UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-KSB/A
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal year ended September 30, 2008.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 001-16423
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ISA INTERNATIONALE INC.
(Exact name of Smaller Reporting Company 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)
Issuer's telephone number (651) 484-9850
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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)
Indicate by check mark whether the registrant (1) filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act during the preceding
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 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]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in the Exchange Act Rule 12d-2). Yes [] No [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 issuer's revenues for its most recent fiscal year: $0
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):
The aggregate market value of the issuer's common stock held by non-
affiliates of the registrant was $517,147 as of December 28, 2008, based upon
the average bid price of $.20 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:
As of January 12, 2009, the issuer had 23,999,612 shares of common stock
outstanding. As of the filing date of this report the issuer has 23,999,612
shares of common stock outstanding.
There are 610,000 shares issued and outstanding of the issuer's cumulative
and convertible Series A preferred stock, par value $.0001 as of December 28,
2008. The preferred stock is convertible into common shares at the rate of 5
common shares for each preferred share for a total of 3,050,000 common shares
or an exchange common price of $.20 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.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
Transitional Small Business Disclosure Format: Yes [] No [X]
TABLE OF CONTENTS
Page
PART I
Item 1. Description of Business 4
Item 1A. Corporate History, Organization and Recapitalization 4-5
Item 1B. Industry Overview and Trends 5-6
Item 1C Strategy 6
Item 1D Competition in the Industry 7
Item 1E. Personnel 7
Item 1F. Important Risk Factors 7-13
Item 2. Description of Property 13
Item 3. Legal Proceedings 14
Item 4. Submission of Matters to a Vote of Security Holders 14
PART II
Item 5. Market for Common Equity and Related Stockholder Matters 15
Item 5.A Market, Holders and Dividends 15
Item 5.B Sales History of Unregistered Securities 16
Item 6. Management's Discussion and Analysis 17
Item 7. Financial Statements and Supplementary Data 23
Table of Contents 23
Report of Independent Registered Public Accounting Firm 24
Consolidated Financial Statements 25-28
Notes to Consolidated Financial Statements 29-39
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 40
Item 8.A. Controls and Procedures 40
Item 8.B. Other Information 41
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act 42-43
Item 10. Executive and Director Compensation 44
Item 11. Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters 45
Item 12. Certain Relationships and Related Transactions 46
Item 13. Exhibits 46
Item 14. Principal Accountant Fees and Services 47
Signatures 49
Index to Exhibits, Form 10-KSB 49
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.
1A. 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 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 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, 2008, 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 realistically discerned to facilitate the development of
reliable collection assumptions 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. During the fiscal year ended September 30, 2008, the Company purchased
two new portfolios at a cost of $372,559. Inventory carrying values of debt
receivables totaled $487,971 compared to $221,576 as of September 30, 2007
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. Our collection activities are summarized under note 1.a Nature
of Business in the Notes to Consolidated Financial Statements.
1B. 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. ISAI
uses these brokers to purchase debt receivable portfolios.
1B.1 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 $2.588 trillion at September 2008. . 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 Banking Credit Card Lenders at 6.05% for the
second quarter of 2008 compared to a rate of 4.18% for the Second Quarter of
2007 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. The number of Debit card
transactions has now surpassed credit card transactions with a 54% share in
2006. The total dollar value of transactions will continue to be dominated by
credit cards because the average transaction size is more than double the
average debit card 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.
Current downward economic trends and the subprime and adjustable rate
mortgage industry crisis is having a significant impact on the consumer
receivables industry as consumers who find their monthly payments on their
adjustable rate mortgages increasing and also having 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 while banks are experiencing higher delinquency
rates.
1C. Strategy
The Company's current business strategy is to acquire additional portfolios
and develop in-house collections capabilities with its own collection staff
and related call centers. The Company needs to secure additional suitable
financing for purchases of portfolios. The Company implemented new financing
lending with a related party in 2008 and the Company will continue developing
strategies to acquire new financing.
1D. 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.
1E. 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 January 1312, 2008, 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.
In June 2008 our subsidiary, ISA Acceptance Corporation (ISAA), added Mr.
Donald Kampmann as a consultant to serve as President and CEO responsible for
directing the operations of the subsidiary. Three additional employees have
been hired as collectors as we established an in-house collection agency
department. Formerly all collection efforts were performed by Third Party
agencies.
1F. 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.
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
completed a purchase of collection consumer debt receivables in 2005 for a
price of $1,094,900 for 1,250,000 restricted common shares of the Company.
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 executing 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 the market for acquiring consumer receivable
portfolios becoming more competitive, possibly diminishing our ability to
acquire such receivables at attractive prices in the future.
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, one additional officer and director, and one
additional consultant 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 thereunder 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
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,
2008. All of these options were vested and the exercise prices of such
options were substantially higher 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, 2008 of $8,935,628. The Company expects losses to continue
until its operations generate revenues at appropriate margins to recover our
costs and 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,
2008 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 92.2% of ISAI's outstanding
common stock as of September 30, 2008 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 $1300.
