UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2010
Commission File Number: 001-16423
-----------------------------------
ISA INTERNATIONALE INC.
(Name of small business registrant in its charter)
Delaware 41-1925647
(State of incorporation) (I.R.S. Employer Identification No.)
2564 Rice Street, St. Paul, MN 55113
(Mailing address of principal executive offices) (Zip Code)
(Issuer's telephone number) (651) 484-9850
Securities registered under Section 12(g) of the Exchange Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock OTC Bulletin Board
----------------------------------------------------------------------------
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes [] No [X]
Indicate by check mark whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
past 12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No []
Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (Sec.232.405
of this chapter) during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). Yes [] No []
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company.
Large accelerated filer [] Accelerated filer []
Non-accelerated filer [] Smaller Reporting Company [X]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act) Yes [] No [X]
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
On May 19, 2010 there were 23,999,612 shares of the Registrant's common stock,
par value $.0001 per share and 1,251,000 shares of Convertible Preferred Stock,
par value $.0001 per share issued and outstanding. The Convertible Preferred
Stock would upon conversion at the option of the holder require the issuance of
an additional 12,510,000 shares of common stock.
Transitional Small Business Disclosure Format (check one). Yes [] No [X]
ISA INTERNATIONALE INC.
FORM 10-Q
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION 4
ITEM 1. CONDENSED FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets 5
Condensed Consolidated Statements of Operations (Unaudited) 6
Condensed Consolidated Statements of Cash Flows (Unaudited) 7
Notes to Condensed Consolidated Financial Statements 8-15
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 16-22
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 23
ITEM 4T. Controls and Procedures 23
PART II OTHER INFORMATION
ITEM 1. Legal Proceedings 24
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds 24
ITEM 3. Defaults upon Senior Securities 24
ITEM 4. Submission of Matters to a Vote of Security Holders 24
ITEM 5. Other Information 24
ITEM 6. Exhibits and Reports on Form 8-K 24
Signatures 24
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
These condensed consolidated financial statements have been prepared by ISA
Internationale Inc. (the Company) without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission (SEC). Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
omitted in accordance with such SEC rules and regulations. In the opinion of
management, the accompanying statements contain all adjustments necessary to
present fairly the financial position of the Company as of March 31, 2010, and
its results of operations, stockholders' equity, and its cash flows for the
six month period ended March 31, 2010. The results for these interim periods
are not necessarily indicative of the results for the entire year. The
accompanying financial statements should be read in conjunction with the
financial statements and the notes thereto as a part of the Company's annual
report on Form 10-K filed on January 13, 2010.
ISA INTERNATIONALE INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 2010 September 30,2009
(Unaudited) (Audited)
ASSETS -------------------------------
Current Assets:
Cash and cash equivalents $ 34,307 $ 17,545
Trade receivables 1,081 920
Prepaid expenses 329 723
Contract sale receivable 31,538 -
------------ ---------
Total current assets 67,255 19,188
Fixed Assets
Office equipment and Property at cost less depreciation 52,336 24,813
------------ ---------
Total fixed assets 52,336 24,813
Other Assets:
Finance contract receivables, net of collections 287,410 314,423
Notes receivable - non current portion - 7,600
Deposits - Long term (See note 3) 5,000 5,000
Other assets 10 30
------------ ---------
Total Other Assets 292,420 327,054
------------ ---------
Total Assets $ 412,012 $ 371,055
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade and taxes 141,670 117,404
Credit lines payable 16,541 7,932
Notes payable-other 11,132 -
Convertible notes payable - related party 532 812
------------ ---------
Total current liabilities 169,875 126,148
Long Term Liabilities
Notes payable-other - Long term portion 31,916 -
------------ ---------
Total Liabilities $ 201,791 $ 126,148
------------ ------------
Stockholders' equity:
Preferred 12% cumulative convertible stock, par value $.0001
30,000,000 shares authorized, 1,251,000 shares
issued and outstanding at March 31, 2010 , 916,000
shares issued and outstanding at September 30, 2009 125 92
Preferred ISA Acceptance Corporation, par value $25
50,000 shares authorized, 22,400 shares issued and
outstanding at March 31, 2010 and at September 30, 2009 560,000 560,000
Common stock, $.0001 par value,
300,000,000 shares authorized; 23,999,612 shares
issued and outstanding at March 31, 2010
and at September 30, 2009 2,400 2,400
Additional paid-in capital 10,146,669 9,809,451
Accumulated deficit (9,961,474) (9,589,536)
Treasury stock (537,500) (537,500)
------------ -----------
Total stockholders' equity 210,221 244,907
------------ ---------
Total liabilities and stockholders' equity $ 412,012 $ 371,055
============ ===========
The accompanying notes are an integral part of these condensed consolidated financial statements.
ISA INTERNATIONALE INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
March 31, 2010 March 31, 2009 March 31, 2010 March 31, 2009
------------------------------------------------------
Operating revenue:
Financing income 81,058 - 95,083 -
Other collection fees 4,715 - 12,834 -
--------- ------- ------- --------
Total operating revenue 85,773 - 107,917 -
Operating expenses:
Portfolio collection costs 113,651 30,677 203,518 59,025
General and administrative 97,708 85,312 207,955 190,754
--------- ------- ------- --------
Operating expenses (211,359) (115,989) (411,473) (249,779)
--------- -------- -------- ---------
Operating loss (125,586) (115,989) (303,556) (249,779)
Other expenses
Interest (expense) (3,914) (22,313) (8,395) (40,892)
--------- --------- --------- --------
Net loss from operations (129,500) 138,303) (311,951) (290,666)
--------- --------- -------- ---------
Net loss (129,500) (138,303) (311,951) (290,666)
========= ======== ========== =========
Dividends to preferred shareholders (32,282) (18,050) (59,988) (36,500)
Net loss attributable to
common shareholders (161,782) (156,352) (371,938) (327,166)
Basic loss per share $ (0.01) $(0.01) $ (0.01) $ (0.01)
========== ========== ========= =========
Weighted average common
Shares outstanding:
Basic 23,999,612 23,999,612 23,999,612 23,999,612
========== ========== ========== ==========
Dividends per share of common stock none none none none
Dividends per share of preferred stock $0.05 $0.05 $0.06 $0.06
========== ======== ======== ==========
The accompanying notes are an integral part of these condensed consolidated financial
statements.
