UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal year ended September 30, 2005.
Commission File Number: 001-16423
Old Commission File Number: 000-27373
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ISA INTERNATIONALE INC.
(Exact name of registrant as specified in its charter)
Delaware 41-1925647
(State of Incorporation) (I.R.S. Employer Identification No.)
2560 Rice Street, St. Paul, MN 55113
(Mailing address of principal executive offices) (Zip Code)
Issuer's telephone number (651) 483-3114
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Securities registered pursuant to Section 12(b) of the Act:
(Title of each class) (Name of each exchange on which registered)
None Not applicable
Securities registered pursuant to Section 12(g) of the Exchange Act:
(Title of each class) (Name of each exchange on which registered)
Common Stock, $.0001 par value OTC Bulletin Board
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 in response to Item
405 of Regulation S-B is not contained in this form, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in the Exchange Act Rule 12d-2).
Yes [ ] No [X]
State issuer's revenues for its most recent fiscal year:
None for continuing operations.
State the aggregate market value of the voting and non-voting common stock held
by non-affiliates of the Registrant computed by reference to the price at which
the common stock was sold, or the average bid and asked price of such common
stock, as of a specified date within the past 60 days (See definition of
affiliate in Rule 12b-2 of the Exchange Act):
$1,346,029 as of January 13, 2006, based upon the average bid price of $.90 as
defined in the prior paragraph.
State the number of shares outstanding of each of the Issuer's classes of
common equity and preferred equity as of the latest practicable date:
The number of shares outstanding of the issuer's common stock as of January 13,
2006 were 3,956,880 shares, $.0001 par value.
On September 30, 2005, there were 3,948,000 shares of the Registrant's common
stock, par value $.0001 per share, outstanding, excluding 8,880 common shares
not yet issued and due and recorded as common stock payable at September 30,
2005 and 5,000,000 shares of convertible preferred stock, par value $.0001 per
share issued and outstanding. The preferred stock was convertible into common
shares (pre-split) at a conversion rate of 3.5 common shares for each preferred
share being converted. After giving effect to the reverse stock split that was
effective January 22, 2004, the preferred stock is now convertible into shares
at a convertible rate of .025 common shares for every preferred share being
converted, however, the preferred shares also contain an anti-dilution
provision clause 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. As a result of the shares issued as of September 30, 2005
and computed on a post-split basis, the preferred shares upon conversion would
convert into no less than 12,910,508 additional common shares.
The timing of the conversion is at the discretion of the holder.
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act) Yes [ } No [X]
Transitional Small Business Disclosure Format: Yes [ ] No [x]
DOCUMENTS INCORPORATED BY REFERENCE:
NONE
ISA INTERNATIONALE INC.
FORM 10-KSB
TABLE OF CONTENTS
Page
PART I
Item 1. Description of Business 4
Item 1.1 Corporate History, Organization and Recapitalization 4-5
Item 1.2 Personnel 6
Item 1-A Important Factors 6-13
Item 2. Description of Property 13-14
Item 3. Legal Proceedings 14
Item 4. Submission of Matters to a Vote of Security Holders 15
PART II
Item 5. Market for Common Equity and Related Stockholder Matters 15
Item 5-A Market, Holders and Dividends 15
Item 5-B Sales History of Unregistered Securities 16-19
Item 6. Management's Discussion and Analysis or plan of operation 19-23
Item 7. Financial Statements and Supplementary Data 23
Table of Contents 24
Reports of Independent Registered Public Accounting Firms 25-26
Consolidated Financial Statements 27-30
Notes to Consolidated Financial Statements 31-44
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 44-45
Item 8.a. Controls and Procedures 45
Item 8.b. Exhibits and Reports on Form 8-K 46
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act 49-50
Item 10. Executive and Director Compensation 51
Item 11. Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters 52
Item 12. Certain Relationships and Related Transactions 53
Item 13. Principal Accountant Fees and Services 54
Signatures 55
Certification pursuant to section 302 56
Certification pursuant to 18 U.S.C. 1350 906 57
Index to Exhibits, Form 10-KSB 58
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" or "ISAT", the trading symbol of the Company
and the "Company" refer to ISA Internationale Inc. unless the context indicates
otherwise.
