U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------------------------
FORM 10-KSB/A
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2002
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (No fee required)
Commission File Number: 001-16423
Old Commission File Number: 000-27373
--------------------------------------
ISA INTERNATIONALE, INC.
(Exact name of registrant as specified in its charter)
Delaware 41-1925647
(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or organization)
2560 Rice Street, St. Paul, MN 55113
(Mailing address of principal executive offices)
Issuer's telephone number (651) 489-6941
----------------------------------------------------------------------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: Name of each exchange on which registered:
None Not applicable
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.0001 par value
(Title of class)
--------------------------------
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 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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Sect. 229.405 of this chapter) is not 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 the Form 10-KSB.
Yes [X] No [ ]
State issuer's revenues for its most recent fiscal year:
None for continuing operations.
State the aggregate market value of the voting and non-voting common equity
held by non-affiliates computed by reference to the price at which the common
equity was sold, or the average bid and asked price of such common equity, as
of a specified date within the past 60 days (See definition of affiliate in
Rule 12b-2 of the Exchange Act):
$313,219 as of March 30, 2003.
The number of shares outstanding of the issuer's common stock as of December
31, 2002:
Common stock, $.0001 Par Value 52,203,196
DOCUMENTS INCORPORATED BY REFERENCE: NONE
Transitional Small Business Disclosure Format: Yes [ ] No [X]
ISA INTERNATIONALE INC.
FORM 10-KSB
TABLE OF CONTENTS
Page
PART I
Item 1. Description of Business 4
Item 1-A.Important Factors 5
Item 2. Description of Properties 8
Item 3. Legal Proceedings 9
Item 4. Submission of Matters to a Vote of Security Holders 10
PART II
Item 5. Market for Common Equity and Related Stockholder Matters 11
Item 6. Management's Discussion and Analysis of Financial Condition
and Results of Operations 15
Item 7. Financial Statements and Supplementary Data 20
Table of Contents 20
PART III
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 39
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act 40
Item 10. Executive Compensation 42
Item 11. Security Ownership of Certain Beneficial Owners
and Management 43
Item 12. Certain Relationships and Related Transactions 44
Item 13. Exhibits and Reports on Form 8-K 45
Signatures 45
Certification pursuant to section 302 46
Index to Exhibits, Form 10-KSB 48
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-KSB contains certain forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995.
For this purpose, any statements contained in this Form 10-KSB that are not
statements of historical fact may be deemed to be forward-looking statements.
Without limiting the foregoing, words such as "may," "will," "expect,"
"believe," "anticipate," "estimate," "plan," or "continue" or the negative or
other variations thereof or comparable terminology are intended to identify
forward-looking statements. These statements by their nature involve
substantial risks and uncertainties, and actual results may differ materially
depending on a variety of factors, including those set forth in the section
below entitled "Important Factors."
PART I
Item 1. DESCRIPTION OF BUSINESS
As used herein, the terms "ISAI" and the "Company" refer to ISA Internationale
Inc. and its subsidiaries, unless the context indicates otherwise.
A. Corporate Organization and Recapitalization
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 a merger with 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 merger was effected as a
reverse merger for financial statement and operational purposes, and
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). 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. This
transaction was the final settlement of the recapitalization of the Company
upon merger with Internationale.
The primary business strategy of Shoptropolis, was to develop a multimedia home
shopping network for the purpose of offering in-home shoppers a convenient
electronic shopping experience through broadcast television, cable, satellite
or the Internet, and featuring a broad diversity of high quality, moderately
priced, unique consumer products.
ISAI incorporated its precious metals subsidiary, International Strategic
Assets, Inc. (ISA), in March 1999. The primary business strategy of ISA was
outbound direct telemarketing sales of precious commodities, primarily
including gold, silver, platinum and palladium in bullion form including bars
and coins of various types and face amounts.
On May 19, 2000, ISAI sold ISA through a sale to an individual who was an
officer and director of ISAI. In December 2000, due to a lack of capital, the
Company concluded that no further efforts would be expended to develop its
planned shopping network and the disposal of the Shoptropolis subsidiary was
approved by the Board of Directors. Shoptropolis was sold on March 29, 2001.
ISAI's present strategy is to complete its reorganization of its financial
affairs and endeavor to find a suitable candidate for merger or acquisition.
B. Personnel
On January 1, 2000, ISAI had 15 full-time employees including three executive
officers, three administrative and accounting personnel, and nine precious
metals sales representatives. During the first quarter of 2000, ISAI added 12
full-time employees for its Shoptropolis operations including one executive
officer and three senior management persons. The three senior management
persons headed the product-buying group of Shoptropolis. ISAI's full-time
employees then totaled 27.
In May 2000 ISAI sold International Strategic Assets, Inc. and thus eliminated
12 full-time employees including one executive officer, one administrative
person, one accounting person, and nine precious metals sales representatives.
During the second quarter of 2000, Shoptropolis laid off 12 full-time employees.
ISAI's full-time employees then totaled three, two executive officers and one
administrative person.
In August 2000 the founder and president of ISAI and CEO of Shoptropolis
resigned. A member of the ISAI board of directors assumed the position of
acting CEO of ISAI and Shoptropolis, and chairman of ISAI's board of
directors. In October 2000 the administrative person resigned. In November
2000 the president of Shoptropolis resigned.
On December 31, 2000, ISAI had no full-time employees. The chief executive
officer position of ISAI and Shoptropolis was filled by a member of the ISAI
board of directors in an acting status.
In February 2001 the member of the board of directors who was acting CEO of
ISAI and Shoptropolis, and chairman of ISAI's board of directors since August
2000, resigned as CEO of both companies and as a member of ISAI's board of
directors. The acting chief financial officer of ISAI filled the chief
executive officer position of ISAI and Shoptropolis. This person continues in
this position with ISAI as President, Chief Operating Officer, Chief Financial
Officer, and Chairman of the Board.
Item 1A. IMPORTANT FACTORS
The following factors are important and should be considered carefully in
connection with any evaluation of the Company's business, financial condition,
results of operations and prospects. Additionally, the following factors
could cause the Company's actual results to materially differ from those
reflected in any forward-looking statements of the Company.
New Business Ventures - With respect to the core business strategy of
developing and launching its multimedia home shopping network, ISAI had only a
very limited operating history on which to base an evaluation of its business
and prospects. With the decision of the Board of Directors in December 2000 to
begin disposal efforts of the Shoptropolis subsidiary, ISAI has no intention
to further develop the home shopping network. All efforts of the Company at the
present time will be 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 their development stage. 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 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 re-
organization 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 however,
hopefully complete its financial re-organization and endeavor to find a
suitable candidate for merger or acquisition of the Company.
History of Losses and Anticipated Further Losses - ISAI has generated only
limited revenues to date and has an accumulated deficit as of December 31,
2002 of $5,905,631. Further, the Company expects to continue to incur losses
until it establishes a means of generating revenues at appropriate margins to
achieve profitability. There can be no assurance the Company will ever
generate revenues or that it will achieve profitability, or that its future
operations will prove commercially successful, or that it will establish any
means of generating revenues at appropriate margins to achieve profitability.
Need for Additional Financing - The Company's current capital resources are not
sufficient to support the Company's anticipated day-to-day operations. As
such, the Company must obtain significant and additional capital in order to
the 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
Company currently has an agreement with a financial company to loan the
Company at the financial Company's sole discretion, funds to meet its
day-to-day operational expense and settle certain debt incurred by
ISAI. The financial company is owned by two individuals, one of which is
ISAI's current President, CEO and Chairman of the Board of Directors.
The financial company has commenced its best efforts to help the Company
resolve, consolidate and reorganize the Company's present debt structure and
contractual liabilities. There is no assurance that the financial company will
provide the Company any additional capital. Additional financing is
contemplated by the Company, but such financing is not guaranteed and is
contingent upon pending successful settlement of the Company's problems with
various creditors. There is no assurance that the Company will be able to
obtain any additional capital. There can be no assurance that the necessary
additional financing will be available when needed by the Company, or that
such capital will be available on terms acceptable to the Company. If the
Company is unable to obtain financing sufficient to meet its operating and
development needs, the Company will be unable to develop and implement a new
business strategy or continue its operations. As a result of the Company's
history of operating losses and its need for significant additional capital,
the reports of the Company's consolidated financial statements for the years
ended December 31, 2002, and 2001 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
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 beneficially owns
approximately 45.95% of ISAI's outstanding common stock, which includes common
stock that can be converted from preferred stock owned by the one principal
shareholder, and accordingly has complete control of its 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.
Consequently, the liquidity of the Company's common stock may be impaired, not
only in the number of shares that may be bought and sold, but also through
delays in the timing of transactions, and coverage by security analysts and
the news media may also be reduced. As a result, prices for shares of the
Company's common stock may be lower than might otherwise prevail if the
Company's common stock were traded on a national securities exchange or listed
on the NASDAQ Stock Market. Further, the recent adoption of new eligibility
standards and rules for broker dealers who make a market in shares listed on
the OTC Election Bulletin Board may limit the number of brokers willing to
make a market in the Company's common stock.