ISA INTERNATIONALE INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended Six Months Ended
March 31, 2010 March 31, 2009
----------------- -----------------
Cash flows from operating activities:
Net loss $ (311,951) (290,666)
Adjustments to reconcile net loss from operations
to cash flow used in operating activities:
Depreciation and amortization 3,525 568
Reduction of debt receivable purchase price
due to gross collections received 27,013 82,400
Interest contributed to capital 2,252 10,471
Changes in operating assets and liabilities:
Trade receivables (161) 176
Prepaid expenses and deposits 395 -
Accounts payable and accrued expenses 24,265 6,872
Interest accrued-Notes Payable other - 3,211
---------- ----------
Cash used in operating activities (254,662) (186,947)
Cash flows from investing activities:
Purchase of office equipment (12,522) -
Debt receivables purchased (31,538) -
Purchase of automobile (18,505) -
---------- --------
Cash provided by investing activities (62,565) -
Cash flows from financing activities:
Proceeds from bank lines of credit 18,028 13,015
Payments for bank lines of credit (9,419) -
Proceeds from convertible notes
payable - related party (280) 125,453
Proceeds from notes payable - related party 43,048 70,287
Proceeds from issuance of Preferred Stock 335,000 -
Preferred stock dividend (59,988) (36,500)
Proceeds from Notes Receivable 7,600 -
---------- ----------
Cash provided by financing activities 333,989 172,255
---------- ----------
Increase (decrease) in cash and cash equivalents 16,762 (14,692)
Cash at beginning of period 17,545 26,311
---------- ----------
Cash and cash equivalents at end of period $ 34,307 11,619
========== ==========
Non-cash investing in financing transactions:
Additional paid in capital to related party
for indemnification agreement 2,252 10,471
Accrued Preferred stock dividend expense (59,988) (36,500)
Proceeds from issuance of ISAT Convertible
Preferred stock to related party 335,000 -
---------- ----------
Total non-cash transactions 277,266 (26,029)
========== ==========
The accompanying notes are an integral part of these condensed consolidated financial
statements.
ISA INTERNATIONALE INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 NATURE OF BUSINESS AND SIGNIFICANT EVENTS
Nature of Business
ISA Internationale Inc. (the Company or ISAI) was incorporated on June 2,
1989, under the laws of the State of Delaware under a former name and became a
reporting publicly held corporation on November 15, 1999. On May 8, 1998,
Internationale Shopping Alliance Incorporated (Internationale), a Minnesota
corporation, was merged with the Company, a Delaware corporation, pursuant to
a merger agreement dated April 23, 1998. Upon consummation of the merger,
Internationale became a wholly owned subsidiary of the Company. During 2000,
the Company sold its International Strategic Assets, Inc. subsidiary and
discontinued the operations of its ShoptropolisTV.com subsidiary. Since then,
reorganization specialists, Doubletree Capital Partners LLC, has internally
reorganized the Company's financial affairs and changed its direction to focus
on the financial services industry.
These condensed consolidated financial statements include the parent Company,
ISA Internationale, Inc., its wholly owned subsidiary, ISA Financial Services,
Inc. (formerly ISA Acquisition Corporation), and its wholly owned subsidiary,
ISA Acceptance Corporation. The companies resumed operations in September 2005
as a result of a distressed consumer debt purchase agreement which commenced
on May 18, 2005, and currently operate as debt collection companies.
In the opinion of management, the condensed consolidated financial statements
include all normal recurring adjustments necessary for a fair presentation of
the balance sheet of the Company at March 31, 2010 and the results of its
operations and cash flows for the six months ended March 31, 2010 and 2009.
Results of operations reported for interim periods are not necessarily
indicative of results for the entire year and should be read in conjunction
with the prior year 10-K.
Critical Accounting Policies
The Company utilizes the cost recovery method under guidance provided by FASB
ASC 310 to determine income recognized on finance receivables. The Company has
determined we cannot reasonably estimate the timing of the cash flows from our
portfolio receivables collections to effectively utilize the interest method
of revenue recognition under FASB ASC 310
Under the cost recovery method of revenue recognition, the Company does not
recognize revenue until our original investment cost in the portfolio has been
recovered by gross collections less write-offs and impairments. No revenue has
been reported by the Company since we began collecting on our own portfolios
in 2005 because we have not yet fully recovered our investment at cost.
Currently our accounting procedure is to reduce the carrying inventory asset
value by the gross amount collected before fees and other collection costs are
subtracted. Once the portfolio is fully amortized we will begin to report
revenue. We will continue to obtain and use appropriate input data including
monthly collection data and liquidation rates to evaluate our performance and
project future cash flows from our portfolios of receivables.
In the event cash collections are inadequate to amortize the carrying balance
and the resulting estimated remaining fair market value of the remaining
portfolio debt receivables were to be less than the carrying value, an
impairment charge would need to be taken with a corresponding write off of the
"impaired" or deficient receivable carrying value with a corresponding charge
to profit and loss of the Company at that time.
