comfortable with expected cash flows. In the event, expected cash
flows cannot be reasonably estimated, the Company will use the "Recovery
Method" under which revenues are only recognized after the initial investment
has been recovered.
1.e) Loss per Share
Basic loss per share excludes dilution and is computed by dividing the net
loss by the weighted average number of common shares outstanding during the
period. Diluted loss per share includes assumed conversion shares consisting
of dilutive stock options and warrants determined by the treasury stock method
and dilutive convertible securities. In fiscal years 2008 and 2007, all
potentially issuable shares have been excluded from the calculation of loss
per share, as their effect is anti-dilutive. The weighted average calculation
includes the common stock payable transactions as enumerated in note 5b and
those that may have been issuable at the end dates of the financial statements
included in this 10-Q report.
1.f) Stock Based Compensation
No shares of the Company's common stock were issued for consulting services
and settlement expenses during the quarter ended June 30, 2008. An additional
90,000 shares of Convertible Preferred Stock were issued during the quarter to
reduce the loans payable, accrued interest and dividends payable to the
related party financing company.
1.g) Fair Value of Financial Instruments
The Company uses the following methods and assumptions to estimate the fair
value of each class of financial instruments for which it is practicable to
estimate such value:
Cash and short-term investments: The carrying amount approximates fair value
because of the short maturity of those instruments.
Accounts payable: The carrying value of accounts payable approximates fair
value due to the short-term nature of the obligations.
Convertible debentures and notes payable: The carrying value of the Company's
convertible debentures and notes payable, which are in default, approximates
fair value due to the short-term nature of the obligations.
Page 8
2.) LIQUIDITY AND GOING CONCERN MATTERS
The Company has had limited operations and in the debt collection business.
The Company has incurred losses since its inception and, as a result, has an
accumulated deficit of $8,835,940 at June 30, 2008. The net loss for the nine
month period ended June 30, 2008 from operating activities was $322,876. The
Company had convertible debenture debt in default in the amount of $200,000,
plus related accrued interest payable of $168,045. These factors raise
substantial doubt about the Company's ability to continue as a going concern.
The Company's ability to continue as a going concern depends upon successfully
restructuring its debt, obtaining sufficient financing to maintain adequate
liquidity and provide for capital expansion until such time as operations
produce positive cash flow. The Company has been in reorganization and at the
present time is continuing to establish itself in the debt collection business
within the financial services industry. However, there can be no assurance
these actions will be successful.
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.
NOTE 3) INCOME TAXES
The Company has incurred significant net operating losses since its inception
but has not reflected any benefit of such net operating loss carry-forwards in
the accompanying financial statements.
NOTE 4) STOCK ISSUANCE:
(4.a) Preferred Stock
As of June 30, 2008, 545,000 shares of Convertible Preferred Stock were issued
and outstanding. On December 31, 2007, 125,000 shares were issued, 55,000
shares were issued on March 31, 2008, and 90,000 additional Preferred Shares
were issued for repayment of convertible/secured debt to a related party in
the amount of $270,000 for the fiscal year. See note 5.b.
(4.b) Common Stock
As of December 31, 2007, 23,999,612 shares of common stock were issued and
outstanding, No additional shares were issued during the quarter ended June
30, 2008. Upon conversion of the holder, the Company's financing company,
1,867,857 additional common shares would be issuable to the holder-related
party.
(4.c) Stock Options
There were no options issued during the quarter ended June 30, 2008.
Page 9
(4.d) Indemnification Agreement - Related Party
On July 1, 2004, the Company approved the issuance of 1,200,000 common shares
to an affiliated company, Doubletree Liquidation Corporation (DLC). DLC is a
corporation owned 50% by the Company's President and 50% by an affiliated
stockholder, whose ownership exceeds, beneficially, 5% of the Company's common
stock. The affiliated company, DLC, has issued an indemnification guarantee to
the Company wherein it will process, review, and guarantee payment for certain
prior Company liabilities (both actual and contingent) that may arise during
the four years from June 30, 2004. The Company has deemed the value of the
transaction to be $368,045 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 (also now defaulted) in the
amount of $50,000. Both of these notes are included on the books of the
Company along with the related accrued interest payable in the amount of
$168,045, (2) one account payable-disposed business in the amount of $24,000,
also covered by this indemnification agreement was voided on December 31,
2007.