Limited Market For Securities - There is a limited trading market for the
Company's common stock, which is not listed on any national stock exchange or
the NASDAQ stock market. The Company's securities are subject to the "penny
stock rules" adopted pursuant to Section 15(g) of the Securities Exchange Act
of 1934, which applies to non- NASDAQ companies whose common stock trades at
less than $5 per share or has tangible net worth of less than $2,000,000.
These "penny stock rules" require, among other things, that brokers who sell
covered "penny stock" to persons other than "established customers" complete
certain documentation, make suitability inquiries of investors and provide
investors with certain information concerning trading in the security,
including a risk disclosure document and quote information under certain
circumstances. Many brokers have decided not to trade "penny-stock" because of
the requirements of the "penny stock rules" and, as a result, the 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 PROPERTIES
At December 31, 2002 the Company's only asset was cash of $1,542.
From September 2000 to January 2001 the Company rented a shared-office space
in St. Paul, MN on a month-to-month basis. Monthly rental expense was
$480.00, which included base rental amount and tenant's share of overall
building complex maintenance expense, and real estate taxes. The Company's
wholly owned subsidiary, Shoptropolis, also shared an office in the
St. Paul facility.
From January 2000 through September 2000, the Company leased office space in
Burnsville, Minnesota. The facility was approximately 4,996 square feet and
was being leased under a four (4) year lease, expiring December 31, 2003,
with option to downsize and/or relocate the leased premises, and option to
terminate the lease. Monthly lease installments were approximately $7,486,
which included base rental amount and tenant's share of overall building
complex maintenance expense and real estate taxes. The Company's wholly owned
subsidiary, Shoptropolis, also shared an office in the Burnsville facility.
On September 30, 2000, ISAI exercised its option to terminate the lease
resulting in no additional payments after September 30, 2000.
Prior to being sold by ISAI in May 2000, the Company's wholly owned
subsidiary, International Strategic Assets, Inc., leased its sales and
administrative facilities for its precious metals sales operations in a large
office complex in Eagan, Minnesota, a suburb of Minneapolis/St. Paul. These
facilities consisted of approximately 7,300 square feet and were being leased
under a five-year lease expiring in 2004. Monthly payments were approximately
$6,188, which included the base rental amount and the tenant's share of the
overall building complex expenses and real estate taxes. Monthly rental would
increase if such operating expenses and real estate taxes increase. Rental
payments under this lease were guaranteed by ISAI. As of date of sale of ISA,
ISAI no longer guaranteed the ISA lease.
The Company moved its administrative, production and broadcast operations from
Knoxville, Tennessee to Minnesota in the fourth quarter of 1999. The Company
defaulted on the lease for the facility in Knoxville. The owner of the
Knoxville property initiated a lawsuit in federal court for non-payment of
the lease.
In December 1999, the Company leased a 70,089 square foot facility in Eagan,
Minnesota for its wholly owned subsidiary, Shoptropolis. The facility was
to be Shoptropolis' headquarters and would house administration offices,
purchasing, warehousing, shipping and receiving, and telephone call-centers,
for the television and Internet home-shopping operations. The lease terms
were eight (8) years expiring March 2008. The monthly lease installments
commenced March 2000, and were approximately $36,000, which included base
rental amount and building complex maintenance expense and real estate taxes.
The base annual rent increased by ten-percent the second year and by four-
percent in the fourth and seventh year. Monthly lease installments would also
increase if such operating expense and real estate taxes increased. ISAI had
guaranteed the lease payments under this lease. In July 2000 the landlord
terminated the lease as a result of ISAI's default for lack of monthly lease
payments as required. In July, the lessor seized the Company's lease deposits
in the amount of $170,000.
In August 2000 ISAI requested and the landlord agreed to the lease in its
entirety. Additional security payments were required as well as the payment of
the monthly rents on a current and timely basis. In addition, the reinstatement
of the lease provided the lessor the opportunity to exercise its stock warrants
and resell the stock for a minimum of Three Hundred Thousand Dollars
($300,000.00). The lessor agreed to return to the Company its $170,000 security
deposit net of one month's gross rent or approximately $39,500, which was held
by the lessor. The original agreement was further modified to limit the amount
of ISAI's tenant improvement costs to be paid by the lessor to $38,324.
In August 2000 ISAI paid the Landlord under terms of the restated lease
$74,739.54 for the combined July 2000 and August 2000 rent payments, and
$1,417.47 in respect of the amortized prorated monthly rental installment and
operating expenses for the month of March 2000. No other monies were paid to
the Landlord under the terms of the restated lease.
In December 2000 the landlord agreed to terminate the lease upon payment by
ISAI of $54,500.00 and satisfying a $27,430.35 construction lien on the
facility. ISAI has no further obligations under the terms of the lease at
December 31, 2000 and all monies paid for rent or leasehold improvements or
security deposits have been charged off as additional rent paid through
December 31, 2000.
Item 3. LEGAL PROCEEDINGS
The Company was a party to a lawsuit as a defendant dated June 27, 2000 and
received on August 30, 2000, in the State of Minnesota, County of Dakota,
District Court, First Judicial District, Case Type: Contract and Tort;
Plaintiffs, Investment Rarities Incorporated and Investment Rarities
International, Inc., as and for their Complaint against Defendants ISA
Internationale Inc., International Strategic Assets Inc., Ronald G. Wolfbauer,
Jr., John Doe and Roger Roe: First Claim--Wolfbauer and Doe misappropriation
of trade secrets; Second Claim--Wolfbauer and Doe breach of contract; Third
Claim--ISA Internationale Inc., Roe and International Strategic Assets Inc.
inducement to breach a duty; and, Fourth Claim--Defendants tortuous
interference with contractual relations. ISAI denied each and every matter,
allegation or thing except as may be admitted, qualified, or affirmatively
alleged in the Company's "Separate Answer of ISA Internationale Inc." dated
September 2000. In March 2001, the Company settled the suit by agreeing to pay
to the plaintiffs the sum of $12,000 and to issue the plaintiffs 1,500,000 of
the Company's par value $.0001 common shares. Accordingly, the Company included
$34,500 as accrued lawsuit settlement expense in its financial statements at
December 31, 2000.
The Knoxville property the Company leased was the subject of a legal
proceeding. The Company was in default of its lease agreement due
to it inability to pay its lease payments from July 2000 to present. In
fourth quarter 1999, the Company relocated its home-shopping network from
Tennessee to Minnesota. This property was sub-leased and ISAI has authorized
the owner of the Knoxville facility to collect the Company's sublease rental
installments and apply them toward the Company's arrears. The sublease rental
installments from October 2000 through July 2002 were paid to the owner of the
Knoxville facility. The Company satisfied the legal proceeding with the
payment of $50,000 for full and complete satisfaction of all claims and related
judgments for estimated liabilities related to the disposition of their
defendant position in this matter. The Lessor voided the lease.
In December 2002, the Company was sued by Merrill Communications, Inc. for
$11,943 plus legal costs to collect for past due invoices. This debt has been
recorded on the Company books as of December 31, 2002. Therefore the effect on
the Company's financial statements is not material.
Other than the above, the Company is not a party to any pending legal or
administrative proceeding, and is not aware of any threatened litigation or
administrative proceeding being considered against the Company. However, the
re-organization efforts of the Company at December 31, 2001 may not be to the
satisfaction of any or all of its creditors and accordingly, several lawsuits
may or could occur at any moment in the re-organization efforts of the Company.
The Company's property is not the subject of a pending legal proceeding, other
than that described above. 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
On March 29, 2001 by written action of a majority of its shareholders, the
Company sold its wholly owned subsidiary, ShoptropolisTV.com, Inc.
(Shoptropolis), for a cash sum of $1, the assumption of all debt of
Shoptropolis with the exception of $50,168 which was guaranteed by the
Company and the Company also agreed to issue 4,500,000 shares of its stock
with a value of $67,500 to satisfy Shoptropolis' creditors.
PART II
Item 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
A. Market, Holders and Dividends
The Company's Common Stock has been traded publicly and quoted over-the-
counter on the NASD Electronic Bulletin Board under the symbol "ISAI" since
May 11, 1998. The following table sets forth the high and low closing bid
prices for the Company's Common Stock as reported by the OTC Bulletin Board.
These bid quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not represent actual transactions. Prior to
December 1999, there was only very limited trading activity in the Company's
common stock. As such, information provided regarding periods prior to
December 1999 is not an indication that an active market existed for the
Company's common stock during such periods. Further, there can be no
assurance that the current market for the Company's common stock will be
sustained or grow in the future.
High Low
1998
----
First Quarter (no transactions) $1.50 $1.50
Second Quarter $2.50 $1.50
Third Quarter $3.00 $1.50
Fourth Quarter $3.25 $1.50
1999
----
First Quarter $4.25 $3.25
Second Quarter $3.25 $0.375
Third Quarter $0.375 $0.25
Fourth Quarter $0.25 $0.22
2000
----
First Quarter $4.50 $0.937
Second Quarter $2.50 $0.343
Third Quarter $1.06 $0.156
Fourth Quarter $0.21 $0.031
2001
----
First Quarter $0.031 $0.015
Second Quarter $0.015 $0.015
Third Quarter $0.015 $0.012
Fourth Quarter $0.012 $0.012
2002
----
First Quarter $0.010 $0.010
Second Quarter $0.010 $0.010
Third Quarter $0.010 $0.006
Fourth Quarter $0.006 $0.006
As of March 31, 2003, there were approximately 203 beneficial owners and
approximately 291 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. The Company has
provided for a preferred stock dividend that is derived from the beneficial
conversion features contained in the preferred stock issuance in November,
2000. This was not done as the preferred stock conversion feature was only for
debt. To date, the Company has incurred losses and presently expects to retain
its future earnings to finance development and expansion of its business.