1.1. Corporate History, Organization and Recapitalization
ISA Internationale Inc. (the Company or ISAI) was incorporated in Delaware in
1989 under a former name, and was inactive operationally for some time prior to
its May 1998 recapitalization through an acquisition of Internationale Shopping
Alliance Incorporated (Internationale), which was a wholly owned subsidiary of
ISAI. This subsidiary was acquired when the former shareholders of
Internationale acquired 89% of the outstanding common stock of ISAI through a
stock exchange. ISAI issued 11,772,600 shares of its common stock in exchange
for all of the outstanding common stock of Internationale. This transaction
was effected as a reverse merger for financial statement and operational
purposes. Accordingly, ISAI regards its inception as being the incorporation of
Internationale on October 7, 1997. Subsequent to this reverse merger, the name
of Internationale Shopping Alliance Incorporated was changed to
ShoptropolisTV.com, Inc (Shoptropolis).
The primary business strategy of Shoptropolis, was to develop a multimedia home
shopping network for the purpose of offering in-home shoppers a convenient
electronic shopping experience through broadcast television, cable, satellite
or the Internet, and featuring a broad diversity of high quality, moderately
priced, unique consumer products.
ISAI incorporated its precious metals subsidiary, International Strategic
Assets, Inc. (ISA), in March 1999. The primary business strategy of ISA was
outbound direct telemarketing sales of precious commodities, primarily
including gold, silver, platinum and palladium in bullion form including bars
and coins of various types and face amounts.
On May 19, 2000, ISAI sold ISA to an individual who was an officer and director
of ISAI. In December 2000, due to a lack of capital, the Company concluded
that no further efforts would be expended to develop its planned shopping
network and the disposal of the Shoptropolis subsidiary was approved by
the Board of Directors. Shoptropolis was sold on March 29, 2001.
In May 2005, the Company consummated its first purchase of performing, sub-
performing and non-performing consumer receivables. These portfolios generally
consist of one or more of the following types of consumer receivables:
- charged-off receivables -- accounts that have been written-off by the
originators and may have been previously serviced by collection agencies;
- sub-performing receivables -- accounts where the debtor is currently
making partial or irregular monthly payments, but the accounts may have
been written-off by the originators; and are currently being serviced by
collection agencies;
- performing receivables - accounts where the debtor is making regular
payments or pays upon normal and customary procedures to collection
agencies.
The Company has acquired these receivables at a significant discount to
the amount actually owed by the debtors from a group of Companies. The
receivables purchased represented a portion of the companies owned and
previously purchased consumer debt receivables. The Company does outsource its
collections to carefully selected collection agencies. The Company will
actively monitor collection performance and review and adjust collection
and servicing strategies accordingly.
The purchased receivables consist primarily of credit cards, student loans,
retail installment contracts, medical and other types of receivables. We intend
to pursue new acquisitions of consumer receivable portfolios during the coming
year.
For the year ended September 30, 2005, The Company had no recognized collection
revenue due to the Company adoption of the "cost recovery" method of debt
collection income. Since no conclusive statistics of collection by the Company
can be realistic discerned to facilitate the development of reliable collection
conclusions as to the amount, if any, of income that can ultimately from these
new purchased debt portfolios, the Company is obligated, in accordance with
industry standards and AICPA pronouncements regarding income recognition for
troubled asset purchases to adopt the "cost recovery" method of income
collection. Accordingly, the Company will recognize income from the collection
of its portfolios only after it has collected the full purchase price of
$1,094,900 for the portfolios purchased during the year.
The Company believes that the earliest year in which revenues could be
recognized would by the years of 2009 and 2010, based upon the application of
industry recognized standards for receiving cash collections on its purchased
debt portfolios. However, for the year ended September 30, 2005, the Company
did receive cash collections in the gross amount of $78,343. These collections
of $78,343 were received since the portfolios were purchased on May 18, 2005
and through September 30, 2005 and they have been applied to the initial gross
portfolio cost of $1,094,900 thereby reducing the carrying cost to the Company
to $1,016,557.