The following is summary of the presentation of the liabilities in the Balance
Sheet at June 30, 2008:
Description of debt indemnification: Current Long-term
Defaulted convertible debenture payable $ 150,000 $ --
Defaulted accrued interest payable 168,045 --
Convertible debenture payable 50,000 --
Less, contra-indemnification receivable (368,045) --
--------- ---------
Balances per Balance Sheet, at
June 30, 2008: $ -- $ --
========= =========
The Company believes that beyond the $368,045 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.
Page 10
Note 5) CONVERTIBLE DEBT
(5.a) Convertible Debentures
The Company issued convertible debentures in a private placement between
November 1999 and May 2000. These debentures were convertible at the option
of the holder into common stock at $1.50 per share and bear interest, which is
payable quarterly beginning June 30, 2000 at 12%. The debentures had a term
of three years and mature between November 2002 and May 2003. The issuance of
these debentures included a beneficial conversion feature with intrinsic value
resulting from the market price for common stock being greater than the option
price. The beneficial conversion feature amounted to $422,920, which was
greater than the proceeds of the related debentures by $25,000. The amount of
the beneficial conversion feature not exceeding the proceeds from the
debentures is immediately recognized as interest expense because the right to
convert to common stock is vested upon issuance of the debentures.
Accordingly, interest expense for the year ended December 31, 2000 included
$397,920 related to the beneficial conversion feature.
As of June 30, 2008, the Company was in default on the terms of payment of
quarterly interest on these debentures amounting to $168,045. Accordingly,
two remaining convertible debentures have been classified as a current
liability amounting to $200,000. Reference should be made to note 4.d in these
notes to financial statements as this amount has been offset by a contra-
indemnification receivable.
During 2003, the Company extended one previously defaulted $50,000 convertible
debenture to a future due date of March 31, 2006 with interest payable at that
date. The interest rate was also lowered to 6% par annum. The debenture is
also convertible into common shares of the Company at the rate of $3.00 per
share at the option of the holder. It is classified as a current liability and
has been offset by a contra-indemnification receivable.
As of the date of this report the currently due $50,000 convertible debenture
principal and the $150,000 defaulted debenture note and the related interest
due thereon continue to remain unpaid.
(5.b) Convertible or Secured Notes Payable - Related Party
During the three months ended June 30, 2008, an additional net amount of
$29,344 was loaned to the Company by an entity owned by two of the Company's
stockholders and an additional $25,000 in accrued consulting costs added to
the account. At June 30, 2008, the loan account was reduced $90,000 by the
issuance of 90,000 shares of Convertible Preferred stock valued at $1.00 per
share. Further reductions include the allocation of administrative costs to a
related entity and loan transfers. As of June 30, 2008, the loans amount
totaled $30 and are payable on demand to the financial company, bear interest
at the rate of 12% per annum, and are secured by the Company's assets for
collateral purposes, but are not convertible into common stock of the Company.
Interest expense on these notes for the three months ended June 30, 2008
amounted to $841.
Page 11
(6.) RELATED PARTY TRANSACTIONS
Convertible Notes Payable - See note 5 b.
The Company incurred expenditures with its President who is also a stockholder
for consulting services amounting to $25,000 for the three months ended June
30, 2008. These liabilities have been exchanged for Preferred Stock.
On June 30, 2008, the Company issued a 12% short-term secured promissory note
in the amount of $160,696. The Company's distressed debt receivable at June
30, 2008 in the amount of $312,020 are pledged as collateral to this loan.
NOTE 7) SUBSEQUENT EVENTS
On July 24, 2008, The Company made an additional distressed debt purchase in
the amount of $230,864. This purchase was financed by the issuance of a 12%
short-term secured promissory note in the amount of $240,864 due December 29,
2008 from a related party to the Company. The Company does intend to purchase
additional distressed debt and obtain longer term financing for this second
purchase and all new debt purchases.