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.
B. Recent Sales of Unregistered Securities
The following information includes all securities sold by the Company since
its inception in October 1997:
B.1 Incident to the founding and organization of the Company in late 1997, the
founders of the Company (which included all current directors of the Company)
and certain persons associated with them received a total of 10,824,000 shares
of common stock of the Company based on $.01 per share of value, a total of
$108,240, either for services rendered or settlement of accounts payable
involved with the organization of the Company; and they also received 5-year
warrants to purchase a total of 2,884,000 common shares of the Company
exercisable at $1.00 per share. Exemption for this transaction is claimed
under Section 4(2) of the Securities Act of 1933 since the founding of the
Company was a strictly private transaction not involving a public offering and
all of such founders and their associates acquired the common stock for long-
term investment and all stock certificates were legended to prevent further
distribution thereof unless registered or satisfying an exemption from
registration.
B.2 From November 1997 to June 1998, the Company sold a total of 1,579,535
Units at a purchase price of $.6536 per Unit, a total amount of $1,032,376, to
a limited number of 16 investors (most of whom are accredited investors) in a
private placement, with each Unit consisting of one share of Common Stock of
the Company and a five-year warrant to purchase two shares of Common Stock
exercisable at $1.00 per share. Exemption for this transaction is claimed
under Section 4(2) of the Securities Act of 1933 since it was strictly a
private placement whereby all investors agreed to accept the Units for long-
term investment and to have the certificates therefore legended to prevent
further distribution or resale of the securities unless pursuant to
registration or an appropriate exemption there from. Two of these investors
were Mr. Durand, the Chief Executive Officer of the Company, who purchased
$10,000 of the Units, and Mr. Brodkorb, the Chief Financial Officer of the
Company, who purchased $16,340 of the Units.
B.3 In June 1998 the Company issued a total of 370,000 shares of its Common
Stock to four persons who contributed services to the Company based on $.25
per share. These issuances were as follows:
Person Providing Services Total Value Shares Issued
Of Services
-------------------------------------------------------------------------
Mid-America Venture Capital Fund, Inc. $62,500 250,000
Claude Jasper Yow $25,000 100,000
Roger Garmann $ 2,500 10,000
Darrell Bearson $ 2,500 10,000
Messrs. Garmann and Bearson also received five-year warrants to purchase
10,000 shares of Common Stock apiece exercisable at $1.00 per share. These
were all isolated private transactions with exemptions from registration
claims under Section 4(2) of the Securities Act of 1933, and all stock
certificates were legended to prevent further distribution unless registered
or satisfying an appropriate exemption from registration.
D. In December 1998 the Company issued 268,000 shares of its Common Stock to
Richard Meyers Family Trust, an accredited investor, in a private sale at $.75
per share, total consideration of $201,000. This was an isolated private
transaction and exemption from registration is claimed under Section 4(2) of
the Securities Act of 1933, with the stock certificate being legended to
prevent further disposition without registration or an appropriate exemption
there from.
E. In January 1999 the Company reduced the exercise price of its outstanding
warrants which were sold as part of the Unit private placement in 1998 to $.50
per share from its original $1.00 per share until the end of February 1999.
Incident thereto, in January-February 1999 the Company issued a total of
2,342,080 shares of its Common Stock to certain warrant holders exercising
their warrants at the reduced price of $.50 per share. Consideration received
by the Company for these warrant exercises consisted of $528,202 in cash and
$642,838 in gold bullion and coins. Exemption from registration is claimed
under Section 4(2) of the Securities Act of 1933 since these were private
transactions with existing shareholders not involved in a public offering, and
they accepted their common shares for long-term investment and the
certificates therefore were legended with a restrictive legend preventing
further distribution or resale unless registered or satisfying an appropriate
exemption from registration.
F. From September 1999 through February 2000, the Company received aggregate
proceeds of $1,336,640 from the sale and issuance of unsecured convertible
debentures. The debentures are being offered and sold to accredited investors
pursuant to exemption from registration provided by Section 4(2) of the
Securities Act of 1933 and Rule 506 of Regulation D promulgated there under.
Each investor is required to complete and execute a subscription agreement
containing representations regarding accredited status and investment intent.
In addition, the certificates bear a legend restricting the transfer of the
debentures and the underlying shares of common stock.
G. From March 2000 through May 2000, the Company received aggregate proceeds
of $255,000 from the sale and issuance of unsecured convertible debentures.
The debentures are being offered and sold to accredited investors pursuant to
exemption from registration provided by Section 4(2) of the Securities Act of
1933 and Rule 506 of Regulation D promulgated there under. Each investor is
required to complete and execute a subscription agreement containing
representations regarding accredited status and investment intent. In
addition, the certificates bear a legend restricting the transfer of the
debentures and the underlying shares of common stock.
H. In May 2000 the Company sold its wholly owned subsidiary, International
Strategic Assets, Inc. (ISA), for a cash sum of $175,000. The $175,000
purchase price consisted of $75,000 for the purchase of approximately 43% of
the outstanding common stock of ISA and $100,000 paid in connection with the
subsequent redemption of the remaining 57% of the outstanding common stock of
ISA.
I. During the quarter ending June 30, 2000, the Company had one option
exercise for 5,000 shares of common stock for $6,850.
J. From July 2000 through October 2000, the Company sold a total of 902,857
shares of its Common Stock: 200,000 shares at a purchase price of $0.10 per
share, 299,999 shares at a purchase price of $0.15 per share, and 385,000
shares at a purchase price of $0.20 per share and 17,858 at a purchase price
of $.28 per share, for a total amount of $148,1000, to a limited number of 19
investors (most of whom are accredited investors) in a private placement. In
December, these investors were granted price concessions in the purchase of
their original shares wherein all of the common share purchases were re-priced
to $.06 per share and the Company is issuing an additional 1,547,142 common
shares, par value $.0001. Exemption for this transaction is claimed under
Section 4(2) of the Securities Act of 1933 since it was strictly a private
placement whereby all investors agreed to accept the shares for long-term
investment and to have the certificates therefore legended to prevent further
distribution or resale of the securities unless pursuant to registration or an
appropriate exemption there from.
K. In November 2000 the Company issued 5,000,000 shares of its Preferred
Stock to Doubletree Capital Partners, Inc., a Minnesota Corporation, in a
private sale at $0.0002 per share, total consideration of $1,000, and,
2,999,999 shares of its Common Stock to Doubletree Capital Partners, Inc., in
a private sale at $0.0097 per share, total consideration of $29,000. The
preferred stock is convertible into common shares at a conversion rate of 3.5
common shares for each preferred share being converted. Furthermore, there is
an anti-dilution provision clause in the preferred shares that states upon
exercise, the preferred shares will ultimately convert into no less than a 75%
ownership of the then common shares to be outstanding. The timing of the
conversion is at the discretion of the holder. This was an isolated private
transaction and exemption from registration is claimed under Section 4(2) of
the Securities Act of 1933, with the stock certificate being legended to
prevent further disposition without registration or an appropriate exemption
there from.
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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 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
Through its two wholly-owned subsidiary Minnesota corporations,
ShoptropolisTV.com, Inc. (f/k/a Internationale Shopping Alliance, Inc.) and
International Strategic Assets, Inc., ISA was engaged in two distinct
businesses: (1.) the development of a multimedia home shopping network
primarily for the purpose of generating direct retail sales of varied products
from TV viewers and Internet shoppers, and (2.) direct sales via outbound
telemarketing of precious metals consisting mainly of gold and silver coins
and bars.
ISAI was incorporated in Delaware in 1989 under a former name, and was
inactive operationally for some time prior to its May 1998 recapitalization
through a merger with Shoptropolis, which is now a wholly owned subsidiary of
ISAI. ISAI acquired its home shopping network business through such merger,
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 merger was effected as a reverse
merger for financial statement and operational purposes, and accordingly, ISA
regards its inception as being the incorporation of ShoptropolisTV.com, Inc.
on October 7, 1997.
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. in
May 2000.
ISAI's primary business strategy was its development of ShoptropolisTV.com,
Inc., 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.
Given, that on May 19, 2000, ISAI sold ISA, and in December, 2000, the Board of
Directors agreed to discontinue the operations of Shoptroplis. , ISAI's
present strategy is the restructuring of its financial affairs. These segments
have been accounted for as discontinued operations at December 31, 2001 and
December 31, 2000 and historical amounts have been restated to reflect the
operations of these two subsidiaries as discontinued operations.
Results of Operations for the Years ended December 31, 2002 and 2001.
Sales and Gross Profit.
As a result of the discontinuance of its two business segments, no sales were
recorded for the year ended December 31, 2002 and 2001 for the parent company.
Operating and Interest Expenses.