The Company believes the remaining portfolio debt receivable carrying costs of
$287,410 will be recovered by the Company from future gross collections to be
received in the next 60 months commencing from April 1, 2010 and forward or
sale of the portfolios. The Company cannot guarantee all of the remaining
receivable costs can be recovered due to the aging and future write-offs of
the receivables.
On June 30, 2008, the Company purchased an additional $141,696 of distressed
debt portfolio receivables. On July 28, 2008, the Company purchased an
additional $230,864 distressed debt receivables and both are included in
finance contract receivables on our balance sheet at the net amount including
deductions for collections, write-offs, and buybacks.
The agreements to purchase the aforementioned receivables include general
representations and warranties from the sellers covering account holder death
and accounts settled or disputed prior to sale. The representation and
warranty period permitting the return of these accounts from the Company to
the seller is typically 90 to 180 days. Any funds received from the seller of
debt receivables as a return of purchase price are referred to as buybacks.
Buyback funds are simply applied against the debt receivable inventory
balance. They are not included in the Company's cash collections from
operations nor are they included in the Company's cash collections applied to
revenue.
Gains on sale of debt receivables, representing the difference between sales
price and the unamortized value of the debt receivables, are recognized when
debt receivables are sold.
Changes in company owned portfolio debt receivables for the quarter ended
March 31, 2010:
Balance at beginning of period, December 31, 2009 $ 297,563
Acquisition of debt receivables 25,008
Sale of debt receivables (23,057
Cash collections applied to principal (12,104)
-----------------
Balance at the end of the period, March 31, 2010 $ 287,410
=================
Estimated Remaining Collections ("ERC")(Unaudited) * $ 448,750.
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. Under FASB ASC 310
guidance, debt security impairment is recognized only if the fair market value
of the debt has declined below its amortizable costs. Currently, no additional
amortizable costs are below fair market value.
For our company owned portfolios revenue will be recognized based on FASB ASC
310, if management is reasonably comfortable with expected cash flows. In the
event expected cash flows cannot be reasonably estimated, the Company will
continue to use the "Recovery Method" under which revenues are only recognized
after the initial investment has been recovered.
There was revenue recognized on debt receivables in the amount of $31,727 for
the three months ended March 31, 2010, which consists of the following
amounts. During the quarter ended March 31, 2010, the Company purchased a debt
portfolio for $25,007 with face value of $1,007,000. The company received
gross collections in the amount of $44,698 during the quarter on that
portfolio. Prior to March 31, 2010, the seller of the portfolio recalled the
remaining uncollected portion of the purchased portfolio and agreed to repay
to the Company $23,556 of the original cost which represents the cost to the
Company on accounts not collected upon. As a result the Company received
$23,556 in settlement monies to return the remaining uncollected portfolio to
the seller. The Company has recorded income from the portfolio in the amount
of $43,247 after recovery of its original cost.
Note 2 LIQUIDITY AND GOING CONCERN MATTERS
The Company has incurred losses since its inception and, as a result, has an
accumulated deficit of $9,961,474 at March 31, 2010. The net loss for the six
month period ended March 31, 2010 from operating activities was $311,951
compared to a net loss of $290,666 for the same period last year. The Company
issued $355,000 in Convertible Preferred Stock to convert loans payable to a
related party to finance continuing operations for the six month period. As of
March 31, 2010, the Company had a principal balance due of $25,458 in Notes
payable to finance portfolio purchases to a related party and $17,590 in a
bank note payable. The Company issued $335,000 in face value Preferred Stock
in a subsidiary to a related party investor to redeem the Notes payable plus
accrued interest and additional capital contribution. These factors raise
substantial doubt about the Company's ability to continue as a going concern.
The Company's ability to continue as a going concern depends upon successfully
restructuring its debt, obtaining sufficient financing to maintain adequate
liquidity and provide for capital expansion until such time as operations
produce positive cash flow. The Company has been in reorganization and at the
present time is continuing to establish itself in the debt collection business
within the financial services industry. However, there can be no assurance
these actions will be successful.
The accompanying condensed 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
condensed consolidated financial statements do not include any adjustments
that might result if the Company was forced to discontinue its operations.
Note 3 BASIS OF PRESENTATION
These financial statements and related notes have been prepared in accordance
with accounting principles generally accepted in the United States of America.
Cash and Cash Equivalents:
For purposes of the Statements of Cash Flows, the Company considers liquid
investments with an original maturity of three months or less to be cash
equivalents.
Management's Use of Estimates:
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities, disclosures 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 may differ materially and adversely from the Company's
estimates. To the extent there are material differences between the estimates
and the actual results, future results of operations will be affected.
Fair Value of Financial Instruments:
The carrying amounts of financial instruments including other current assets,
accounts payable and other current liabilities including accounts payable and
notes payable approximated fair value because of the immediate short-term
maturity of these instruments.
Income Taxes:
Income taxes are provided for the tax effects of transactions reported in the
financial statements and consist of deferred taxes related primarily to
differences between the basis of certain assets and liabilities for financial
and tax reporting and net operating loss carry-forwards. Deferred taxes
represent the future tax return consequences of those differences, which will
either be taxable or deductible when the assets and liabilities are recovered
or settled.
The income tax benefit consists of taxes currently refundable due to net
operating loss carry back provisions less the effects of accelerated
depreciation for the federal government. Deferred tax assets are reduced by a
valuation allowance when, in the opinion of management, it is more likely than
not that some portion or the entire deferred tax asset will not be realized.
Deferred tax assets and liabilities are adjusted for the effect of changes in
tax laws and rates on the date of enactment. The Company has incurred
significant net operating losses since its inception but has not reflected any
benefit of such net operating loss carry-forwards in the accompanying
financial statements.