Page 12
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULT OF OPERATION
Forward Looking Statements
The information herein contains certain "forward looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995, Section
27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities and Exchange Act of 1934, as amended, which are intended to be
covered by the safe harbors created thereby. Investors are cautioned that all
forward looking statements involve risks and uncertainties, including, without
limitation, the ability of the Company to continue its present business
strategy which will require it to obtain significant additional working
capital, changes in costs of doing business, identifying and establishing a
means of generating revenues at appropriate margins to achieve profitability,
changes in governmental regulations and labor and employee benefits and costs,
and general economic and market conditions. Such risks and uncertainties may
cause the Company's actual results, levels of activity, performance or
achievement to be materially different from those future results, levels of
activity, performance or achievements expressed or implied by such forward-
looking statements.
Although the Company believes that the assumptions and expectations reflected
in these forward looking statements are reasonable, any of the assumptions and
expectations could prove inaccurate or not be achieved, and accordingly there
can be no assurance the forward looking statements included in this Form 10QSB
will prove to be accurate. In view of the significant uncertainties inherent
in these forward-looking statements, their inclusion herein should not be
regarded as any representation by the Company or any other person that the
objectives, plans, and projected business results of the Company will be
achieved. Generally, such forward looking statements can be identified by
terminology such as "may," "could," "anticipate," "expect," "will,"
"believes," "intends," "estimates," "plans," or other comparable terminology.
Overview
The Company (ISAI), through its two former wholly owned subsidiaries Minnesota
corporations, ShoptropolisTV.com, Inc. (f/k/a Internationale Shopping
Alliance, Inc.) and International Strategic Assets, Inc., was engaged in two
businesses: (1) the development of a multimedia home shopping network
generating direct retail sales of varied products from TV viewers and internet
shoppers, and (2) direct sales via outbound telemarketing of precious metals
consisting mainly of gold and silver coins and bars. ISAI disposed of
International Strategic Assets, Inc. on May 19, 2000, and ShoptropolisTV.Com,
Inc. on March 29, 2001.
Additional reorganization efforts include negotiation with creditors to
restructure and convert debt to equity and actively seeking new business
opportunities. After successful completion of its reorganization efforts, ISAI
plans to pursue strategic alternatives that may include the purchase of a
business or acquisition by another entity.
Page 13
ISAI was incorporated in Delaware in 1989 under a former name, and was
inactive operationally for some time prior to its May 1998 recapitalization
through a acquisition with ShoptropolisTV.com, Inc. (f/k/a Internationale
Shopping Alliance Inc.), which was a wholly owned subsidiary of ISAI. This
subsidiary was acquired when the former shareholders of this subsidiary
acquired 89% of the outstanding common stock of ISAI through a stock exchange.
ISAI issued 11,772,600 shares of its common stock in exchange for all of the
outstanding common stock of ShoptropolisTV.com, Inc.
This merger was effected as a reverse merger for financial statement and
operational purposes. Accordingly, ISA regards its inception as being the
incorporation of ShoptropolisTV.com, Inc. on October 7, 1997. ISAI sold
ShoptropolisTV.com, Inc. on March 29, 2001. In January 1999, the Company
redeemed and cancelled 1,650,000 shares held by three of the founding
shareholders. No consideration was paid to the founding shareholders for the
redemption.
ISAI incorporated its precious metals subsidiary, International Strategic
Assets, Inc., as a Minnesota corporation in March 1999. Its business was
direct sales via outbound telemarketing of precious metals consisting mainly
of gold and silver coins and bars. ISAI sold International Strategic Assets,
Inc. on May 19, 2000 to an individual who was an officer and director of ISAI.
Between December 2000 and through May 2005, the Company was operationally
dormant and was actively reorganizing its financial affairs and actively
seeking merger or acquisition candidates offering growth and profit potential
for its shareholders.
On May 11, 2005, the Company, through its wholly owned subsidiary, ISA
Acquisition Corporation, purchased $36,097,726 of portfolio debt receivables
and commenced operations in the troubled debt collection business. Upon a
detailed examination of the individual debts and accounts purchased, the
Company determined that it should receive replacement debt receivables from
the Seller companies due to substitutions and replacement debt considered to
be non-collectible, as determined by the Company prior to September 30, 2005.