Operating and interest expenses not included in discontinued operations were
general and administrative expenses for the parent company and interest
expenses related to debenture debt. General and administrative expenses were
$75,500 for the year ended December 31, 2002 and $165,705 for the year ended
December 31, 2001. The expenses were principally for office, occupancy,
telephone and office and officer salary costs. Interest expenses decreased to
$88,021 in the year ended December 31, 2002 from $163,542 in the year ended
December 31, 2001. The decrease is primarily the result of the conversion of
convertible debentures to equity. The Company recorded a gain of $41,702 for
the settlement of lawsuit related to it's real estate lease in Knoxville and
$28,947 from a reduction in an accounts payable for an aggregate of $70,649
classified as other income. At this time the Company has no anticipation as to
its operating expenses in future periods as it is continues its reorganization
efforts. No current expenses are being incurred except interest, minimal
office, telephone and legal and professional expenses relating to the re-
organization efforts and ultimate disposition of the Company.
Gains and Losses. Net income for the years ended December 31, 2002 and 2001
was $256,348 and $625,263 respectively. These gains are solely due to the
extraordinary gains from early extinguishments of debt the Company has
experienced due to the extensive reorganization efforts currently going on
inside the Company. If the reorganization efforts were not currently ongoing,
the Company would be incurring substantial losses due to its lack of
operations. There can be no assurance that the Company will ever again have
profitable operations.
Liquidity and Capital Resources
ISAI has obtained its capitalization primarily through the sale of its equity
securities to a limited group of private investors known to management of
ISAI. From the inception of ISAI in 1997 through December 31, 1997, ISAI
raised $400,000 in cash through the sale of its common stock with
accompanying warrants. In calendar year 1998, ISA raised an additional
$833,376 in cash through sales of common stock and common stock with
accompanying warrants. During a period from January through February 1999,
ISAI raised a total of $1,171,040 through the exercise of outstanding warrants
by existing shareholders, of which $528,702 was in cash and $642,838 was in
gold bullion and coins transferred to ISAI. Such gold bullion and coins were
immediately liquid to ISA, and were converted to cash. From September 1999
through February 2000, the Company raised $1,336,640 through the sale of
unsecured convertible debentures.
From March 2000 through May 2000, the Company raised $255,000 from the sale
unsecured convertible debentures. In May 2000 the Company sold its wholly
owned subsidiary, International Strategic Assets, Inc. (ISA), for a cash sum
of $175,000. The $175,000 purchase price consisted of $75,000 for the
purchase of approximately 43% of the outstanding common stock of ISA and
$100,000 paid in connection with the subsequent redemption of the remaining
57% of the outstanding common stock of ISA. During the quarter ending June
30, 2000, the Company had one option exercise for 5,000 common shares for
$6,850.
From July 2000 through October 2000, the Company sold a total of 902,857
shares of its Common Stock: 200,000 shares at a purchase price of $0.10 per
share, 299,999 shares at a purchase price of $0.15 per share, and 385,000
shares at a purchase price of $0.20 per share, and 17,858 shares at a purchase
price of $4,100 for a total amount of $148,100. In November 2000 the Company
sold 5,000,000 shares of its Preferred Stock at a purchase price of $0.0002
per share for total consideration of $1,000, and, 2,999,999 shares of its
Common Stock at a purchase price of $0.0097 per share for total consideration
of $29,000.
In the years ended December 31, 2002 and 2001 the Company raised $78,756 and
138,027 from convertible demand notes payable from a related investor.
As of December 31, 2002, the Company had current assets of $1,542 consisting
of cash only. At the same time, the Company had $920,199 in current
liabilities consisting of $194,135 in accounts payable, $2,000 in
accrued liabilities, subordinated debentures payable in default totaling
$265,000 in principal, convertible notes payable of $305,310, related interest
accruals of $153,754. Accordingly, the Company had a working capital deficit of
$918,657 at December 31, 2002.
The Company's current capital resources are not sufficient to supports its
development and operations. The Company is not able to continue the
development of its home shopping network and related website or commerce
operations. Additional capital will be necessary to support the ongoing
operation of the Company's general and administrative expenses and interest
expenses now currently due. The Company cannot continue its existence without
a full and complete re-organization effort of all of its financial affairs and
obligations.
The Company is not currently seeking any additional sources of debt or equity
financing other than additional convertible notes payable issued by a related
party. Until the re-organization process is completed, 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 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
consolidated financial statements for the years ended December 31, 2002 and
2001 include 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, if any, which
is available to offset any future operating profits. None of this benefit was
recorded in the accompanying financial statements as of December 31, 2002 and
2001. Federal tax laws impose significant restrictions on the utilization of
net operating loss carryforwards 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 carryforward will
be subject to the above limitations.
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.
Other Going Concern matters
One remaining officer is currently managing the Company. In addition, the
Company has suspended its development activities pending the resolution of
its financial matters.
The Company is in default under the terms of its obligation to make quarterly
interest payments of certain convertible 12% debentures issued between
September 1999 and June 2000. The debentures in default total $265,000 in
principal and $99,747 in related interest as of December 31, 2002. No interest
payments were ever made by the Company on the debentures. All of these
debentures were classified as current liabilities as of end of 2nd quarter of
2000. The Company converted $940,000 of principal and accrued interest in the
amount of $169,435 into 15,794,917 common shares of the Company at the rate of
$.07 per share during the year ended December 31, 2001. The Company also
converted during the year ended December 31, 2002 $386,640 in principal and
$112,247 in related interest into 9,977,750 shares of common stock at the rate
of $.05 per share. The Company is presently attempting to convert the remaining
debenture holders to common shares at $0.05 per share for total of principle
and accrued interest as of December 31, 2002 and up to the effective date of
conversion by the holders of the notes and the Company.
The Knoxville property the Company leased was the subject of a settled legal
proceeding. The Company was in default of its lease agreement due to its
inability to pay lease payments from July 2000 to July 2002. The Company no
longer needed the Knoxville Facility and ISAI authorized the owner of the
Knoxville facility to collect the Company's sublease rental installments and
apply them toward the Company's arrears. The sublease rental installments from
October 2000 through present have been paid to the owner of the Knoxville
facility. The Company has satisfied the default and the lessor voided ISAI's
lease.
Item 7. FINANCIAL STATEMENTS
The following financial statements of ISA Internationale Inc. and Independent
Auditors' Reports thereon are included herein:
TABLE OF CONTENTS Page
Independent Auditors' Reports------------------------------------20--21
Consolidated Balance Sheets as of December 31, 2002 and 2001 --------22
Consolidated Statements of Operations for the years ended
December 31, 2002 and 2001------------------------------------------23
Consolidated Statements of Cash Flows for the years ended
December 31, 2002 and 2001------------------------------------------24
Consolidated Statements of Shareholders' Equity (Deficit) for the
years ended December 31, 2002 and 2001.-----------------------------25
Notes to Consolidated Financial Statement----------------------------27
INDEPENDENT AUDITORS' REPORT
The Board of Directors
ISA Internationale, Inc.
St. Paul, MN
I have audited the accompanying consolidated balance sheet of ISA
Internationale, Inc. and Subsidiaries (the Company) as of December 31, 2002,
and the related consolidated statements of operations, stockholders' deficit,
and cash flows for the year then ended. These consolidated financial
statements are the responsibility of the Company's management. My
responsibility is to express an opinion on these consolidated financial
statements based on my audit.
I conducted my audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that I 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. I believe that my
audit provides a reasonable basis for my opinion.
In my opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of ISA
Internationale, Inc. and Subsidiaries as of December 31, 2002, and the results
of their operations and their cash flows for the year 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
from operations and has a net capital deficiency that 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.
George Brenner, C.P.A.
Los Angeles, CA
April 14, 2003
INDEPENDENT AUDITORS' REPORT
The Board of Directors
ISA Internationale, Inc.
We have audited the accompanying consolidated balance sheets of ISA
Internationale, Inc. and Subsidiaries (the Company) as of December 31, 2001
and 2000, and the related consolidated statements of operations, stockholders'
equity (deficit), 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 consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of ISA
Internationale, Inc. and Subsidiaries as of December 31, 2001 and 2000, and
the results of their operations and their 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
from operations and has a net capital deficiency that raises 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.
STIRTZ, BERNARDS, BOYDEN, SURDEL, & LARTER, PA.
Edina, MN
March 25,2002
ISA INTERNATIONALE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
ASSETS 2002 2001
---------- ----------
Current assets:
Cash $ 1,542 $ 872
---------- ----------
Total Assets $ 1,542 $ 872
========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Convertible debentures payable $ 265,000 $ 651,640
Convertible demand notes payable 305,310 226,554
Accrued interest 153,754 177,980
Accounts payable - trade 20,135 46,668
Accounts payable - related party 130,000 85,000
Accounts payable - disposed business 44,000 135,701
Accrued liabilities 2,000 2,000
---------- ----------
Total current liabilities 920,199 1,325,543
---------- ----------
Stockholders' deficit:
Preferred stock, $.0001 par value
5,000,000 shares authorized,
5,000,000 shares issued and outstanding 500 500
Common stock, $.0001 par value, 300,000,000
shares authorized; 52,203,196 and 42,225,463
shares issued and outstanding at December 31,
2002 and 2001 respectively 5,220 4,222
Additional paid-in capital 4,981,254 4,832,586
Accumulated deficit (5,905,631) (6,161,979)
---------- ----------
Total Stockholders' deficit (918,657) (1,324,671)
---------- ----------
Total Liabilities and Stockholders' deficit $ 1,542 $ 872
========== ==========
See notes to consolidated financial statements.