Item 3. LEGAL PROCEEDINGS
Presently the Company is a party to litigation involving the former principal
owners 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.
The Company also has a pending adversary complaint in the United States
Bankruptcy Court, Southern District of California against several principals
of collection companies located near San Diego, CA, related to the above
cases pending in the Central District, San Fernando Valley of California.
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, 2008, 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
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
2008 First Quarter $0.51 $0.35
2008 Second Quarter $0.35 $0.20
2008 Third Quarter $0.20 $0.20
2008 Fourth Quarter $0.20 $0.20
For the period ending September 30, 2008, 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 October 2006 to present:
B.1 On September 30, 2007, the Company issued 9,700 restricted common shares
to Doubletree Capital Partners, Inc., a related party, for consulting
services rendered.
B.2 On September 30, 2007, the Company issued 275,000 shares of Series A 12%
Cumulative Convertible Preferred Stock , par value $0.0001 to Doubletree
Capital Partners, Inc., a related party for an equivalent value of loans,
consulting fees and related expenses paid.
B.3 On December 31, 2007, the Company issued 125,000 shares of Series A 12%
Cumulative Convertible Preferred Stock, par value $0.0001 to Doubletree
Capital Partners, Inc.
B.4 On March 31, 2008, the company issued 55,000 shares of Series A 12%
Cumulative Convertible Preferred Stock, par value $0.0001 to Doubletree
Capital Partners, Inc. for an equivalent value of loans, consulting fees and
related expenses paid.
B.5 On June 30, 2008, the company issued 90,000 shares of Series A 12%
Cumulative Convertible Preferred Stock, par value $0.0001 to Doubletree
Capital Partners, Inc. for an equivalent value of loans, consulting fees and
related expenses paid.
B.6 On September 30, 2008, the company issued 65,000 shares of Series A 12%
Cumulative Convertible Preferred Stock, par value $0.0001 to Doubletree
Capital Partners, Inc. for an equivalent value of loans, consulting fees and
related expenses paid.
As a result of the above issuances of common stock, the total outstanding
common shares of the Company as of September 30, 2008 totals 23,999,612 common
shares, $.0001 par value, and 610,000 shares outstanding of 12% Cumulative
Convertible Preferred Stock, $.0001 par value. No stock repurchase
transactions have occurred during the reporting period. The preferred shares
will convert into 3,050,000 common shares at the average rate of 5 common
shares for each preferred share outstanding or a common price of $.20 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
from December 2000 to 2005 was the restructuring of its financial affairs and
forming an operating company.
On August 18, 2004, ISAI created a subsidiary corporation that later changed
its name to ISA Financial Services, Inc. (ISAF). ISAF is a holding parent
company to ISA Acceptance Corporation (ISAC) formed on July 20, 2005 to serve
as our operating company subsidiary. In June 2008, ISA Acceptance
Corporation expanded its operations to include an in-house collection staff
and added $16.3 million in face value portfolios to its inventory of debt
receivables concentrating its efforts in the financial services industry,
specifically in the debt collection business.
Results of Operations for the Twelve Months ended September 30, 2008.
Sales and Gross Profit
No collection or sales revenues were recognized from collections efforts from
the purchased portfolios for the twelve month period ended September 30, 2008
because the Company uses the "cost recovery method" for revenue recognition.
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 $333,060, for the twelve months
ended September 30, 2008, a decrease of 26% from the prior year of $450,824.
The expenses for the fiscal year were principally for office occupancy,
telephone charges, consulting costs ($145,267), President's consulting fees
($100,000)), accounting ($43,754), legal ($44,156). Interest expenses
decreased to $36,480 in the twelve months ended September 30, 2008 from
$38,276 for the twelve months ended September 30, 2007, 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 loans and advances and related accrued interest from the
related and affiliated finance company into preferred shares Quarterly during
the fiscal year.
Legal and settlement costs decreased to $44,156 compared to $179,914 in
fiscal 2006. The Company reached an agreement with its legal counsel for
services rendered during the year ended September 30, 2008. An adjustment has
been made to the payable amount to reflect the agreed upon balance due of
$75,000. As of the date of this report, this amount remains unpaid in the
amount of $75,000.
The President's consulting fees for the year ended September 30, 2008 were a
non-cash charge of $100,000 but he did not draw any salary expense.
No impairment charge expense against the carrying value of the collections
portfolio inventory was recorded in the period ending September 30, 2008.
Management has done an impairment analysis as of September 30, 2008. Based
upon the analysis made, no impairment charge is considered necessary. All
portfolios of distressed debt under control by the Company have been reviewed
and management believes the carrying value at September 30, 2008 is
reasonable and fair in its presented valuation.