Accordingly, the Company was given and did receive additional consumer debt
receivables considered to be replacement debt in the additional net amount of
$7,635,274 bringing the total consumer debt receivable purchase to $43,733,000
as of September 30, 2005.
The substituted debts, as revised, amount to a larger face value of debt
purchased but have the same computed fair market value due to different
categories of debts received as well as different ages of the debts. For the
most part, the new and revised group of debts received in accordance with the
original purchase agreement is now considered to be older in age and of
slightly less individual value. The Company, through its third party
collection agent, has evaluated this overall debt purchase for its current
fair market value, future collectibility and net estimated net realizable
value in comparison to the original purchase price paid in the amount of
$1,094,900 with the issuance of 1,250,000 of the Company's restricted common
shares of stock.
Currently, the Company considers itself to be operational but still in a
period of financial and structural reorganization.
Page 14
At March 31, and June 30, 2006, respectively, the Company determined that due
to portions of the purchased debt receivables in the final group as finally
received possessing reduced, diminished, reduced or no value due to debt
worthlessness and losses or further the existence of newly discovered prior
sales of portions of the debt receivables that were purchased, the Company has
recorded a fair market value impairment write down in the amount of $378,287
for the fiscal year ended September 30, 2006 to reduce the carrying value of
the purchased debt receivables.
At June 30, 2008, the current carrying value of the Company's original
purchased debt receivables, net after gross collections from date of original
purchase and impairment write downs, is $312,020. The Company believes this
carrying value on its Balance Sheet is a fair carrying value and the amount
will be realized from the gross collections received after required third
party collection fees in the minimum amount of 35% of the gross collections
received.
Results of Operations for the nine months ended June 30, 2008 and 2007.
Sales and Gross Profit
No net revenue was recorded for the nine months ended June 30, 2008 and 2007
for collection of debt receivables using the cost recovery method of revenue
recognition. The Company engaged the services of third party collection
companies to assist in the collection efforts on the purchased debt
receivables. Collection receipts from the debt portfolios in the amount of
$51,251 were collected in the nine months ended June 30, 2008. This amount has
been recorded as a reduction of the purchase price carrying value of the
purchased debt receivables. The Company believes the net cash flows received
from collections on the current inventory of debt receivables will not be
sufficient to sustain Company operations in the future. Efforts are being
expended to purchase additional debt portfolio receivables for future
additional revenues. There were no collections in the new purchase of $141,696
as of June 30, 2008.
Operating Expenses
Operating expenses included general and administrative expenses and interest
expenses related to convertible debenture and convertible notes payable.
General and administrative expenses were $284,448 for the nine months ended
June 30, 2008 compared to $289,349 for nine months ended June 30, 2007. The
remaining expenses in 2008 and 2007 were principally for audit, other
recurring consulting, office and salaries and new operating costs necessary to
sustain operations for the debt collection business.
For the nine months ended June 30, 2008, the Company incurred $18,526 in
direct debt collection costs including third party agency collection costs.
Debt collection costs incurred by the Company in the nine months ended June
30, 2007 were $43,943. Collection costs declined in proportion to collection
revenue as our portfolio value decreased.
Page 15
Additionally, new current expenses are being incurred for interest, office,
telephone, consulting, and legal and professional expenses relating to
potential acquisitions and the Company's efforts in obtaining new business
operations. No advertising expense was incurred in fiscal years 2008 or 2007.
Liquidity and Capital Resources
As of June 30, 2008, the Company had Total Assets of $347,078 consisting of
$21,880 in cash, $2,240 in Trade Receivables, $3,208 in Office Equipment less
depreciation, $312,020 in Purchased Receivables - net, $7,600 in Notes
receivables, and $130 in other assets for organization costs. It had $300,575
in Current Liabilities consisting of $139,850 in accounts payable and accrued
expenses, $30 in convertible notes payable-related party and $160,695 in Notes
Payable - Related Party.