ISA INTERNATIONALE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
2002 2001
--------- ---------
Operating expenses
General & administrative 75,500 165,705
--------- ---------
Operating loss (75,500) (165,705
Other income (expense):
Interest expense (88,021) (163,542)
Interest income 251
Other income (expense) 70,649
----------------------------
Net loss from continuing operations (92,872) (328,996)
Discontinued operations:
Loss from operations of
discontinued operations -- (43,895)
Gain on disposal of business
operations -- 212,751
----------------------------
Loss before extraordinary item (92,872) (160,140)
Extraordinary item, gain on early
extinguishment of debt 349,020 785,403
----------------------------
Net income (loss) $ 256,348 $ 625,263
============================
Net income (loss) available to
common shareholders $ 256,348 $ 625,263
============================
Basic earnings (loss) per share:
Continuing operations $ (0.00) $ (0.01)
Discontinued operations -- 0.01
Extraordinary gain 0.01 0.02
-----------------------------
Total net earnings (loss) per share 0.01 0.02
=============================
Average shares of common stock outstanding:
Basic and fully diluted 47,214,330 35,203,792
=============================
Dividends per share of common stock none none
=============================
See notes to consolidated financial statements.
ISA INTERNATIONALE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
YEARS ENDED DECEMBER 31,
2002 2001
--------------------------
Cash Flows From Operating Activities:
Loss from continuing operations $ (92,872) $ (328,996)
Adjustments to reconcile net loss
from continuing operations to cash
from operating activities:
Negotiated settlement disposed business (41,702) --
Interest expense from the intrinsic value
of beneficial conversion features issued
along with convertible debt -- 2,875
Common stock issued to settle accounts payable
and accrued liabilities -- 90,000
Common stock issued for services rendered -- 1,400
Accounts payable (26,533) 39,319
Accrued expenses 45,000 --
Accrued interest 88,021 160,667
Accrued liabilities of disposed business (50,000) (104,000)
-------------------------
Cash used by continuing operations (78,086) (138,735)
-------------------------
Cash Flows From Financing Activities:
Proceeds from issuance of convertible debt 78,756 138,027
-------------------------
Cash flows from financing activities 78,756 138,027
--------------------------
Increase (decrease) in cash and cash equivalents 670 (708)
Cash and cash equivalents, beginning of year 872 1,580
--------------------------
Cash and cash equivalents, end of year $ 1,542 $ 872
==========================
See notes to consolidated financial statements
ISA INTERNATIONALE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
YEARS ENDED DECEMBER 31, 2002 AND 2001
Preferred Stock Common Stock Additional
Number of Par Number of Par Paid-in Accumulated
Shares Value Shares Value Capital Deficit Total
-------------------------------------------------------------------------------------------------
Balance Dec. 31, 2000 5,000,000 $ 500 20,337,213 $2,034 4,402,689 $(6,787,242) $(2,382,019)
Issuance of common stock
for settlement of
convertible debentures
and accrued interest thereon -- 15,794,917 1,579 336,231 -- 337,810
Intrinsic value of
conversion feature on
issuance of convertible
demand notes
payable -- -- -- -- 2,875 -- 2,875
Issuance of common stock
for settlement of
accrued liabilities -- -- 6,000,000 600 89,400 -- 90,000
Issuance of common stock
for services -- -- 93,333 9 1,391 -- 1,400
Net income -- -- -- -- -- 625,263 625,263
--------------------------------------------------------------------------------
Balance Dec. 31, 2001 5,000,000 $ 500 42,225,463 $4,222 $4,832,586 $(6,161,979)$(1,324,671)
Issuance of common stock
for settlement of
convertible debentures
and accrued interest thereon -- 9,977,733 998 148,668 -- 149,668
Net income -- -- -- -- -- 256,348 256,348
--------------------------------------------------------------------------------
Balance Dec. 31, 2002 5,000,000 $ 500 52,203,196 $5,220 $4,981,254 $(5,905,631) $(918,657)
=====================================================================================================
See notes to consolidated financial statements
ISA INTERNATIONALE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002 AND 2001
1.) NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
1.a) NATURE OF BUSINESS
ISA Internationale Inc. (the Company) 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 (ISA), a Delaware corporation, pursuant to a merger
agreement dated April 23, 1998. Upon consummation of the merger of
Internationale with ISA, Internationale became a wholly owned subsidiary of ISA.
During 2000, the Company sold its International Strategic Assets, Inc.
subsidiary and discontinued the operations of its ShoptropolisTV.com
subsidiary. The Company is currently reorganizing its financial affairs.
1.b) BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All significant inter-company transactions and
accounts have been eliminated in consolidation.
1.c) USE OF ESTIMATES
The preparation of the financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenue
and expenses during the reporting period. Actual results could differ from
those estimates.
1.d) DEBT ISSUANCE COSTS
Original issuance discounts and beneficial conversion features associated with
debt issuances are recorded as an adjustment to interest expense over the term
of the debt or vesting period of the conversion feature, using the effective-
interest method.
1.e) PROPERTY AND EQUIPMENT
Property and equipment were carried at cost. Depreciation was computed over the
estimated useful lives, generally three to seven years. The cost of maintenance
and repairs was expensed as incurred, and significant renewals and betterments
were capitalized. Depreciation expense amounted to $0 and $13,184 for the years
ended December 31, 2002 and 2001, respectively.
1.f) LONG-LIVED ASSETS
The Company reviews its long-lived assets and certain identifiable
intangibles for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of
the carrying amount of an asset to future net cash flows expected to be
generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or fair value
less costs to sell.
1.g) REVENUE RECOGNITION
Revenues from product sales were recognized upon shipment. Revenues for
precious metals sales were recognized on a trade-date basis.
1.h) ADVERTISING COSTS
Advertising costs were expensed as incurred. No advertising expenses were
incurred for 2002 and 2001.
1.i) 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 2002 and 2001, all potentially
issuable shares have been excluded from the calculation of loss per share, as
their effect is anti-dilutive.
1.j) 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.k) STOCK-BASED COMPENSATION
The Company has adopted the intrinsic-value method for determining the amount
of compensation to be recorded for employee stock grants and the fair value
method for determining the amount of compensation to be recorded for non-
employee grants. Pro forma disclosures of net loss and loss per share are
presented as if the fair value-based method had been applied in measuring
compensation cost for employee stock grants (note 5).
1.ll) SEGMENTS OF A BUSINESS
The Company operated in two segments: 1) the development of a multi-media home
shopping network and 2) direct sales via outbound telemarketing of precious
metals, both of which were discontinued during 2001 and 2000.
1.m) 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 approximates fair value due to the
short-term nature of the obligations.
1.n) NEW ACCOUNTING PRONOUNCEMENTS
During 1998, the Financial Accounting Standards Board (FASB) issued SFAS No.
133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, which
establishes new standards for recognizing all derivatives as either assets or
liabilities and measuring those instruments at fair value. SFAS No. 137,
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES DEFERRAL OF THE
EFFECTIVE DATE Of FASB STATEMENT NO. 133, changed the effective date to fiscal
years beginning after June 15, 2000. SFAS 138 issued in June 2000 amended
certain aspects of SFAS 133. The Company will be required to adopt the new
standard beginning with the first quarter of fiscal 2001. The impact of
adoption on the Company's financial statements is not material.
In June 2001, the FASB issued SFAS No. 141 "BUSINESS COMBINATIONS", SFAS No. 142
"GOODWILL AND OTHER INTANGIBLE ASSETS", and SFAS No. 143 "ACCOUNTING FOR ASSET
RETIREMENT OBLIGATIONS." In August 2001, the FASB issued SFAS No. 144
"ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS." These
pronouncements established new standards for accounting for business
combinations, goodwill, and other intangible assets, retirement obligations and
impairment or disposal of long-lived assets. SFAS No. 141 has an effective date
for business combinations initiated after June 30, 2001. SFAS No. 142 and SFAS
No. 143 have an effective date for fiscal years beginning after June 15, 2002.
The impact of adoption of these standards on the Company's financial statements
is not material.
(2.) LIQUIDITY AND GOING CONCERN MATTERS
The Company has incurred losses since its inception and, as a result, has an
accumulated deficit of $5,905,631 at December 31, 2002. Losses from continuing
operations were $92,872 and $328,996 for the years ended December 31, 2002 and
2001 respectivelyIncome for the year ended December 31, 2002
During 2000, the Company sold its International Strategic Assets, Inc.
subsidiary and shut down its ShoptropolisTV.com, Inc. subsidiary. The Company
does not have an operating business at December 31, 2002. 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 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 plans to re-
organize its financial affairs by negotiating with creditors to restructure
and convert debt to equity and actively seek new business opportunities. There
can be no assurance that 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 carryforwards in the
accompanying consolidated 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:
2002 2001
-------- --------
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 as of December 31,2002 is presented below:
2002 2001
-------- --------
Deferred tax assets:
Net operating loss carryforward $2,040,000 $2,083,000
Start up costs 6,000 9,000
Other 8,000 12,000
--------- ---------
Total gross deferred tax assets 2,054,000 2,104,000
Valuation allowance (2,054,000) (2,104,000)
--------- ---------
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
December 31, 2002 and 2001.