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
new start up costs for our collection company in addition to the third party
collections costs which have been approximately 35% of gross collections.
Additionally, new current expenses are being incurred for office, telephone,
consulting and legal and professional expenses relating to additional debt
portfolio acquisitions and the Company's business operations in the in-house
debt collection.
Comments on Income and Expenses
An operating net loss of $406,079 was recorded for the fiscal year ended
September 30, 2008. The operating loss for the fiscal year ended September
30, 2007 comprised of an operating loss of $540,127 and an extraordinary item
gain of $537,500 giving a net loss of $2,627 for the prior year. Our
operating loss in 2008 decreased primarily due to:
1. There were no portfolio debt impairment write-downs recorded in the fiscal
year ended September 30, 2008 compared to $378,287 in impairment charges for
the year ended September 30, 2007.
2. $335,000 in loans to a related party were converted to Preferred Common
Stock, thereby reducing interest costs by approximately $9,860 computed on an
annual basis.
3. In the fiscal year ended September 30, 2007, 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, 2008, these shares are held as Treasury
Stock. 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.
4. General and Administrative expense was reduced to $333,060 compared to
450,824 for the prior fiscal year due primarily to reduced legal and
settlement costs.
The Company incurred interest expenses in the amount of $36,480 during the
year ended September 30, 2008 of which $21,058 is accrued from defaulted
convertible debentures still existing at September 30, 2008 and $4,874 from
related-party convertible notes. ISAI incurred two new notes during the
fiscal year to finance portfolio purchases and accrued $10,548 in interest
for these notes.
Liquidity and Capital Resources
For the fiscal year ended September 30, 2008, the Company raised $293,076
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 $335,000 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
$106,164, net after related direct collection costs, for the fiscal year
ended September 30, 2008 compared to $151,452 in fiscal year 2007. The
Company believes net collections from the debt portfolios acquired in 2005
will be reduced in the next year. As a result, the Company will need
additional sources of financing in the future to sustain its current level of
operations and purchase additional portfolio inventory. The Company believes
the higher quality of our new portfolio purchases plus the establishment of
our in-house collection agency will improve our net collections next year.
As of September 30, 2008, the Company had current assets of $28,321
consisting of $26,311 in cash and $2,010 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 $509,828 in current liabilities
consisting of $96,805 in accounts payable, $412,108 in Notes Payable and
interest payable to an investor to finance portfolio additions in 2008, and
demand secured notes and interest payable to a related party of $915.
Accordingly, the Company had a working capital deficit of $481,507 as of
September 30, 2008 and $115,887 as of September 30, 2007. The purchase of
distressed debt portfolio's in the amount of $401,560 utilizing the issuance
of short term debt is accounted for the substantial decrease in working
capital of $365,620.
The Company's current capital resources are not sufficient to supports its
development and operations. New capital and loans will be necessary to
support the ongoing operation of the Company's general and administrative
expenses and interest expenses currently being incurred. 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 on its
purchased debt collection portfolios, however, the cash collections being
generated are not yet sufficient to support its future development of the
financial services business strategy being developed as well as the overhead
costs associated with the month to month operations of a public company.
The Company is seeking additional sources of debt or equity financing other
than additional convertible notes payable issued by a related party. Until
new financing needs are solidified, 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, 2008 and 2007 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, 2008. 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, 2008, the Company acquired two new
distressed debt receivable portfolios. The Company collected $106,164 in
gross collections during the year. After the collections fees were applied
and related verification costs, the Company received, on a net basis, $69,625
from portfolio collections.
During the year ended September 30, 2007, the Company collected $151,452 in
gross collections through that date. After the collections fees were applied
and related verification costs, the Company received, on a net basis,
$100,425 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
three years ended September 30, 2008, 2007 and 2006 including the purchase
price, impairment write downs, actual cash collections and estimated future
cash collections value.
Year ended Year ended Year ended
9/30/2008 9/30/2007 9/30/2006
---------- --------- ---------
Beginning of Year Carrying Value: 221,576 373,028 $1,016,557
Purchase Price Actual Cost (1): $ 372,559 0 0
Impairment Write downs (3) 0 0 (378,287)
Collections Reduction to Portfolio Value (106,164) (151,452) (265,242)
--------- ---------- ----------
End of Year Carrying Value: 487,971 221,576 373,028
========= ========== ==========
Gross Collections 106,154 151,452 265,242
Direct Collection Costs (36,539) (51,027) (96,972)
--------- ---------- ----------
Net Cash Collections (2) 69,625 100,425 168,270
Estimated Future Collection Values (4): $1,400,000 $ 318,450 $ 606,180
(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.
(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 management's estimate
of the amount potentially remaining to be collected, including cash sales of
portfolios over the next five years.
Inflation
The Company's management believes inflation has not had a material impact on
our results of operations for the year ended September 30, 2008.