Earnings (Loss) Per Share:
The Company reports earnings (loss) per share in accordance with FASB
Accounting Standards Codification Topic 260 (ASC 260-10), "Earnings Per
Share". This statement requires dual presentation of basic and diluted
earnings (loss) per share with a reconciliation of the numerator and
denominator of the loss per share computations. Basic earnings per share
amounts are based on the weighted average shares of common shares outstanding.
If applicable, diluted earnings per share assumes the conversion, exercise or
issuance of all common stock instruments such as options, warrants and
convertible securities, determined by the treasury stock method, unless the
effect is to reduce a loss or increase earnings per share. Accordingly, this
presentation has been adopted for the period presented. There were no
adjustments required for the period presented in the computation of diluted
earnings per share.
Fixed Assets:
Fixed assets are recorded at cost and include expenditures that substantially
increase the productive lives of the existing assets. Maintenance and repair
costs are expensed as incurred. Depreciation is provided using the straight-
line method over management prescribed recovery periods. When a fixed asset is
disposed of, its cost and related accumulated depreciation are removed from
the accounts. The difference between un-depreciated cost and proceeds from
disposition is recorded as a gain or loss.
Advertising Costs:
Advertising costs are expensed as incurred. There have been no advertising
costs incurred during the periods covered by these financial statements.
Long-Lived Assets:
In accordance with FASB ASC 360-10, "Property, Plant, and Equipment", the
carrying value of long-lived assets is reviewed by management on a regular
basis for the existence of facts or circumstances, both internally and
externally, that may suggest impairment. Should there be impairment in the
future; the Company will recognize the impairment loss as the difference
between the carrying amount and fair value of the asset based on discounted
expected consolidated future cash flows from the impaired assets.
Contra Account presentation: Reference should be made to note 6 in these notes
to financial statements for additional information as to consolidated
financial statement presentation at March 31, 2010 for certain defaulted
convertible debenture notes payable and related accrued interest.
Stock Based Compensation: No shares of the Company's common stock were issued
for consulting services and settlement expenses during the six months ended
March 31, 2010. 160,000 additional shares of Convertible Preferred Stock were
issued during the quarter to reduce the loans payable, accrued interest and
dividends payable to the related party financing company.
Reclassification of Deposits: $5,000 in Deposits to a vendor was reclassified
to Other Assets- Long-Term in the quarter ended December 31, 2009 from being
listed as a Current Asset on September 30, 2009.
Note 4 RECENT ACCOUNTING PRONOUNCEMENTS
NEW ACCOUNTING PRONOUNCEMENTS
NOTE 5 STOCK ISSUANCE:
Preferred Stock
As of March 31, 2010, 1,251,000 and 22,400 shares of Convertible Preferred
Stock were issued and outstanding with a face value of $1.00 and $25 per
share, respectively. 335,000 preferred shares were issued to Doubletree
Capital Partners, Inc. (DCP) to secure debts and loans made to the Company
during the six months ended March 31, 2010.
A subsidiary Company, ISA Acceptance Corporation, issued 22,400 shares of
Preferred Stock, par value $25, during the fourth quarter of 2009 to a related
party investor valued at $560,000 in exchange for promissory notes due the
investor plus accrued interest. The loans were used to finance portfolio
purchases.
On September 30, 2009, 306,000 preferred shares were issued to DCP for
repayment of convertible/secured debt to a related party. The preferred shares
are convertible at the rate of one preferred to ten common shares at the
option of the holder.
The accumulated deficit for the six months ended March 31, 2010 was adjusted
for a dividend distribution of $59,988 on 12% Convertible Preferred Stock
outstanding.
Common Stock
As of March 31, 2010, 23,999,612 shares of common stock were issued and
outstanding, No additional shares were issued during the six months ended
March 31, 2010.
Stock Options
There were no stock options issued or exercised during the six months ended
March 31, 2010. All outstanding stock options expired as of September 30,
2009.
Note 6 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 matured 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 was 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.
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. It is very unlikely the
debenture holders would convert their debentures into common stock.
As of March 31, 2010, the Company was in default on the terms of payment of
quarterly interest on these debentures amounting to $191,297. The currently
due $200,000 in convertible debentures principal and related interest has not
been paid and is in default. It is the position of the Company this debt was
sold to a related financial entity (DLC) and DLC is now responsible for the
debt. The statute of limitations has expired on $150,000 for two of the three
defaulted debentures. The remaining defaulted debenture amounting to $50,000
has a defaulted accrued interest payable of $21,771 as described below in the
Indemnification Agreement - Related Party.
Note 7 Indemnification Agreement - Related Party
On July 1, 2004, the Company approved the issuance of 1,200,000 common shares
to an affiliated company, Doubletree Liquidation Corporation (DLC). DLC is a
corporation owned 50% by the Company's President and 50% by an affiliated
stockholder, whose ownership exceeds, beneficially, 5% of the Company's common
stock. The affiliated company, DLC, has issued an indemnification guarantee to
the Company wherein it will process, review, and guarantee payment for certain
prior Company liabilities (both actual and contingent) that may arise during
the four years from June 30, 2004. The Company deemed the value of the
transaction to be $368,045 based upon the consideration given to the Company
in the indemnification agreement.