As of December 31, 2002, the Company has reported net operating loss
carryforwards of approximately $5,396,000. The federal net operating loss
carryforwards begin to expire in the year 2011.
Federal tax laws impose significant restrictions on the utilization of net
operating loss carryforwards 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 carryforward will
be subject to the above limitations.
(4.) CONTINGENCIES AND COMMITMENTS
a) LEASE COMMITMENTS
As of December 31, 2002 the Company does not have contractual lease agreements
and has no liabilities there under. lease The Knoxville property the Company
leased was the subject of a settled legal proceeding. The Company was in
default of its lease agreement due to its inability to pay lease payments from
July 2000 to July 2002. The Company no longer needed the Knoxville Facility
and ISAI authorized the owner of the Knoxville facility to collect the
Company's sublease rental installments and apply them toward the Company's
arrears. The sublease rental installments from October 2000 through present
have been paid to the owner of the Knoxville facility. The Company has
satisfied the default and the lessor voided ISAI's lease. There was no rent
expense for the years 2002 and 2001.
(5.) EQUITY
a) PREFERRED STOCK
The preferred stock may be issued from time to time in one or more series.
Each series is to be distinctly designated. All shares of any series of the
preferred stock shall be alike in all rights, except for different dates. Each
series will identify the rights to preference in liquidations, voting rights,
dividend and other powers, qualifications, or restrictions.
During 2000, the Company issued 5,000,000 shares of preferred stock with
voting rights equivalent to the number of shares of common stock the
shareholder would be entitled to under the conversion feature of the stock.
The conversion feature allows the shareholder to convert to the greater of
17,500,000 shares or 75% of the issued and committed to be issued common
stock. The issuance of this stock included a beneficial conversion feature
with intrinsic value resulting from the market value of common stock the
shareholder would receive upon conversion of the stock. The beneficial
conversion feature amounted to $937,000, which was greater than the proceeds
of the preferred stock issuance by $936,000. This beneficial conversion
feature is immediately recognized as a preferred stock dividend because the
right to convert to common stock is vested upon issuance of the preferred
stock. Accordingly, preferred stock dividends for the year ended December 31,
2000 include $1,000 related to the beneficial conversion feature.
b) Common Stock
During the year ended December 31, 2002, the Company issued 9,977,733 shares of
common stock to restructure convertible debt. The Company issued 15,794,917
shares of common stock during the year ended December 31, 2001, as part of a
troubled debt restructuring to satisfy $1,105,644 in principal and accrued
interest on convertible debentures (see Note 6). This transaction resulted in a
gain on early extinguishments of debt amounting to $767,834. As well, the
Company issued 1,500,000 shares to satisfy an accrued liability, 93,333 shares
for services, and 4,500,000 shares to satisfy creditors of a disposed business
segment.
c) WARRANTS
Between October 1997 and April 2000, the Company issued warrants, exercisable
over 5 years, to purchase 6,513,070 shares of common stock at $1.00 per share.
These warrants were issued as part of common stock transactions. In December
1998, 553,000 warrants were canceled as part of a common stock redemption.
In February 1999, the Company agreed to change the price warrant-holders could
exercise warrants to purchase common stock, for a temporary period from $1.00
per share to $.50 per share. In connection with this offer, 2,342,080 warrants
to purchase common stock were exercised for $528,202 in cash and $642,838 in
gold bullion and coins.
In connection with the commencement of an operating lease entered into in 2000
and the provision of services in 2000, the Company issued warrants to acquire
115,000 shares of common stock at $1.00 per share.
The per share weighted average fair values of stock warrants granted was $1.43
in 2000. No warrants were granted in 2002 and 2001. The fair value of warrants
at the date of grant was estimated using the Black Scholes option pricing
model. The following weighted average assumptions were used in the calculation:
Assumptions 2000
----------------------------------------- ----
Expected dividend yield 0%
----------------------------------------- ----
Expected volatility 30%
----------------------------------------- ----
Risk-free interest rates 6%
----------------------------------------- ----
Expected life (in years) 5
The Company applies APB Opinion No. 25 in accounting for the compensation
costs of employee stock warrants in the financial statements. No warrants were
issued to employees in 2002 and 2001. Therefore pro forma net loss is the same
as reported net loss.
The following table contains information about stock warrants:
Stock Warrants Shares Warrant Price
----------------------------------------- ----------------- -----------
Outstanding at December 31, 1999 3,617,990 1.00
----------------------------------------- ------------------ ------
Granted 115,000 1.00
----------------------------------------- ------------------ ------
Exercised 0 0
----------------------------------------- ------------------ ------
Expired or cancelled 0 0
----------------------------------------- ------------------ ------
Outstanding at December 31, 2000 3,732,990 1.00
----------------------------------------- ------------------ ------
Granted 0 0
----------------------------------------- ------------------ ------
Exercised 0 0
----------------------------------------- ------------------ ------
Expired or cancelled 0 0
----------------------------------------- ------------------ ------
Outstanding at December 31, 2001 3,732,990 1.00
----------------------------------------- ------------------ ------
Stock Warrants Shares Warrant Price
----------------------------------------- ----------------- -----------
Granted 0 0
----------------------------------------- ------------------ ------
Exercised 0 0
----------------------------------------- ------------------ ------
Expired or cancelled 0 0
----------------------------------------- ------------------ ------
Outstanding at December 31, 2002 3,732,990 1.00
----------------------------------------- ------------------ ------
Warrants exercisable at:
----------------------------------------- ------------------ ------
December 31, 2000 3,732,990 1.00
----------------------------------------- ------------------ ------
December 31, 2001 3,732,990 1.00
----------------------------------------- -------------------------
December 31, 2002 3,732,990 1.00
c) STOCK OPTIONS
During January and July 2000, the Company issued stock options to certain
employees. These options vest on the date of the grant and expire 5 years
from the grant date. The Company applies APB Opinion 25 in accounting for
these stock options. Due to the financial reorganization efforts of the
Company still ongoing, no compensation costs recorded for the intrinsic value
in stock options was recorded for the years ended December 31, 2002 and 2001.
Had the compensation cost been determined on the basis of fair value pursuant
to FASB Statement No. 123, net loss and loss per share would have been
impacted as follows:
2002 2001
Net income (loss)
As reported $ 256,348 $ 625,263
Pro forma $ 256,348 $ 625,263
Basic income (loss) per share
As reported (.01) (.02)
Pro forma (.01) (.02)
For the purposes of estimating the fair value of each option granted in
accordance with FASB 123, the Black-Scholes Model. The following weighted
average assumptions were used in the calculation:
Assumptions 2000
Expected dividend yield 0%
Expected Volatility 30%
Risk-free interest rate 6%
Expected life (in years) 5
Additional compensation expense that would have been charged to operations had
the provisions of FASB 123 been applied was $0 in 2002 and 2001, as no options
were issued or vested
The following table contains information about the Company's stock option
activity and status of options outstanding:
Weighted Average
Number of Exercise
Stock Options Shares Price
--------- --- ---------
Outstanding at December 31, 1999 - $.00
Granted 3,323,500 $.88
Exercised 5,000 1.37
Expired or cancelled - -
--------- ------
Outstanding at December 31, 2000 3,318,500 $.88
Granted - -
Exercised - -
Expired or cancelled - -
--------- -------
Outstanding at December 31, 2001 3,318,500 $.88
Granted - -
Exercised - -
Expired or cancelled - -
--------- -------
Outstanding at December 31, 2002 3,318,500 $.88
The following table summarizes information regarding stock options
outstanding at December 31, 2002:
Weighted
Range Number Average Weighted Number
Of Outstanding Remaining Average Exercisable
Exercise at Contractual Exercise at
Prices December 31 Life (Years) Price December 31
$1.17 1,100,000 2.02 $1.17 1,100,000
$1.37 168,500 2.03 $1.37 168,500
$ .69 2,050,000 2.56 $ .69 2,050,000
The weighted average estimated fair value of stock options granted during
2002 and 2001 was $0 and $0 per share respectively.
(6.) CONVERTIBLE DEBT
a) CONVERTIBLE DEBENTURES
The Company issued convertible debentures in a private placement between
November 1999 and May 2000. These debentures are 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 have 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 December 31, 2002 and 2001, the Company was in default on the payment of
quarterly interest on these debentures amounting to $99,747 and $156,866,
respectively.. Accordingly, the Company is in default of the terms of the
debenture and the convertible debentures have been classified as a current
liability.
b) CONVERTIBLE NOTES PAYABLE
The Company has issued convertible notes payable during the years ended
December 31, 2002 and 2001, to an entity owned by two of the Company's
stockholders. These notes are due on demand, bear interest at 12%, are secured
by the assets of the Company and are convertible at the option of the holder
into common stock at $.02 per share. The issuance of these notes included a
beneficial conversion feature with intrinsic value resulting from the market
value for common stock being greater than the option price. The beneficial
conversion feature amounted to $0 in 2002 and $2,875 in 2001. The
beneficial conversion feature was greater than the proceeds of the related
notes payable by $0 for the years ended December 31, 2002 and 2001,
respectively. The amount of the beneficial conversion feature not exceeding
the proceeds from the notes payable is immediately recognized as interest
expense because the right to convert to common stock is vested upon issuance
of the notes. Accordingly, interest expense included $0 and $2,875
related to the beneficial conversion feature for the years ended December 31,
2002 and 2001, respectively. Interest expense on these notes amounted to
$32,893 and 23,064 during the years ended December 31, 2002 and 2001
respectively. Accrued interest on these notes was $54,007 and $21,114 at
December 31, 2002 and 2001 respectively.