The Company's current capital resources are not sufficient to supports its
development and operations. Additional capital will be necessary to support
future growth of the Company as well as general and administrative and
interest expenditures. The Company cannot continue its existence without a
full and complete reorganization of all of its financial affairs and
obligations as well as the capital requirements to support its operational
activities required now as a result of the troubled debt receivable purchase
on May 11, 2005 and the related expenditures that will be required.
The Company is not currently seeking any additional sources of debt or equity
financing beyond which is already in place with the financing agreement
consummated in November 2000 with Doubletree Capital Partners, Inc. Until the
reorganization process is fully completed and capital needs required to be
made as a result of the entry by the Company into the troubled debt collection
as of May 11, 2005 are determined and defined, the Company cannot provide
assurances as to its future viability or its ability to prevent the
possibility of a bankruptcy filing petition either voluntary or involuntary by
creditors of the Company.
As a result of the Company's history of operating losses and its need for
significant additional capital, the reports of the Company's independent
auditors' on the Company's Form 10-KSB submission for the year ended September
30, 2007, should be read including explanatory paragraphs concerning the
Company's ability to continue as a going concern.
Income Tax Benefit
The Company has an income tax benefit from net operating losses, which is
available to offset any future operating profits. This benefit has not been
recorded in the accompanying financial statements because of the uncertainty
of future profits. The ability to utilize the net operating losses may be
limited due to ownership changes.
Impact of Inflation
The Company believes that inflation has not had any material effect on its
development or operations since its inception in 1997. Furthermore, the
Company has no way of knowing if inflation will have any material effect for
the foreseeable future. The Company forecasts a more challenging economic
environment for its operations in 2008 due to a recessionary economy.
Page 16
Prior Business Ventures
With respect to the business strategy of developing and launching a multimedia
home shopping network, ISAI had only a very limited operating history on which
to base an evaluation of its business and prospects. The Board of Directors
decided in December 2000 to sell the Shoptropolis subsidiary and cease
development of the home shopping network. All efforts of the Company at the
present time have been directed to a complete reorganization of all of its
affairs. Therefore, the Company's prospects for new business ventures must be
considered in light of the many risks, expenses and difficulties encountered
frequently by companies in reorganization. Such major risks include, but are
not limited to, an evolving business model and the overall effective
management of future growth. To address the many startup risks and
difficulties the Company has encountered, it must in the future have the
ability to successfully execute any of its operational and marketing
strategies that it may develop in any new business venture.
There would be no assurance the Company would be successful in addressing the
many risks and difficulties it could encounter and the failure to do so would
continue to have a material adverse effect on the Company's business,
prospects, financial condition and results of any operations it pursues or
tries to develop, pending successful reorganization of its financial affairs.
There can be no assurance that ISAI can find and attract new capital for any
new business ventures and if successful in finding sufficient capital, that it
can successfully grow and manage the business or new business venture into a
profitable and successful operation. No assurance can be given on any of these
developments. The Company will continue to complete its financial
reorganization, attempt to develop a successful business in the debt
collection business and endeavor to find suitable candidates for merger or
acquisition.
History of Losses and Anticipated Further Losses
ISAI has generated only limited revenues to date and has an accumulated
deficit as of June 30, 2008 of $8,835,940. Further, the Company expects to
continue to incur losses until it generates revenues at appropriate margins to
achieve profitability. There can be no assurance the Company will ever
generate revenues or that it will achieve profitability or that its future
operations will prove commercially successful or that it will establish any
means of generating revenues at appropriate margins to achieve profitability.
Need for Additional Financing
The Company's current capital resources are not sufficient to support the
Company's anticipated day-to-day operations. As such, the Company must obtain
significant additional new capital to support the Company's anticipated day-
to-day operations and fully settle the debt incurred by ISAI during its past
operations until it establishes a means of generating revenues at appropriate
margins to achieve profitability. The Company currently has an agreement with
Doubletree Capital Partners, Inc. (hereinafter referred to as the financial
company or DCP) to loan the Company, at the financial company's sole
discretion, funds to meet its day-to-day operational expense and settle
certain debt incurred by ISAI. The financial company is owned by two
individuals, one of which is ISAI's current President, CEO and Chairman of the
Board of Directors.