The four years of the agreement have expired, however DLC endeavored to
finalize and bring to a conclusion, the payment of prior operation's
liabilities. As the remaining liabilities are paid or resolved, the Company
will receive such notification of the resolution and may be allowed to reduce
the carrying value of the indemnification receivable. The remaining unpaid
liabilities can be summarized as one defaulted convertible debenture totaling
$50,000. This note is included on the books of the Company along with the
related accrued interest payable in the amount of $21,771, offset by the
contra-indemnification receivable account. The following is a summary of the
presentation of these liabilities in the Balance Sheet at March 31, 2010:
Description of debt indemnification: Current Long-term
Defaulted convertible debentures payable $ 50,000 $ --
Defaulted accrued interest payable 21,771 --
Less, contra-indemnification receivable (71,771) --
Balances per Balance Sheet, at
March 31, 2010: $ -- $ --
========= =========
The Company believes that beyond the $71,771 referred to above, there will be
no additional charge or exposure for past liabilities, contingent or
otherwise, to the Company and if any do occur, they will be the responsibility
of DLC in accordance with their guarantee to the Company as enumerated in the
Indemnification Agreement.
Note 8 CREDIT LINES PAYABLE
During the quarter ended March 31, 2010, the Company borrowed $18,028 on its
available bank credit lines of $20,000 and paid back $9,419. The total balance
due at March 31, 2010 and September 30, 2009 was $16,541 and $7,932,
respectively. The interest rate is 12.0% per annum and the lines are payable
on demand and unsecured. The lines are personally guaranteed by the Company's
President.
Note 9 RELATED PARTY TRANSACTIONS
Convertible or Secured Notes Payable
Two additional notes were incurred in the second quarter. One is a bank note
for $18,125 to finance an automobile purchase and the second note was to a
related party in the amount of $25,007 for financing a new portfolio purchase
of credit card receivables. The monthly payments required by this loan
agreement have not yet been made in accordance with the terms. Net cash flow
for the six months ended March 31, 2010, a total net amount of $43,048 in
funds was loaned to the Company by a related investor loaned 25,458 and also
guaranteed a bank loan with a net balance due of 17,590. An entity owned by
one of the Company's stockholders loaned $70,287 for the same six month period
last year to finance receivable purchases. Purchases of fixed assets and
portfolios, and higher collection costs due to expanded collection operations
contributed to the additional capital loan requirements.
As of March 31, 2010 and September 30, 2009, the secured loans totaled $532
and $812, respectively and are payable on demand to the financial company,
bear interest at the rate of 12% per annum, and are secured by the Company's
debt receivable assets for collateral purposes, but are not convertible into
common stock of the Company. Interest expense on these notes for the six
months ended March 31, 2010 and 2009 amounted to $4,106 and $18,579,
respectively. The Company issued a 12% short-term secured promissory note for
$532 with the Company's debt receivable assets pledged as collateral on March
31, 2010.
Note 10 SUBSEQUENT EVENTS
The Company has determined there were no subsequent events warranting
additional disclosure or recognition in the financial statements.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
Forward Looking Statements
The information herein contains certain "forward looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995, Section
27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities and Exchange Act of 1934, as amended, which are intended to be
covered by the safe harbors created thereby. Investors are cautioned that all
forward looking statements involve risks and uncertainties, including, without
limitation, the ability of the Company to continue its present business
strategy which will require it to obtain significant additional working
capital, changes in costs of doing business, identifying and establishing a
means of generating revenues at appropriate margins to achieve profitability,
changes in governmental regulations and labor and employee benefits and costs,
and general economic and market conditions. Such risks and uncertainties may
cause the Company's actual results, levels of activity, performance or
achievement to be materially different from those future results, levels of
activity, performance or achievements expressed or implied by such forward-
looking statements.
Although the Company believes that the assumptions and expectations reflected
in these forward looking statements are reasonable, any of the assumptions and
expectations could prove inaccurate or not be achieved, and accordingly there
can be no assurance the forward looking statements included in this Form 10-Q
will prove to be accurate. In view of the significant uncertainties inherent
in these forward-looking statements, their inclusion herein should not be
regarded as any representation by the Company or any other person that the
objectives, plans, and projected business results of the Company will be
achieved. Generally, such forward looking statements can be identified by
terminology such as "may," "could," "anticipate," "expect," "will,"
"believes," "intends," "estimates," "plans," or other comparable terminology.
Company History and Overview
ISA Internationale, Inc ("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 with ShoptropolisTV.com, Inc.
(f/k/a Internationale Shopping Alliance Inc.), which was a wholly owned
subsidiary of ISAI. Shoptropolis was engaged in the development of a
multimedia home shopping network generating direct retail sales of varied
products from TV viewers and internet shoppers. This subsidiary was acquired
when the former shareholders of this subsidiary acquired 89% of the
outstanding common stock of ISAI through a stock exchange. ISAI issued
11,772,600 shares of its common stock in exchange for all of the outstanding
common stock of ShoptropolisTV.com, Inc.
This merger was effected as a reverse merger for financial statement and
operational purposes. Accordingly, ISA regards its inception as being the
incorporation of ShoptropolisTV.com, Inc. on October 7, 1997. ISAI sold
ShoptropolisTV.com, Inc. on March 29, 2001. In January 1999, the Company
redeemed and cancelled 1,650,000 shares held by three of the founding
shareholders. No consideration was paid to the founding shareholders for the
redemption.
ISAI incorporated its precious metals subsidiary, International Strategic
Assets, Inc., as a Minnesota corporation in March 1999. Its business was
direct sales via outbound telemarketing of precious metals consisting mainly
of gold and silver coins and bars. ISAI sold International Strategic Assets,
Inc. on May 19, 2000 to an individual who was an officer and director of ISAI.
Between December 2000 and through May 2005, the Company was operationally
dormant and was actively reorganizing its financial affairs and actively
seeking merger or acquisition candidates offering growth and profit potential
for its shareholders.
On May 11, 2005, the Company, through its wholly owned subsidiary, ISA
Acquisition Corporation, purchased $36,097,726 of portfolio debt receivables
and commenced operations in the troubled debt collection business. Upon a
detailed examination of the individual debts and accounts purchased, the
Company determined that it should receive replacement debt receivables from
the Seller companies due to substitutions and replacement debt considered to
be non-collectible, as determined by the Company prior to September 30, 2005.