(7.) DISCONTINUED OPERATIONS
On December 11, 2000, the Board of Directors agreed to discontinue operations
of its subsidiary ShoptropolisTV.com, Inc. and put the subsidiary up for sale.
The subsidiary was disposed on March 29, 2001 by way of a sale to an entity
owned by two stockholders of the Company. The sale price was $1, the
assumption of all debt related to the operations of ShoptropolisTV.com, Inc.
except $50,168 which was guaranteed by the Company and the Company agreed to
issue 4,500,000 shares of its stock to the purchaser for the purpose of
settling with the ShoptropolisTV.com, Inc.'s creditors. The Company accrued a
liability on March 29, 2001 for the issuance of the shares amounting to $67,500
which reflected the fair market value of the stock. These shares were
subsequently issued in 2001. In conjunction with the discontinuance of
operations, the Company incurred gain on disposal of the segment of $168,856 in
2001 which included a loss on operations through March 29, 2001 of $43,895 and
a gain on the disposal of the subsidiary amounting to $212,751. Accordingly,
the net gain was recognized in the period in which the disposition took place.
The results of Shoptropolis operations have been reported separately as
discontinued operations in the Consolidated Statements of Operations.
The following is a summary of the net assets of ShoptropolisTV.com, Inc. at
March 29, 2001,
March 29,
2001
Non-current asset of discontinued operations
Fixed assets $209,703
========
Net current liabilities of discontinued operations
Cash $(163)
Accounts payable 443,098
Accrued liabilities 97,186
---------
$ 540,121
=========
The condensed results of the operations of ShoptropolisTV.com for the period
ended March 29, 2001 and the year ended December 31, 2000 are as follows:
2001
Operating expenses $ (43,895)
----------
Net loss $ (43,895)
===========
(8.) RELATED PARTY TRANSACTIONS
Convertible Notes Payable - See note 6 b.
The Company incurred expenditures with its president who is also a stockholder
for consulting services amounting to $45,000 and $55,000 in the years ended
December 31, 2002 and 2001 respectively.
(9.) SUPPLEMENTAL CASH FLOW INFORMATION
2002 2001
----------- ----------
Non-cash investing in financial transactions:
Gain on early extinguishments of debt:
Convertible debentures and accrued interest
liquidated upon settlement with creditors $498,887 $1,105,644
Issuance of common stock for settlement
with creditors (149,666) (337,810)
Forgiveness of accounts payable 41,702 17,569
--------- ---------
390,923 $ 785,403
========= =========
Discontinued operations:
Gain on disposal of business operations -- 212,751
Loss from operations of business segment -- (43,895)
Accounts payable and accrued liabilities of
discontinued segment assumed by the Company -- 117,667
--------- ---------
$ 286,523
========= =========
PART III
Item 8 Changes in and Disagreements with Accountants on Accounting
And Financial Disclosure
The Company changed accountants during 2002 and again in 2003 as reported on
Form 8-K. On April 9, 2003 the Company announced the engagement of George
Brenner, Certified Public Accountant, Los Angeles, CA, as their principal
certifying accountant. The decision to accept the engagement of George Brenner,
C.P.A. was approved by the Audit Committee of the Board of Directors on April
4, 2003. George Brenner, C.P.A. performed the annual audit and review of ISA
Internationale, Inc. financial statements for the three-month and year ending
December 31, 2002.
On April 10, 2003 the Company filed Form 8-K/A amending its' filing of April 9,
2003 to include as an exhibit, a letter to the SEC from their former
accountants informing the SEC of their dismissal as principal accountants. The
letter further states their agreement with the company's disclosure statements
in our Form 8-K filing on April 9, 2003 under item 4. Further, the Company's
amended filing clarified the dismissal date of their former accountants,
Beckstead and Watts, LLP effective April 9, 2003.
Beckstead and Watts, LLP, the previous principal accounting firm, was engaged
to perform the review for the quarter ending September 30, 2002. The company
filed a report on Form 8-K in November 2002 to announce the engagement of
Beckstead and Watts, LLP.
Stirtz, Bernards, et al., P.A., a prior principal accounting firm for ISA
Internationale, Inc., resigned on October 1, 2002 The Company filed two reports
on Form 8-K in October 2002 to confirm changes in principal accountants.
There were no disagreements with the accountants on matters of accounting and
financial disclosure in 2002. In connection with the audit of the fiscal year
ended December 31, 2002, and the subsequent interim period through April 14,
2003 there were no disagreements with the Company's principal accountants on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedures, which disagreements if not
resolved their satisfaction would have caused them to make reference in
connection with their opinion to the subject matter of the disagreement. The
Company believes that during the most recent calendar year and through April
14, 2003, there have been no reportable events (as defined in Regulation S-K
Item 304 (a)(1)(V)).
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 March 31, 2003, 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, 2001 through December 31, 2002, their
ages, the year first elected as an executive officer and/or director of the
Company, and employment for select persons for the past five years.
Director
Name Positions with the Company Age Since
Bernard L. Brodkorb, President, Chief Executive Officer,
Chief Financial Officer, and
Chairman of the Board of Directors [1] 62 January 2001
[1] (Note: Was Treasurer, Chief Financial Officer and Director from October
1997 to July 2000; was acting Chief Financial Officer from July 2000 to
February 2001.)
Roger G. Garmann Outside Director 64 August 2000
Donald G. Kampmann Outside Director 48 January 2001
James S. Dixon Outside Director 54 January 2001
Directors
BERNARD L. BRODKORB (October 1997 to July 2000; January 2000 to present) was
the Treasurer, Chief Financial Officer and a director of the Company since its
inception in October 1997. Mr. Brodkorb resigned as Treasurer, Chief
Financial Officer and Director July 2000; was acting Chief Financial Officer
from July 2000 to January 2001; was elected to the board of directors January
2001, elected by the board of directors as interim President, Chief Executive
Officer, and Chief Financial Officer on February 2001. Mr. Brodkorb is an
independent practicing 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.
ROGER G. GARMANN (August 2000 to present) is an outside director of the
Company from August 2000 to present. Mr. Garmann has a law enforcement
background and worked for ISAI's wholly owned subsidiary International
Strategic Assets, Inc.
DONALD G. KAMPMANN (January 2000 to present) is an outside director of the
Company from January 2000 to present. Mr. Kampmann is an allotted board
member by Doubletree Capital Partners, Inc. Mr. Kampmann is President of
Freeland Financial Services and Minneapolis Financial Center, a Minnesota
mortgage placement and service center for mortgage loans.
JAMES S. DIXON (January 2000 to present) is an outside director of the Company
from January 2000 to present. Mr. Dixon is an allotted board member by
Doubletree Capital Partners, Inc. Mr. Dixon is Vice President & Secretary of
West America Securities, Inc. of Scottsdale, Arizona.
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.
Following the effective date of the Company's Form 10-SB in November 1999, the
Company's officers, directors and 10% shareholders failed to file Initial
Statements of Beneficial Ownership on Form 3. In addition, Jeffrey Abrams and
John Bradley, executive officers of ShoptropolisTV.com, Inc., failed to file
reports on Form 4 to reflect the receipt of option grants for 500,000 shares
and 100,000 shares, respectively. In 2000, Jeffrey Abrams, John Bradley and
Alex Adamovich, executive officers of ShoptropolisTV.com, Inc., and Jack T.
Wallace, executive officer of ISAI, failed to file reports on Form 4 to reflect
the receipt of option grants for 1,500,000 shares, 100,000 shares, 100,000
shares and 1,000,000 shares, respectively; and Roger Garmann, director of
ISAI, failed to file Initial Statements of Beneficial Ownership on Form 3.
In 2001, Bernard Brodkorb and Doubletree Capital Partners, Inc. failed to file
initial statements of beneficial ownership due to the uncertain amount of
shares that will be due Doubletree Capital Partners, Inc. as a result of the
reorganization efforts of the company. In 2002 Bernard Brodkorb and Doubletree
Capital Partners, Inc. filed Statements of Beneficial Ownership on Form 3
Item 10. EXECUTIVE COMPENSATION
For the fiscal year ended December 31, 2002 there was no cash compensation paid
to executive officers.
Director Compensation
The Company's directors are not compensated for their services as directors of
the Company. In late 1997, the three directors of the Company at the time (Mr.
Durand, Mr. Brodkorb and Mr. Wolfbauer) were granted warrants to purchase a
total of 1,859,000 shares of common stock of the Company at an exercise price
of $1.00 per share over a five-year term, with Mr. Durand receiving warrants
to purchase 1,000,000 of the shares, Mr. Brodkorb receiving warrants to
purchase 400,000 of these shares, and Mr. Wolfbauer receiving warrants to
purchase 459,000 of these shares.