Industry Overview
The purchasing, servicing and collection of charged-off, sub-performing and
performing consumer receivables is an industry that is driven by:
- levels of consumer debt;
- defaults of the underlying receivables; and
- utilization of third-party agency collectors providers to collect such
receivables.
According to the U.S. Federal Reserve Board, consumer credit has increased from
$1.2 trillion at December 31, 1997 to $2.152 trillion at August 31 2005.
According to the Nilson Report, a credit card industry newsletter, the consumer
credit market will increase to $2.8 trillion by 2010 and credit card charge-
offs are predicted to reach $72.9 billion by 2005. According to the ABA, credit
card delinquencies stood at 4.81% in the first quarter of 2005.
As a result of the difficulty in collecting these past due receivables and the
desire of originating institutions to focus on their core businesses and to
generate revenue from these receivables, originating institutions are
increasingly electing to sell these portfolios.
Strategy
The Company's strategy is to acquire additional portfolios and outsource
collections. For these additional purchases, the Company will need to secure
suitable financing to allow for these purchases of portfolios. At September 30,
2005, the Company does not have any new financing proposals or opportunities in
existence. The Company will need to develop the strategy to acquire new
financing.
Competition
The business of purchasing distressed consumer receivables is highly
competitive and fragmented, and we expect that competition from new and
existing companies will increase. The Company will be competing with other
purchasers of consumer receivables, including third-party collection companies
and other financial services companies who purchase consumer receivables.
Some of our competitors are larger and more established and may have
substantially greater financial, technological, personnel and other resources
than we have, including greater access to capital sources and markets.
1.2. Personnel
Mr. Bernard L. Brodkorb is the ISAI President, Chief Operating Officer, Chief
Financial Officer, and Chairman of the Board. He also serves as a consultant to
the Company. On September 30, 2005, the Company had one administrative full
time employee and three accountants retained as independent consultants and
advisors.
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 business strategy of developing and launching a multimedia
home shopping network, ISAI had only a very limited operating history on which
to base an evaluation of its business and prospects. The Board of Directors
decided in the year 2000 to dispose of the Shoptropolis Subsidiary and
its precious metals subsidiary, International Strategic Assets, Inc. (ISA). On
May 19, 2000, ISAI sold ISA to an individual who was an officer and director of
ISAI. Shoptroplis was sold on March 29, 2001. All efforts of the Company up to
the August 18, 2004 have been directed to a complete reorganization of all of
its affairs.
On August 18, 2004, the Company entered into a contract to purchase the debt
collection business assets of three California companies. The Company believed
that it would be purchasing in excess of $5,000,000 in various assets such as
cash, marketable securities, office furniture and fixtures and consumer debt
receivables having a charged-off face value in excess of $200,000,000. The
transaction was not completed in accordance with either the original negotiated
contract terms or the subsequent negotiated revised terms. However, the Company
did complete a purchase of a portion of these collection consumer debt
receivables in May for a price of $1,094,900 in restricted common shares of the
Company. The Company issued 1,250,000 in restricted common shares to the
California collection companies in order to complete the purchase of the
assets. This purchase of consumer debt receivables allows the Company to enter
into the financial services industry, more specifically into the consumer debt
collection business. The Company does intend to purchase additional portfolios
of distressed consumer debt receivables in the future. The Company is currently
creating its operational and marketing strategy to further develop this
business venture.
Therefore, the Company's prospects for its new business ventures must be
considered in light of the many risks, expenses and difficulties encountered
frequently by companies in the financial services industry.
Major risks include, but are not limited to, an evolving business model and the
overall effective management of future growth. To address the many startup
risks and difficulties the Company has encountered, it must in the future have
the ability to successfully execute any of its operational and marketing
strategies that it may develop in any new business venture. There would be no
assurance the Company would be successful in addressing the many risks and
difficulties it could encounter 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 within
the financial services industry. There can be no assurance that ISAI can find
and attract new capital for this new business venture and any other 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.