Accordingly, the Company was given and did receive additional consumer debt
receivables considered to be replacement debt in the additional net amount of
$7,635,274 bringing the total consumer debt receivable purchase to $43,733,000
as of September 30, 2005.
The substituted debts, as revised, amount to a larger face value of debt
purchased but have the same computed fair market value due to different
categories of debts received as well as different ages of the debts. For the
most part, the new and revised group of debts received in accordance with the
original purchase agreement is now considered to be older in age and of
slightly less individual value. The Company, through its third party
collection agent, has evaluated this overall debt purchase for its current
fair market value, future collectability and net estimated net realizable
value in comparison to the original purchase price paid in the amount of
$1,094,900 with the issuance of 1,250,000 of the Company's restricted common
shares of stock.
In 2009 and 2010, the Company, through its subsidiary companies, further
developed its in-house capabilities to collect debt portfolios in addition to
using third party agents. Our staff includes Scott Larson, as a consultant
with ISA Financial Services, Inc., a full time attorney, an office
administrator and sixteen collectors in collection operations. We have added 8
collectors as employees in the last three months. Mr. Larson has now assumed
the lead role in the management of ISAI's two subsidiaries.
Currently, the Company considers itself to be operational but still in a
period of financial and structural reorganization. After successful completion
of its reorganization efforts, ISAI plans to pursue strategic alternatives
that may include the purchase of a business or acquisition by another entity.
At March 31, 2010, the current carrying value of the Company's original
purchased debt receivables, net after gross collections from date of original
purchase and impairment write downs, is $287,410. The Company believes this
carrying value on its Balance Sheet is a fair carrying value and the amount
will be realized from the gross collections received after incurring direct
collection costs and third party collection fees.
Results of Operations for the six months ended March 31, 2010 and 2009.
Sales and Gross Profit
The Company recorded $95,083 in Third Party collection fee revenue and
portfolio collection of our own inventory of debt receivables using the cost
recovery method of revenue recognition income for the six months ended March
31, 2010. The Company, in addition to its in-house staff, uses third party
collection companies and outside legal firms to assist in the collection
efforts on the purchased debt receivables. Net collection receipts from the
debt portfolios in the amount of $53,856 were collected in the six months
ended March 31, 2010. This amount has been recorded as a reduction of the
purchase price carrying value of the purchased debt receivables up to the
inventory cost of the receivable. Any funds received over the inventory cost
are booked as revenue. Collection fee revenue from third party contracts was
$33,056 for the six months ended March 31, 2010. $12,834 was collected for
Service income and other fees. Additionally, we booked a net amount of $8,171
for post dated collections (negotiated promises to pay within the next year)
including a reserve for potential uncollectable accounts. The Company believes
the net cash flows received from collections on the current inventory of debt
receivables will not be sufficient to sustain Company operations in the
future. Efforts are being expended to purchase additional debt portfolio
receivables for future additional revenues.
Operating Expenses
Operating expenses included collection costs, general and administrative
expenses. Other expenses include interest expenses related to short term
financing notes, convertible debenture notes and convertible notes payable.
Direct collection costs incurred during the two quarters were $203,518
compared to $59,025 for the six months ended March 31, 2009 due to expanded
operations and employment in our collection operations. General and
administrative expenses were $207,955 for the six months ended March 31, 2010
compared to $190,754 for six months ended March 31, 2010 due to increased
office space rental. Interest expense for the six months ended March 31, 2010
totaled $8,395 compared to $40,892 for the six month period ended March 31,
2009 due to reduction in debenture interest accrued and conversion of short
term debt to Preferred Stock which pays a dividend.
Additional expenses are being incurred for interest, office, telephone,
consulting, and legal and professional expenses relating to the Company's
efforts in the growth and development of its direct collection business
operations.
Two additional notes were incurred in the second quarter. One is a bank note
for $18,125 to finance an automobile purchase and the second note was to a
related party in the amount of $25,007 for financing a new portfolio purchase
of credit card receivables.
Liquidity and Capital Resources
As of March 31, 2010, the Company had total assets of $412,012 consisting of
$34,307 in cash, $1,081 in trade receivables, $329 in prepaid insurance
expense, $31,538 for a contract sale receivable, $52,336 in office equipment,
furniture, and vehicles net of depreciation, $287,410 in finance contracts
receivables net of collections, and $5,000 in long-term deposits. It had
$169,875 in current liabilities consisting of $141,670 in accounts payable and
accrued expenses, $11,132 in notes payable other, $532 in convertible notes
payable related party, and bank credit lines payable totaled $16,541.
The Company's current capital resources are not sufficient to supports its
development and operations. Additional capital will be necessary to support
future growth of the Company as well as general and administrative and
interest expenditures. The Company will continue its complete reorganization
of financial affairs and obligations as well as support its expanded
operational in-house collection agency activities required now and as a result
of additional debt receivable purchases in 2008 and future debt purchases.
The Company is currently seeking additional sources of debt or equity
financing to replace the financing agreement consummated in November 2000 with
Doubletree Capital Partners, Inc. Until the reorganization process is fully
completed and sources of capital needs are determined and defined, the Company
cannot provide assurances as to its future viability or its ability to prevent
the possibility of a bankruptcy filing petition either voluntary or
involuntary by creditors of the Company.
As a result of the Company's history of operating losses and its need for
significant additional capital, the reports of the Company's independent
auditors' on the Company's Form 10-K submission for the year ended September
30, 2009, should be read including explanatory paragraphs concerning the
Company's ability to continue as a going concern.