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 $173,338 in related accrued interest
expense as of September 30, 2008. No cash interest payments were ever made by
the Company on the debentures. See note 4.e.
The Company and its financial partner are attempting to convert the remaining
$200,000 in defaulted debenture notes to common shares. These debentures and
related accrued interest classified as current liabilities are offset by a
corresponding receivable under the indemnification agreement between DCP and
the company whereby DCP agreed to assume certain liabilities of ISAI.
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---------------24
Consolidated Balance Sheets as of September 30, 2008 and 2007---------25
Consolidated Statements of Operations for the twelve months ended
September 30, 2008 and 2007-----------------------------------------26
Consolidated Statement of Stockholders' Equity for the twelve months
ended September 30, 2008 and 2007 ----------------------------------27
Consolidated Statements of Cash Flows for the twelve months ended
September 30, 2008 and 2007 ----------------------------------------28
Notes to Consolidated Financial Statements-------------------------29-39
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
ISA Internationale Inc.
St. Paul, Minnesota
We have audited the accompanying consolidated balance sheets of ISA
Internationale Inc. and subsidiaries as of September 30, 2008 and 2007, 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, 2008 and 2007
and the results of its consolidated operations and 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 suffered recurring
losses and has significant 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, Nevada
January 12, 2009
ISA INTERNATIONALE INC. and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Audited) (Audited)
Sept 30, 2008 Sept 30, 2007
ASSETS --------------------------------
Current assets:
Cash and cash equivalents $ 26,311 14,742
Trade receivables 2,010 3,967
------------ ---------- -
Total current assets 28,321 18,709
Office equipment, at cost less depreciation 2,933 4,033
Other assets:
Finance contract receivables, net of collections 487,972 221,576
Note receivable 7,600 7,600
Other assets 110 189
----------- ----------
Total assets $ 526,936 252,107
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade and taxes $ 96,805 77,480
Notes payable other 401,560 0
Accrued interest payable other notes 10,548 0
Convertible notes payable - related party 915 39,839
Accrued interest payable - related party 0 17,277
----------- ----------
Total current liabilities 509,828 134,596
----------- ----------
Stockholders' Equity:
Preferred 12% cumulative convertible stock,
par value $.0001; 30,000,000 shares authorized,
610,000 shares issued and outstanding at September
30, 2008 and 275,000 at September 30, 2007 61 27
Common stock, par value $.0001; 300,000,000
shares authorized; 23,999,612 shares issued and
outstanding at September 30, 2008 and 23,999,612
at September 30, 2007 2,400 2,400
Additional paid-in capital 9,487,775 9,131,751
Treasury stock (537,500) (537,500)
Accumulated deficit (8,935,628) (8,479,167)
----------- -----------
Total stockholders' equity 17,108 117,511
----------- -----------
Total liabilities and stockholders' equity $526,936 252,107
=========== ===========
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, 2008 AND 2007
(Audited) (Audited)
Twelve Months Ended Twelve Months Ended
September 30, 2008 September 30, 2007
------------------- -------------------
Operating revenues
Portfolio collections $ 0 $ 0
Operating expenses:
Portfolio collection Costs 36,539 51,027
General & administrative 333,060 450,824
------------ -----------
Operating expenses 369,599 501,851
------------ -----------
Operating loss (369,599) (501,851)
Other income (expense):
Interest expense (36,480) (38,276)
------------ -----------
Net loss - operations (406,079) (540,127)
Net Gain from Extraordinary item-(1) -- 537,500
Net loss $ (406,079) $ (2,627)
============ ===========
Basic and diluted (loss) per share $ (0.02) (0.00)
============ ===========
Weighted Average common shares outstanding:
(restated for reverse stock split)
Basic & Assuming Diluted 23,999,612 23,924,392
============ ===========
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, 2008 AND 2007
Convertible Stock Treasury Additional
Preferred Par Common Stock Par Stock Paid-in Accumulated
Shares Value Shares Value Value Capital Deficit Total
---------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------
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 4,171 4,171
Indemnification agreement additional
interest for debenture holders 21,000 21,000
Issuance of Preferred convertible
stock in exchange for secured
debt to a related party 275,000 27 274,972 275,000
Net (loss) for period (2,628) (2,628)
-------------------------------------------------------------------------------------------
Balance, September 30, 2007 275,000 27 23,999,612 2,400 (537,500) $9,131,751 ($8,479,167) $117,511
Indemnification agreement additional
interest for debenture holders 21,057 21,057
Preferred Stock Dividend to a
Related party (50,382) (50,382)
Issuance of Preferred convertible
stock, Par value $.0001 in exchange
for secured debt to a related party 335,000 34 334,967 335,000
Net (loss)for period (406,079) (406,079)
--------------------------------------------------------------------------------------------
Balance September 30,2008 610,000 $61 23,999,612 $2,400 (537,500) $9,487,775 $(8,935,628) $17,108
==========================================================================================
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, 2008 and 2007
(AUDITED) (AUDITED)
Twelve Months Ended Twelve Months Ended
September 30, 2008 September 30, 2007
------------------ -----------------
Cash flows from operations:
Net loss $ (406,079) (2,627)
Less: Gain from extraordinary item (537,500)
----------- ----------
Net loss - operations (406,079) (540,127)
Adjustments to reconcile net loss from operations
to cash flow used in operating activities:
Depreciation and amortization 1,179 1,179
Reduction of debt receivable purchase price
on gross collections received 106,164 151,452
Interest on contributed capital 21,057 21,000
Note receivable for incurred acquisition costs - 10,000
Issuance of common stock for services - 4,171
Interest payable on notes payable-other 10,548
Changes in assets and liabilities:
Trade account receivables 1,957 4,268
Accounts payable & accrued expenses 19,693 45,937
Convertible notes, related party - (975)
Accrued interest payable, related party (17,277) 17,276
---------- ----------
Cash provided by (used in) operations (263,124) (285,819)
---------- ----------
Cash flow from investing activities:
Debt receivables purchased (372,559) -
---------- --------
Cash provided by investing activities (372,559) -
----------- ----------
Cash flows from financing activities
Proceeds from notes payable, related party 401,560 -
Proceeds from Convertible debt issued to 245,694 275,000
related party ---------- ----------
Cash provided by (used in) financing activities 647,254 275,000
---------- ----------
Net Increase (decrease) in cash and cash equivalents 11,569 (10,819)
Cash and cash equivalents, beginning of period 14,742 25,561
---------- ----------
Cash and cash equivalents, end of period 26,311 14,742
========== ==========
Non-cash investing in financing transactions:
Payment of secured loans and accrued interest with
Preferred stock to related party 284,618 275,000
Payment of accrued dividends with preferred
stock to related party 50,382 -
Additional paid in capital for indemnification
agreement - 21,000
---------- ----------
Total non-cash transactions $ 335,000 296,000
========== ==========
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, 2008 and 2007 (Audited)
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 include 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.
The agreements to purchase the aforementioned receivables include general
representations and warranties from the sellers covering account holder death
or bankruptcy, and accounts settled or disputed prior to sale. The
representation and warranty period permitting the return of these accounts
from the Company to the seller is typically 90 to 180 days. Any funds
received from the seller of debt receivables as a return of purchase price
are referred to as buybacks. Buyback funds are simply applied against the
debt receivable balance received. They are not included in the Company's cash
collections from operations nor are they included in the Company's cash
collections applied to principal amount.
Gains on sale of debt receivables, representing the difference between sales
price and the unamortized value of the debt receivables, are recognized when
debt receivables are sold.
Changes in debt receivables for the year ended September 30, 2008 were
as follows:
Year Ended
September 30, 2008
----------------
Balance at beginning of period October 1, 2007 $ 221,576
Acquisition of debt receivables 372,559
Gross collections applied to principal (106,164)
Impairment write down 0
-----------------
Balance at the end of the period $ 487,971
=================
Estimated Remaining Collections ("ERC")(unaudited) * $ 1,400,000
=================
* 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, 2008.
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 has
concluded its amortized costs are not in excess of fair market value.
Therefore, no further impairment for the finance receivables is needed at
September 30, 2008.
1.b) Presentation
The Consolidated Balance Sheet at September 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 $373,338. 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, 2008.
1.c) 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, 2008.
1.d) REVENUE RECOGNITION
There were no operating revenues in 2008. 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 "Cost Recovery Method" under
which revenues are only recognized after the initial investment has been
recovered.
1.e) ADVERTISING COSTS
No advertising expenses were incurred in 2008.
1.f) 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 2008 and 2007, all potentially
issuable shares have been excluded from the calculation of loss per share, as
their effect is anti-dilutive.
1.g) 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.h) STOCK-BASED COMPENSATION
There was no stock-based compensation of shares of the Company's common stock
issued for consulting services and settlement expenses for the year ended
September 30, 2008
..
1.i) 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.j) NEW ACCOUNTING PRONOUNCEMENTS
In December 2007, the FASB issued SFAS No. 141 (Revised 2007), Business
Combinations ("SFAS No. 141R"). SFAS No. 141R will change the accounting for
business combinations. Under SFAS No. 141R, an acquiring entity will be
required to recognize all the assets acquired and liabilities assumed in a
transaction at the acquisition-date fair value with limited exceptions. SFAS
No. 141R will change the accounting treatment and disclosure for certain
specific items in a business combination. SFAS No. 141R applies prospectively
to business combinations for which the acquisition date is on or after the
beginning of the entity's first annual reporting period beginning on or after
December 15, 2008. Accordingly, any business combinations completed by the
Company prior to June 1, 2009 will be recorded and disclosed following
existing GAAP. The Company has not adopted this statement and management does
not expect the adoption of SFAS 141R will have a material impact on the
Company's financial position or results of operations.