Other Risk Factors
We may not be able to purchase consumer receivable portfolios at favorable
prices or on sufficiently favorable terms or at all and our success depends
upon the continued availability of consumer receivable portfolios that meet our
purchasing criteria and our ability to identify and finance the purchases of
such portfolios.
The availability of consumer receivable portfolios at favorable prices
and on terms acceptable to us depends on a number of factors outside of our
control, including:
- the continuation of the current growth trend in consumer debt;
- the continued volume of consumer receivable portfolios available for
sale; and
- competitive factors affecting potential purchasers and sellers of
consumer receivable portfolios.
We have seen at certain times that the market for acquiring consumer
receivable portfolios is becoming more competitive, thereby possibly
diminishing our ability to acquire such receivables at attractive prices in
future periods.
The growth in consumer debt may also be affected by:
- a slowdown in the economy;
- reductions in consumer spending;
- changes in the underwriting criteria by originators; and
- changes in laws and regulations governing consumer lending.
Any slowing of the consumer debt growth trend could result in a decrease in
the availability of consumer receivable portfolios for purchase that could
affect the purchase prices of such portfolios. Any increase in the prices we
are required to pay for such portfolios in turn will reduce the profit, if
any, we generate from such portfolios.
Our quarterly operating results may fluctuate and cause our stock price to
decline.
Because of the nature of our business, our quarterly operating results may
fluctuate, which may adversely affect the market price of our common stock. Our
results may fluctuate as a result of any of the following:
- the timing and amount of collections on our consumer receivable
portfolios;
- our inability to identify and acquire additional consumer receivable
portfolios;
- a decline in the estimated value of our consumer receivable
portfolio recoveries;
- increases in operating expenses associated with the growth of our
operations; and
- general and economic market conditions.
We may not be able to recover sufficient amounts on our consumer receivable
portfolios to recover the costs associated with the purchase of those
portfolios and to fund our operations.
In order to operate profitably over the long term, which we have not yet been
able to do since our inception, we must continually purchase and collect on a
sufficient volume of receivables to generate cash that exceeds our costs.
Our ability to recover on our portfolios and produce sufficient returns
can be negatively impacted by the quality of the purchased receivables. In the
normal course of our portfolio acquisitions, some receivables may be included
in the portfolios that fail to conform to certain terms of the purchase
agreements and we may seek to return these receivables to the seller for
payment or replacement receivables. However, we cannot guarantee that any of
such sellers will be able to meet their payment obligations to us. Accounts
that we are unable to return to sellers may yield no return. If cash flows from
operations are less than anticipated as a result of our inability to collect
sufficient amounts on our receivables, our ability to satisfy our debt
obligations, purchase new portfolios and our future growth and profitability
may be materially adversely affected.
We are subject to intense competition for the purchase of consumer receivable
portfolios and, as a result of this competition, if we are unable to purchase
receivable portfolios, our profits, if any, will be limited.
We will be competing with other purchasers of consumer receivable portfolios,
with third-party collection agencies and with financial services companies that
manage their own consumer receivable portfolios. We compete on the basis of
reputation, industry experience and performance. Some of our competitors have
greater capital, personnel and other resources than we have. The possible entry
of new competitors, including competitors that historically have focused on the
acquisition of different asset types, and the expected increase in competition
from current market participants may reduce our access to consumer receivable
portfolios. Aggressive pricing by our competitors could raise the price of
consumer receivable portfolios above levels that we are willing to pay, which
could reduce the number of consumer receivable portfolios suitable for us to
purchase or if purchased by us, reduce the profits, if any, generated by such
portfolios. If we are unable to purchase receivable portfolios at favorable
prices or at all, our revenues and earnings could be materially reduced.
Failure of our third party recovery partners to adequately perform collection
services could materially reduce our revenues and our profitability, if any.
We are dependent upon outside collection agencies to service all our
consumer receivable portfolios. Any failure by our third party recovery
partners to adequately perform collection services for us or remit such
collections to us could materially reduce our revenues and our profitability.