Income Tax Benefit
The Company has an income tax benefit from net operating losses, which is
available to offset any future operating profits. This benefit has not been
recorded in the accompanying financial statements because of the uncertainty
of future profits. The ability to utilize the net operating losses may be
limited due to ownership changes.
Impact of Inflation
The Company believes that inflation has not had any material effect on its
development or operations since its inception in 1997. Furthermore, the
Company has no way of knowing if inflation will have any material effect for
the foreseeable future. The Company forecasts a more challenging economic
environment for its operations in 2010 due to a recessionary economy that is
slowly recovering but still has relatively high unemployment in the work force
making it difficult for millions to meet their credit obligations.
Prior Business Ventures
With respect to the business strategy of developing and launching a multimedia
home shopping network, ISAI had only a very limited operating history on which
to base an evaluation of its business and prospects. The Board of Directors
decided in December 2000 to sell the Shoptropolis subsidiary and cease
development of the home shopping network. All efforts of the Company at the
present time have been directed to a complete reorganization of all of its
affairs. Therefore, the Company's prospects for new business ventures must be
considered in light of the many risks, expenses and difficulties encountered
frequently by companies in reorganization. Such major risks include, but are
not limited to, an evolving business model and the overall effective
management of future growth. To address the many startup risks and
difficulties the Company has encountered, it must in the future have the
ability to successfully execute any of its operational and marketing
strategies that it may develop in any new business venture.
There would be no assurance the Company would be successful in addressing the
many risks and difficulties it could encounter and the failure to do so would
continue to have a material adverse effect on the Company's business,
prospects, financial condition and results of any operations it pursues or
tries to develop, pending successful reorganization of its financial affairs.
There can be no assurance that ISAI can find and attract new capital for any
new business ventures and if successful in finding sufficient capital, that it
can successfully grow and manage the business or new business venture into a
profitable and successful operation. No assurance can be given on any of these
developments. The Company will continue to complete its financial
reorganization, attempt to develop a successful business in the debt
collection business and endeavor to find suitable candidates for merger or
acquisition.
History of Losses and Anticipated Further Losses
The Company has generated only limited revenues to date and has an accumulated
deficit as of March 31, 2010 of $9,961,474. Further, the Company expects to
continue to incur losses until it generates revenues at appropriate margins to
achieve profitability. There can be no assurance the Company will ever
generate revenues or that it will achieve profitability or that its future
operations will prove commercially successful or that it will establish any
means of generating revenues at appropriate margins to achieve profitability.
Need for Additional Financing
The Company's current capital resources are not sufficient to support the
Company's anticipated day-to-day operations. As such, the Company must obtain
significant additional new capital to support the Company's anticipated day-
to-day operations and fully settle the debt incurred by ISAI during its past
operations until it establishes a means of generating revenues at appropriate
margins to achieve profitability. The Company currently has an agreement with
Doubletree Capital Partners, Inc. (hereinafter referred to as the financial
company or DCP) to loan the Company, at the financial company's sole
discretion, funds to meet its day-to-day operational expense and settle
certain debt incurred by ISAI. The financial company is owned by two
individuals, one of which is ISAI's current President, CEO and Chairman of the
Board of Directors.
The financial company has commenced its best efforts to help the Company
resolve, consolidate, and reorganize the Company's present debt structure and
contractual liabilities. There is no assurance the financial company will
provide the Company any additional capital. Additional financing is
contemplated by the Company, but such financing is not guaranteed and is
contingent upon pending successful settlement of the Company's problems with
various creditors. There is no assurance the Company will be able to obtain
additional capital and the necessary additional financing will be available
when needed by the Company on terms acceptable to the Company. If the Company
is unable to obtain financing sufficient to meet its operating and development
needs, the Company will be unable to develop and implement a new business
strategy or continue its operations. As a result of the Company's history of
operating losses and need for significant additional capital, the Form 10-K
reports of the Company and notes to consolidated financial statements for the
fiscal year ended September 30, 2009, includes an explanatory paragraph
concerning the Company's ability to continue as a going concern.
Reliance on Key Personnel
The Company's future success will be dependent upon the ability to attract and
retain executive officers, board members, and certain other key persons. The
inability to attract such individuals or the loss of services of one or more
of such persons would have a material adverse effect on ISAI's ability to
implement its current plans or continue its operations. There can be no
assurance the Company will be able to attract and retain qualified personnel
as needed for its business.
Control By Existing Management
Three principal shareholders, Doubletree Capital Partners, Inc. (DCP),
Doubletree Liquidation Corporation and Bernard L. Brodkorb, beneficially own
approximately 88.57%, respectively of the Company's outstanding common stock
at March 31, 2010. DCP's and Mr. Brodkorb's beneficial ownership includes
common stock that can be converted from preferred stock owned by the one
principal shareholder as well as similar conversion of convertible loans and
related interest due. Brodkorb is a 50% owner of DCP and his beneficial shares
represented 100% of DCP's interest. DCP and Brodkorb accordingly have complete
control of the business and future development, including the ability to
manage all operations, establish all corporate policies, appoint future
executive officers, determine management salaries and other compensation, and
elect all members of the Board of Directors of ISAI.
Effects of Trading in the Over-the-Counter Market
The Company's common stock is traded in the over-the-counter market on the OTC
Electronic Bulletin Board and its stock symbol is ISAT. Consequently, the
liquidity of the Company's common stock may be impaired, not only in the
number of shares that may be bought and sold, but also through delays in the
timing of transactions, and coverage by security analysts and the news media
may also be reduced. As a result, prices for shares of the Company's common
stock may be lower than might otherwise prevail if the Company's common stock
were traded on a national securities exchange or listed on the NASDAQ Stock
Market. Further, the recent adoption of new eligibility standards and rules
for broker dealers who make a market in shares listed on the OTC Electronic
Bulletin Board may limit the number of brokers willing to make a market in the
Company's common stock.