Page 17
The financial company has commenced its best efforts to help the Company
resolve, consolidate, and reorganize the Company's present debt structure and
contractual liabilities. There is no assurance the financial company will
provide the Company any additional capital. Additional financing is
contemplated by the Company, but such financing is not guaranteed and is
contingent upon pending successful settlement of the Company's problems with
various creditors. There is no assurance the Company will be able to obtain
additional capital and the necessary additional financing will be available
when needed by the Company 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 need for significant additional capital, the Form 10-KSB
reports of the Company and notes to consolidated financial statements for the
fiscal year ended September 30, 2007, includes an explanatory paragraph
concerning the Company's ability to continue as a going concern.
Reliance on Key Personnel
The Company's future success will be dependent upon the ability to attract and
retain executive officers, board members, and certain other key persons. The
inability to attract such individuals or the loss of services of one or more
of such persons would have a material adverse effect on ISAI's ability to
implement its current plans or continue its operations. There can be no
assurance the Company will be able to attract and retain qualified personnel
as needed for its business.
Control By Existing Management
One principal shareholder, Doubletree Capital Partners, Inc. (DCP),
beneficially owns approximately 91.89% of the Company's outstanding common
stock at June 30, 2008 compared to 91.60% on September 30, 2007. DCP's
beneficial ownership includes common stock that can be converted from
preferred stock owned by the one principal shareholder as well as similar
conversion of convertible loans and related interest due, and all options
issued. DCP accordingly has complete control of the business and future
development, including the ability to manage all operations, establish all
corporate policies, appoint future executive officers, determine management
salaries and other compensation, and elect all members of the Board of
Directors of ISAI.
Effects of Trading in the Over-the-Counter Market
The Company's common stock is traded in the over-the-counter market on the OTC
Electronic Bulletin Board and its stock symbol is ISAT. Consequently, the
liquidity of the Company's common stock may be impaired, not only in the
number of shares that may be bought and sold, but also through delays in the
timing of transactions, and coverage by security analysts and the news media
may also be reduced. As a result, prices for shares of the Company's common
stock may be lower than might otherwise prevail if the Company's common stock
were traded on a national securities exchange or listed on the NASDAQ Stock
Market. Further, the recent adoption of new eligibility standards and rules
for broker dealers who make a market in shares listed on the OTC Election
Bulletin Board may limit the number of brokers willing to make a market in the
Company's common stock.
Page 18
Limited Market for Securities
There is a limited trading market for the Company's common stock, which is not
listed on any national stock exchange or the NASDAQ stock market. The
Company's securities are subject to the "penny stock rules" adopted pursuant
to Section 15(g) of the Securities Exchange Act of 1934, which applies to non-
NASDAQ companies whose common stock trades at less than $5 per share or has
tangible net worth of less than $2,000,000. These "penny stock rules" require,
among other things, that brokers who sell covered "penny stock" to persons
other than "established customers" complete certain documentation, make
suitability inquiries of investors and provide investors with certain
information concerning trading in the security, including a risk disclosure
document and quote information under certain circumstances.
Many brokers have decided not to trade "penny stock" because of the
requirements of the "penny stock rules" and, as a result, the numbers of
broker-dealers willing to act as market makers in such securities are limited.
There can be no assurance that an established trading market will develop, the
current market will be maintained or a liquid market for the Company's common
stock will be available in the future.
Liquidity and Going Concern Matters
The Company has incurred losses since its inception and, as a result, has an
accumulated deficit of $8,835,940 at June 30, 2008. The net loss for the nine
month period ended June 30, 2008 was $322,876. The Company currently owes $30
in Loans Payable to a related third party investment company and $160,696 on a
short-term note to a second related party company. A new short-term note was
issued in the amount of $240,864 for $10,000 in working capital and $230,864
for the purchase of an additional distressed debt portfolio. These factors
raise substantial doubt about the Company's ability to continue as a going
concern. The Company's ability to continue as a going concern depends upon
successfully restructuring its debt, obtaining sufficient financing to
maintain adequate liquidity and provide for capital expansion until such time
as operations produce positive cash flow.