In February 2007, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities - Including an amendment of FASB
Statement No. 115 ("SFAS No. 159"). This 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. This Statement is expected to expand the
use of fair value measurement, which is consistent with the Board's long-term
measurement objectives for accounting for financial instruments. This
statement is effective as of the beginning of the Company's first fiscal year
that begins after November 15, 2007, although earlier adoption is permitted.
As of September 30, 2008, the Company has not adopted this statement and
management does not expect the adoption of SFAS 159 will have a material
impact on the Company's financial position or results of operations
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities-an amendment of FASB Statement No. 133,
(SFAS ?161?) as amended and interpreted, which requires enhanced disclosures
about an entity's derivative and hedging activities and thereby improves the
transparency of financial reporting. Disclosing the fair values of
derivative instruments and their gains and losses in a tabular format
provides a more complete picture of the location in an entity's financial
statements of both the derivative positions existing at period end and the
effect of using derivatives during the reporting period. Entities are
required to provide enhanced disclosures about (a) how and why an entity uses
derivative instruments, (b) how derivative instruments and related hedged
items are accounted for under Statement 133 and its related interpretations,
and (c) how derivative instruments and related hedged items affect an entity?s
financial position, financial performance, and cash flows. SFAS No. 161 is
effective for financial statements issued for fiscal years and interim
periods beginning after November 15, 2008. Early adoption is permitted. At
September 30, 2008, the Company did not have any derivative instruments or
hedging activities. Management is aware of the requirements of SFAS 161 and
will disclose when appropriate.
In May 2008, the FASB issued SFAS No. 163, Accounting for Financial Guarantee
Insurance Contracts - an interpretation of FASB Statement No. 60. SFAS 163
requires that an insurance enterprise recognize a claim liability prior to an
event of default (insured event) when there is evidence that credit
deterioration has occurred in an insured financial obligation. This Statement
also clarifies how Statement 60 applies to financial guarantee insurance
contracts, including the recognition and measurement to be used to account
for premium revenue and claim liabilities. Those clarifications will increase
comparability in financial reporting of financial guarantee insurance
contracts by insurance enterprises. This Statement requires expanded
disclosures about financial guarantee insurance contracts. The accounting and
disclosure requirements of the Statement will improve the quality of
information provided to users of financial statements. SFAS 163 will be
effective for financial statements issued for fiscal years beginning after
December 15, 2008. The Company does not expect the adoption of SFAS 163 will
have a material impact on its financial condition or results of operation.
(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 $8,935,628 at September 30, 2008.
The net loss for the twelve months period ended September 30, 2008 was
$406,079. The Company had convertible debenture debt in default in the amount
of $200,000, plus related accrued interest payable of $173,338. 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:
Tax Year 2008 2007
--------- ---------
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, 2008
and September 30, 2007 is presented below:
Tax Year 2008 2007
--------- ---------
Deferred tax assets:
Net operating loss carry forward $ 2,699,542 2,546,736
Start up costs - -
Other - -
---------- ---------
Total gross deferred tax assets $ 2,699,542 2,546,736
Valuation allowance (2,699,542) (2,546,736)
----------- ----------
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, 2008.
For the period ended September 30, 2008, the Company reported a net operating
tax loss carry-forward of approximately $6,776,458. The federal net operating
loss carry-forward begins to expire in the year 2011.
Federal tax laws impose significant restrictions on the utilization of net
operating loss carry-forward 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 distinctly designated. All shares of any series of the preferred
stock shall be alike in all rights to preference in liquidations, voting
rights, dividends and other powers, qualifications, or restrictions.
As of September 30, 2008, the Company had issued 610,000 12% Cumulative and
Convertible Series A Preferred Shares, par value $0.0001, to Doubletree
Capital Partners, Inc. (DCP) in exchange for current loans and accumulated
interest payable valued at $1.00 per share. The preferred stock is
convertible into 3,050,000 common shares at the rate of 5 common shares for
each preferred share outstanding at September 30, 2008. 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
liabilities accrued quarterly are being transferred to the loan account for
DCP which is subsequently reduced by issuing additional shares of Preferred
Stock to DCP. In the year ended September 30, 2008, the Company issued
335,000 preferred shares to DCP of which $50,382 represent dividends issuable
for the 12% dividend rate payable on all currently and previously issued
610,000 preferred shares issued through September 30, 2008.
(4.b) COMMON STOCK
As of September 30, 2008, 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, 2008, 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, 2008, 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, 2007 6,000,000 $ .60
========= =========
Granted 0 0
Exercised 0 0
Expired or cancelled 0 0
--------- ---------
Outstanding & exercisable at September 30, 2008 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.