Limited Market for Securities
There is a limited trading market for the Company's common stock, which is not
listed on any national stock exchange or the NASDAQ stock market. The
Company's securities are subject to the "penny stock rules" adopted pursuant
to Section 15(g) of the Securities Exchange Act of 1934, which applies to non-
NASDAQ companies whose common stock trades at less than $5 per share or has
tangible net worth of less than $2,000,000. These "penny stock rules" require,
among other things, that brokers who sell covered "penny stock" to persons
other than "established customers" complete certain documentation, make
suitability inquiries of investors and provide investors with certain
information concerning trading in the security, including a risk disclosure
document and quote information under certain circumstances.
Many brokers have decided not to trade "penny stock" because of the
requirements of the "penny stock rules" and, as a result, the numbers of
broker-dealers willing to act as market makers in such securities are limited.
There can be no assurance that an established trading market will develop, the
current market will be maintained or a liquid market for the Company's common
stock will be available in the future.
Liquidity and Going Concern Matters
The Company has incurred losses since its inception and, as a result, has an
accumulated deficit of $9,961,474 at March 31, 2010. The net loss for the six
month period ended March 31, 2010 was $371,938. The Company currently owes
$141,670 for trade accounts payable and tax liabilities and $532 for a
convertible note payable to a related third party investment company. Bank
credit lines as of March 31, 2010 had a balance due of $16,541. Long Term
liabilities amounting to $31,916 include two notes incurred in the second
quarter. These factors raise substantial doubt about the Company's ability to
continue as a going concern. The Company's ability to continue as a going
concern depends upon successfully restructuring its debt, obtaining sufficient
financing to maintain adequate liquidity and provide for capital expansion
until such time as operations produce positive cash flow.
The accompanying financial statements have been prepared on a going concern
basis, which assumes continuity of operations and realization of assets and
liabilities in the ordinary course of business. The financial statements do
not include any adjustments that might result if the Company was forced to
discontinue its operations. The Company's current plans are to complete its
reorganization efforts and expand its direct collection operations. There can
be no assurance these actions will be successful.
The Company is in default under the terms of its obligation to make quarterly
interest payments on convertible 12% debentures issued between September 1999
and June 2000. These debentures now in default classified as current
liabilities totaled $50,000 in principal and $21,771 in accrued interest as of
March 31, 2010. No interest or principal payments were ever made by the
Company on the remaining debentures.
ITEM 3. QUANTITATIVE AND QUALITIATIVE DISCLOSURES ABOUT MARKET RISK
This item is not required for smaller reporting companies.
ITEM 4T. CONTROLS AND PROCEDURES
4.1 Evaluation of Controls and Procedures
The Company's management, under the supervision and with the participation of
the Registrant's President, has evaluated the effectiveness of the design and
operation of its disclosure controls and procedures pursuant to Rule 13(a)-
15(e) under the Securities Exchange Act of 1934, as amended ("Exchange Act").
This evaluation was done as of the end of the period covered by this quarterly
report. Based on that evaluation, the President, CEO, and CFO has concluded
that our current disclosure controls and procedures are effective in
gathering, analyzing, and disclosing information required to be disclosed by
the Company under the Exchange Act as of the end of the period covered by this
quarterly report.
4.2 Changes in Internal Controls
There have been no significant changes in the Company's internal control over
financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the
Securities Exchange Act of 1934) that have occurred during the three month
period covered by this quarterly report ended March 31, 2010 that have
materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting. Neither has there been
any significant change in internal control over financial reporting subsequent
to the date of this report.
As a smaller reporting company with a fiscal year end of September 30, the
Company must first begin to comply with the requirements of Section 404 of the
Sarbanes-Oxley Act of 2002 ("Section 404") for the fiscal year ended September
30, 2010. During fiscal years 2006 through 2009 management has reviewed and
evaluated the effectiveness, and where necessary, enhanced the Company's
internal controls over financial reporting. The Company may engage a third
party consultant to assist it with the improvement of such internal controls
over financial reporting. This review and any enhancements, if necessary, will
likely involve significant time and expense by the Company and its independent
auditors. The Company believes the Company's risk of control failure is low
due to the financial expertise of its President and the small size of
operations. The Company will begin work with independent consultants to comply
with the requirement of auditor attestation of our internal controls due with
our fiscal year 2010 annual report.
Part II. OTHER INFORMATION
ITEM 1. Legal Proceedings
During the three months ending March 31, 2010, the Company was not sued in or
a plaintiff in any new legal matters except in the ordinary course of its
operational business to collect purchased debt receivables.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
None during the quarter ended March 31, 2010.
ITEM 3. Defaults Upon Senior Securities
The defaults previously present on the Convertible Debentures as of December
31, 2003 continue as of March 31, 2010, after partial conversions into common
stock of the Company. These defaults arose because the Company has missed
payment of quarterly interest payments since June 2000. The remaining defaults
consist of short-term convertible debt principal amounting to $50,000. The
accrued interest liability due on these notes combined amounting to $21,771 as
of March 31, 2010 has been assumed by an indemnification agreement with a
related investment party. (see note 7 in the notes to financial statements).
ITEM 4. Submission of Matters to a Vote of Security Holders
None
ITEM 5. Other Information
None
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
EX-31.1 Certification of the Chief Executive Officer and Chief
Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
EX-32.1 Certification of the Chief Executive Officer and Chief
Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Form 8-K reports filed during quarter:
none
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
ISA INTERNATIONALE INC.
/s/ Bernard L. Brodkorb
By: Bernard L. Brodkorb
President, Chief Executive Officer, and Chief Financial Officer
Date: May 20, 2010
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