The accompanying financial statements have been prepared on a going concern
basis, which assumes continuity of operations and realization of assets and
liabilities in the ordinary course of business. The financial statements do
not include any adjustments that might result if the Company was forced to
discontinue its operations. The Company's current plans are to complete its
pending asset acquisition agreement, resume operations, and bring to a
conclusion its reorganization efforts. There can be no assurance these actions
will be successful.
One remaining officer is currently managing the Company. The Company is in
default under the terms of its obligation to make quarterly interest payments
on convertible 12% debentures issued between September 1999 and June 2000.
These debentures in default are classified as current liabilities and totaled
$200,000 in principal and $168,045 in accrued interest as of June 30, 2008. No
interest payments were ever made by the Company on the debentures. One
convertible debenture holder with a principal amount due of $50,000 agreed to
extend the terms and conditions of his debenture so that debenture has been
reclassified as long-term debt and is currently in default. The
indemnification agreement has been designed to cover these liabilities. The
Company is attempting to convert the remaining convertible debenture debt to
common shares.
Page 19
Item 3. CONTROLS AND PROCEDURES
Evaluation of Controls and Procedures
The Company's management, under the supervision and with the participation of
the Registrant's President, has evaluated the effectiveness of the design and
operation of its disclosure controls and procedures pursuant to Rule 13(a)-
15(e) under the Securities Exchange Act of 1934, as amended ("Exchange Act").
This evaluation was done as of the end of the period covered by this quarterly
report. Based on that evaluation, the President, CEO, and CFO has concluded
that our current disclosure controls and procedures are effective in
gathering, analyzing, and disclosing information required to be disclosed by
the Company under the Exchange Act as of the end of the period covered by this
quarterly report.
Changes in Internal Controls
There have been no significant changes in the Company's internal control over
financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the
Securities Exchange Act of 1934) that have occurred during the nine months
ended June 30, 2008 that have materially affected, or are reasonably likely to
materially affect, the Company's internal control over financial reporting.
As a smaller reporting company with a fiscal year end of September 30, the
Company must first begin to comply with the requirements of Section 404 of the
Sarbanes-Oxley Act of 2002 ("Section 404") for the fiscal year ended September
30, 2010. During fiscal 2006, 2007, and 2008 to date, management reviewed and
evaluated the effectiveness, and where necessary, enhanced the Company's
internal controls over financial reporting. The Company anticipates it may
need to engage a third party to assist it with the improvement of such
internal controls over financial reporting. This review and any enhancements,
if necessary, will likely involve significant time and expense by the Company
and its independent auditors. The Company believes the Company's risk of
control failure is low due to financial expertise of its President and the
small size of operations. The Company will begin work with independent
consultants to comply with the requirement of auditor attestation of our
internal controls due with our fiscal year 2010 annual report.
Page 20
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
During the three months ending June 30, 2008, the Company was not sued in any
new legal matters.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None during the quarter ended June 30, 2008.
Item 3. Defaults Upon Senior Securities
The defaults previously present on the Convertible Debentures as of December
31, 2003 continue as of June 30, 2008, after partial conversions into common
stock of the Company. These defaults arose because the Company has missed
payment of quarterly interest payments since June 2000. The remaining defaults
consist of short-term convertible debt principal amounting to $150,000 and one
additional short-term convertible debt in the amount of $50,000. The accrued
interest liability due on these notes combined amounts to $168,046 as of June
30, 2008 has been assumed by an indemnification agreement with a related
investment party (see note 4(d).
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
EX-31.1 Certification per Sarbanes-Oxley Act (Section 302)
EX-32.1 Certification per Sarbanes-Oxley Act (Section 906)
(b) Form 8-K reports filed during quarter:
None
The total outstanding common shares of the Company as of June 30, 2008 after
all issuances total 23,999,612.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
ISA INTERNATIONALE INC.
/s/ Bernard L. Brodkorb
By: Bernard L. Brodkorb
President, Chief Executive Officer, and Chief Financial Officer
Date: August 19, 2008
19