The four year term of the agreement has expired, however DLC and the Company
will continue to 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 are two defaulted convertible
debentures in the total 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, 2008. These notes are included on the books of the Company
along with related accrued interest payable in the amount of $173,338 offset
by the contra-indemnification receivable account.
The following is summary of the indemnification agreement liabilities in the
Balance Sheet at September 30, 2008:
Description of debt indemnification: Current Long-term
Defaulted convertible debenture payable $ 150,000 $ 0
Defaulted accrued interest payable 173,338 0
Convertible debenture payable 50,000 0
Less, contra-indemnification receivable (373,338) 0
--------- ---------
Net Balances at September 30, 2008: $ 0 $ 0
========= =========
The Company believes that beyond the $373,338 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, 2008, the Company was in default on the terms of payment
of quarterly interest on these debentures amounting to $173,338. 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 lowered to 6% per annum. The
debenture is 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 $200,000 in convertible
debentures principal and related interest has not been paid and is in
default.
(5.b) CONVERTIBLE or SECURED NOTES PAYABLE - RELATED PARTY
During the fiscal year ended September 30, 2008, a related party financial
company provided the financing necessary to maintain operations by loaning an
additional $118,995 to the Company. An officer of the Company advanced net
funds in the amount of $22,624. These liabilities including accrued interest
were reduced through the issuance of an additional 335,000 shares of 12%
Cumulative Convertible Series A Preferred Stock to the related party. At
September 30, 2008, the Company owed to the related financial company $915 in
accrued loans for loan and expense 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 $100,000 in the year ended
September 30, 2008. This liability was transferred to the note payable by
related party account.
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 fiscal years ended September 30, 2008 and 2007.
(7.) EXTRAORDINARY GAIN AND SUBSEQUENT EVENTS
During the prior fiscal year ended September 30, 2007, 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, 2008, these shares are being held as Treasury Stock until they
are finally retired by the Company or sold to meet future financing needs of
the Company
SUBSEQUENT EVENTS
Mr. James Dixon resigned his position as Director as announced in our Form 8-
K announcement on October 28, 2008.
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
Our Chief Executive Officer, who is also the Chief Financial Officer (the
"Certifying Officers"), is responsible for establishing and maintaining
adequate internal control over financial reporting, as such term is defined
in Rule 13a-15(f) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act").
Internal control over financial reporting is promulgated under the Exchange
Act as a process designed by, or under the supervision of, our CEO and CFO
and effected by our board of directors, management and other personnel, to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles and includes those
policies and procedures that:
1. Pertain to the maintenance of records that in reasonable detail accurately
and fairly reflect the transactions and dispositions of our assets;
2. Provide reasonable assurance that transactions are recorded as necessary
to permit preparation of financial statements in accordance with accounting
principles generally accepted in the United States and that our receipts and
expenditures are being made in accordance with authorizations of our
management and directors; and
3. Provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition or disposition of our assets that could have a
material effect on the financial statements.
Our management, under the supervision and participation of our Certifying
Officers, has evaluated the effectiveness of our disclosure controls and
procedures and defined in Exchange Act Rules 13-a-15(e) and 15d-15(e) as of
the end of the period covered by this report based on the framework in
Internal Control - Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).
Based on that evaluation, our Chief Executive Officer and CFO concluded that
as of the end of the period covered by this report, the Company's disclosure
controls and procedures were effective to ensure that material information is
recorded, processed, summarized and reported by management of the Company on
a timely basis in order to comply with the Company's disclosure obligations
under the Exchange Act and the rules and regulations promulgated thereunder.
This Report does not include an attestation report of the Company's
registered public accounting firm pursuant to temporary rules of the
Securities and Exchange Commission permitting the Company to provide only the
management report in this report.
Changes in Internal Control over Financial Reporting
Further, there were no significant changes in the Company's internal control
over financial reporting during the Company's fourth fiscal quarter of 2008
that materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.
Limitations on the Effectiveness of Internal Controls
Readers are cautioned that our disclosure controls and procedures or our
internal control over financial reporting, no matter how well designed, has
inherent limitations and may not prevent or detect misstatements, fraud and
material error. Therefore, even effective internal control over financial
reporting can only provide reasonable assurance with respect to the financial
statement preparation and presentation. The design of any system of controls
is based on certain assumptions about the likelihood of future events, and
there can be no assurance that any control design will succeed in achieving
its stated goals under all potential future conditions.
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, 2008, 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, 2008,
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] 67 January 2001
[1] (Note: Also served as Treasurer, Chief Financial Officer and Director
from October 1997 to July 2000)
Donald G. Kampmann Outside Director 54 January 2001
James S. Dixon Outside Director-resigned 60 January 2001
October 28, 2008.
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 from
it's inception in October 1997 to July 2000 when he resigned his positions.