Stock Options
In January 2000 the Company granted non-qualified stock options to certain of
its officers, employees and consultants. In total, the Company granted
options to purchase an aggregate of 1,208,500 shares of common stock at an
exercise price of $1.17 per share and options to purchase 65,000 shares of
common stock at an exercise price of $1.37 per share. On June 14, 2000, the
Company corrected the error in the exercise price of 108,500 of the 1,208,500
stock options granted in January 2000 to certain of its officers, employees
and consultants. The correct price is $1.37 per share and not $1.17 per
share. The 1,100,000 stock options exercisable at $1.17 are fully vested on
the date of grant and have a term of five years commencing on the grant date.
The 173,500 stock options exercisable at $1.37 had employment termination
expiration clauses.
On July 24, 2000, the Company granted non-qualified stock options to certain
of its officers, employees and consultants. In total, the Company granted
options to purchase an aggregate of 2,050,000 shares of common stock at an
exercise price of $0.69 per share. Each of the stock options was fully vested
on the date of grant and has a term of five years commencing on the grant
date.
During the 2nd quarter of 2000 a total 5,000 stock options granted January
2000 at an exercise price of $1.37 expired, and a total 5,000 stock options
granted January 2000 at an exercise price of $1.37 were exercised for $6,850.
In August 2000 a total 107,500 stock options granted January 2000 at an
exercise price of $1.37 expired. In September 2000 a total 41,000 stock
options granted January 2000 at an exercise price of $1.37 expired. In
December 2000 a total 10,000 stock options granted January 2000 at an exercise
price of $1.37 expired.
During 2002 and 2001 no stock options were granted or exercised.
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of December 31, 2002, 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.
A. Security Ownership of Certain Beneficial Owners
Shares of Common Stock Percent of
Name and Address of Beneficial Owner Beneficially Owned Outstanding
-------------------------------------------------------------------------
Doubletree Capital Partners, Inc. (1) 38,465,850 43.38%
A Minnesota corporation
12201 Champlin Drive, Champlin, MN 55318
Gerald J. Durand (2) 4,810,600 5.42%
Faribault, MN.
Barbara McLean (3) 12,530,116 14.13%
Quincy, IL 62301
Michael G. W. Birch (4) 1,625,000 1.83%
Knoxville, TN.
Bernard L. Brodkorb (5) 20,882.925 23.43%
St. Paul, MN.
(1) Includes 17,500,000 shares which may be acquired upon conversion of
5,000,000 shares of Preferred Stock; includes 19,232,925 which may be acquired
upon Conversion of convertible loans payable at December 31, 2002.
(2) Includes warrants to purchase 1,030,600 shares exercisable at $1.00 per
share.
(3) Includes 257,333 shares that may be acquired upon conversion of
convertible debentures.
(4) Includes warrants to purchase 400,000 shares exercisable at $1.00 per
share.
(5) Includes warrants to purchase 450,000 shares exercisable at $1.00 per
share; includes 50 % beneficial interest in Doubletree Capital Partners
which would result in additional ownership shares of 20,882,925
B. Security Ownership of Management
Number of Common Stock Percent of
Name and Address of Beneficial Owner Beneficially Owned Outstanding
Bernard L. Brodkorb, Jr. (5) 20,882,925 23.43%
St. Paul, MN
Roger G. Garmann (6) 163,333 .18%
Lakeville, MN
Donald G. Kampman -0-
Prior Lake, MN.
James S. Dixon -0-
Scottsdale, AZ.
----------- -------
Directors and executive officers as a group 21,046,258 223.61%
(4 persons, including those named above)
(5) Includes warrants to purchase 450,000 shares exercisable at $1.00 per
share.
(6) Includes warrants to purchase 10,000 shares exercisable at $1.00 per
share.
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The promoters of the Company from the founding of the Company in October 1997
are Gerald J. Durand (October 1997 to December 2000), Bernard L. Brodkorb, Jr.
(October 1997 to July 2000, and January 2001 to present), Ronald G. Wolfbauer
(October 1997 to May 2000) and Michael G.W. Birch (October 1997 to December
1999) otherwise collectively known as the founders of the Company. Incident to
the founding and organization of the Company in October 1997, the promoters of
the Company received the following shares of common stock and related warrants
incident to services rendered by them regarding the founding and organization
of the Company. The services were valued on the basis of $.0001 per share. All
of these warrants have five-year terms and can be exercised anytime during
such term at a purchase price of $1.00 per share.
Name of Founder Common Shares Issued Common Shares
Exercisable by
Warrant
--------------------------------------------------------------------------
Gerald J. Durand 6,000,000 1,030,600
Bernard L. Brodkorb 1,750,000 400,000
Ronald G. Wolfbauer 459,000 459,000
Michael G.W. Birch 1,750,000 400,000
In January 1999, the Company redeemed a total of 1,650,000 shares of its
common stock from Mr. Gerald J Durand, Mr. Bernard L. Brodkorb and Mr. Michael
G. W. Birch as follows. Such shares were returned to the Company and
contributed to the capital stock account of the Company for no consideration.
Name Number of Shares Redeemed
Gerald J. Durand 600,000
Bernard L. Brodkorb 525,000
Michael G.W. Birch 525,000
In February 1999, Barbara McLean exercised warrants to purchase 1,530,000
shares of common stock of the Company for $.50 per share, or total
consideration of $765,000. Ms. McLean exercised these warrants in connection
with an offer by the Company to all warrant holders to reduce the exercise
price from $1.00 to $.50 for a temporary period. In total, warrants to
purchase 2,342,080 shares of common stock were exercised for $528,202 in cash
and $642,838 in gold bullion and coins.
In June 2002, Barbara McLean was issued 9,977,733 shares of common stock in
exchange for convertible debt of $498,887 in principal and accrued interest
Item 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) LISTING OF EXHIBITS
The exhibits required to be a part of this report are listed in the Index to
Exhibits on page 47.
(b) REPORTS ON FORM 8-K
On October 3, 2002, the Company filed form 8-K to confirm that the relationship
with its' auditor Stirz, Bernards, Boyden, Sturdel, and Larter, P.A. had ceased.
On October 15, 2002 the Company filed Form 8-KA to amend Form 8-K filed on
October 3, 2002, correcting two issues.
On November 5, 2002 the Company filed Form 8-K to announce the engagement of
Beckstead and Watts, LLP, as their principal accounting firm for the period
ended September 30, 2002.
On April 9, 2003 the Company filed Form 8-K to announce the engagement of
George Brenner, C.P.A., as their principal accounting firm for the Period
Ended December 31, 2002.
On April 10, 2003 the Company filed Form 8-K/A to clarify the dismissal date of
their former accounting firm.
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.
By: ____________________ Date
/s/Bernard L. Brodkorb April 14, 2003
President, CEO CFO (interim)
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Signature Title Date
/s/ Bernard L. Brodkorb, President, Chief Executive April 14, 2003
By: Bernard L. Brodkorb Officer, Chief Financial
Officer, and Director
/s/ Roger G. Garmann Director April 14, 2003
By: Roger G. Garmann
/s/ Donald G. Kampmann Director April 14, 2003
By: Donald G. Kampmann
/s/ James S. Dixon Director April 14, 2003
By: James S. Dixon
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of ISA Internationale, Inc., (the
"Company") of Form 10-KSB for the period ending December 30, 2002, as filed
with the Securities and Exchange Commission on the date hereof (the "Report"),
I, Bernard L. Brodkorb, Chief Executive Officer of the Company, certify,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the
Sarbanes-Oxley Act of 2002, that to the best of my knowledge and belief:
(1.) the report fully complies with the requirements of Section 13(a) or 15 (d)
of the Securities Exchange Act of 1934; and
(2.) the information contained in the Report fairly presents, in all material
respects, the financial condition and result of operations of the Company.
/s/ Bernard L. Brodkorb
By: Bernard L. Brodkorb
President, Chief Executive Officer, and Chief Financial Officer
Date: April 30, 2003
ISA INTERNATIONALE INC.
FORM 10-KSB
INDEX TO EXHIBITS
All of the following are included in our Form 10-SB Registration Statement
(File No. 0-027373) and are incorporated by reference.
Item No. Description
3.1 Articles of Incorporation of the Company (incorporated by reference
to Exhibit 2(i) to the Company's registration statement on Form 10-SB (File
No. 0-27373)).
3.2 By-laws of the Company (incorporated by reference to Exhibit 2(ii) to
the Company's registration statement on Form 10-SB (File No. 0-27373)).
4.1 Form of Common Stock Certificate (incorporated by reference to
Exhibit 3 to the Company's Registration Statement on Form 10-SB (File No. 0-
27373)).
10.1 Agreement and Plan of Business Combination dated April 11, 1998
between ISA Internationale Inc. (formerly known as 1-800 Consumer
International Inc.), a Delaware corporation and Internationale Shopping
Alliance, Inc., a Minnesota corporation (now a wholly owned subsidiary of ISA
Internationale Inc. (incorporated by reference to Exhibit 6(i) to the
Company's registration statement on Form 10-SB (File No. 0-27373)).
1