He was reelected to the board of directors in January 2001 and elected by the
board of directors as 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 the President and
Chairman of the Board of ISA Acceptance Corporation and is currently employed
as a full time consultant to the organization. He has extensive executive
experience in the mortgage and financial services industries.
JAMES S. DIXON (January 2000 to October 2008) was an outside director of the
Company from January 2000 to October 2008. Mr. Dixon was 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 seven years. Mr. Dixon resigned his position as Director as
announced in our Form 8-K announcement on October 28, 2008.
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, 2008 and 2007, 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 $-0- (1) -0- 100,000 -0- -0- -0- -0-
Brodkorb
Bernard L. 2006 $31,500(1) -0- 68,500 -0- -0- -0- -0-
Brodkorb
President, CEO
-------------------------------------------------------------------------------------------------
Directors 2008 -0- -0- -0- -0- -0- -0- -0-
Directors 2007 -0- -0- -0- -0- -0- -0- -0-
-------------------------------------------------------------------------------------------------
(1) Compensation for Bernard L. Brodkorb was recorded on the books of the
Company as compensation for consulting ($100,000) and salary ($0) for the
fiscal year 2007.
Director Compensation
Directors received no new shares or other compensation for their services as
directors for the two year period from October 1, 2006 through September 30,
2008.
Subsequently, no additional Director compensation has been authorized for
services for the period from October 1, 2008 through December 31, 2008, 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, 2008, 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, 2008, 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. It does not
include stock options or preferred stock ownership noted in the footnotes.
11-A. Security Ownership of Certain Beneficial Owners
Title Name and Address Amount and nature of Percent of
of class of Beneficial Owner beneficial ownership Class
-------------------------------------------------------------------------
Common Doubletree Capital Partners, Inc. 20,072,624 83.64%
2560 Rice St (1)(5)
St. Paul, MN 55113
Common Bernard L. Brodkorb 11,219,099 46.75%
2560 Rice St. (2)
St. Paul, MN. 55113
(1) Includes 21,428 common shares acquired in November, 2000. 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. DCP also owns 610,000 shares of Convertible
Preferred Stock which at a conversion value of $0.20 would equal 3,050,000
shares of common stock and also has warrants to purchase 6,000,000 shares of
common stock at $0.60 per share. These convertible shares are not included in
the beneficial ownership table of percentages shown above.
(2) Includes a 50% beneficial interest in DCP, a 50% beneficial interest in
DLC, 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. Does not include a 50% beneficial interest in warrants to
purchase 6,000,000 shares of common stock exercisable at $0.60 per share
issued to DCP and a 50% beneficial interest in 610,000 shares of Convertible
Preferred Stock which at a conversion value of $0.20 would equal 1,525,000
shares of common stock.
11-B. Security Ownership of Management
Title Name of Amount and nature of Percent of
of class Beneficial Owner beneficial ownership Class
-------------------------------------------------------------------------
Common Bernard L. Brodkorb, 11,219,099 (3) 46.75%
Common Donald G. Kampmann (4) 227,715 (4) 0.95%
Common James S. Dixon (5) 85,715 (5) 0.36%
---------- -------
Directors and executive officers as a group 11,532,529 48.06%
(3) Includes 35,715 common shares issued in 2004 and 192,000 issued in 2006.
(4) Includes 35,715 common shares issued in 2004 and 50,000 issued in 2006.
(5) Includes 50% beneficial interest in 9,700 common shares issued in 2007.
11-C. Changes in control
There are no arrangements known to the registrant which may at a subsequent
date result in a change in control of the registrant.
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On September 30, 2007, the Company issued 9,700 shares of common stock 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.
During the year ended September 30, 2008, the Company issued 335,000 preferred
stock shares for equivalent value of loans to a related third party.
The total issued and outstanding common shares are 23,999,612 as of September
30, 2008. Issued and outstanding Convertible Preferred shares total 610,000 at
September 30, 2008.
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.
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:
2008 - $40,000; 2007 - $45,000
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 2008 and 2007.
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 2008 and 2007.
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 2008 and
2007.
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 recommendations 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 reviews 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 13, 2009
President, Chief Executive Officer, and Director
______________________________________
/s/ Donald G. Kampmann January 13, 2009
By: Donald G. Kampmann
Director
ISA INTERNATIONALE INC.
FORM 10-KSB
INDEX TO EXHIBITS
The following exhibits numbered 3.1 to 10.1 below are included in our Form 10-
SB Registration Statement (File No. 0-027373) and are incorporated by
reference. Exhibits 31.1 and 32.1 are filed herewith.
Exhibit 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)).
31.1 Certification of Chief Executive Officer dated January 13, 2009
relating to the Registrant's Annual report on Form 10-KSB for the year ended
September 30, 2008.
32.1 Certification of Chief Executive Officer of Registrant, dated January
13, 2009, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002, relating to the Registrant's Annual
report on Form 10-KSB for the year ended September 30, 2008.
End of Report
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