In addition, our revenues and profitability could be materially adversely
affected if we are not able to secure replacement recovery partners and
redirect payments from the debtors to our new recovery partner promptly in the
event our agreements with our third-party recovery partners are terminated,
our third-party recovery partners fail to adequately perform their obligations
or if our relationships with such recovery partners adversely change.
Our collections may decrease if bankruptcy filings increase.
During times of economic recession, the amount of defaulted consumer
receivables generally increases, which contributes to an increase in the amount
of personal bankruptcy filings. Under certain bankruptcy filings, a debtor's
assets are sold to repay credit originators, but since the defaulted consumer
receivables we purchase are generally unsecured we often would not be able to
collect on those receivables. We cannot assure you that our collection
experience would not decline with an increase in bankruptcy filings. If our
actual collection experience with respect to a defaulted consumer receivables
portfolio is significantly lower than we projected when we purchased the
portfolio, our earnings could be negatively affected. We may not be able to
continue our operations if we are unable to generate funding from third party
financing sources.
If we are unable to access external sources of financing, we may not be able to
fund and grow our operations. The failure to obtain financing and capital as
needed would limit our ability to purchase consumer receivable portfolios and
achieve our growth plans.
We will possibly use estimates for recognizing revenue on a portion of our
consumer receivable portfolio investments and our earnings would be reduced if
actual results are less than estimated.
The loss of any of our executive officers may adversely affect our operations
and our ability to successfully acquire receivable portfolios.
Our Chairman, President and two other officers are responsible for making
substantially all management decisions, including determining which portfolios
to purchase, the purchase price and other material terms of such portfolio
acquisitions. These decisions are instrumental to the success of our business.
The loss of these services by these individuals could disrupt our operations
and adversely affect our ability to successfully acquire receivable portfolios
until such time as replacement expertise can be found and utilized in the
Company management process.
Government regulations may limit our ability to recover and enforce the
collection of our receivables.
Federal, state and municipal laws, rules, regulations and ordinances may limit
our ability to recover and enforce our rights with respect to the receivables
acquired by us. These laws include, but are not limited to, the following
federal statutes and regulations promulgated there under and comparable
statutes in states where consumers reside and/or where creditors are located:
- the Fair Debt Collection Practices Act;
- the Federal Trade Commission Act;
- the Truth-In-Lending Act;
- the Fair Credit Billing Act;
- the Equal Credit Opportunity Act; and
- the Fair Credit Reporting Act.
Additional laws may be enacted that could impose additional restrictions on the
servicing and collection of receivables. Such new laws may adversely affect the
ability to collect the receivables.
Because the receivables were originated and serviced pursuant to a
variety of federal and/or state laws by a variety of entities and involved
consumers in almost all 50 states, there can be no assurance that all original
servicing entities have at all times been in substantial compliance with
applicable law. Additionally, there can be no assurance that we or our recovery
partners have been or will continue to be at all times in substantial
compliance with applicable law. The failure to comply with applicable law could
materially adversely affect our ability to collect our receivables and could
subject us to increased costs and fines and penalties. In addition, our third-
party recovery partners may be subject to these and other laws and their
failure to comply with such laws could also materially adversely affect our
revenues and earnings.
Certain originators and recovery partners in the consumer credit industry have
been subject to class actions and other litigation. Claims include failure to
comply with applicable laws and regulations and improper or deceptive
origination and servicing practices. If we become a party to such class action
suits or other litigation, our results of operations and financial condition
could be materially adversely affected.
If a significant portion of our shares available for resale are sold in the
public market, the market value of our common stock could be adversely
affected.
Sales of a substantial number of shares of our common stock in the
public market could cause a decrease in the market price of our common stock.
We had approximately 3,948,000 shares of common stock issued and outstanding as
of the date hereof. In addition, options to purchase approximately 6,000,000
shares of our common stock were outstanding as of September 30, 2005. All of
these options were vested and the exercise prices of such options were
substantially lower than the current market price of our common stock. There
are also 12,910,508 additional common shares that can be issued based upon the
preferred shares conversion into common share rights and related anti-dilution
that are currently held by the individuals who as a result therein, own and
control 90.56% of the Company's potentially un-issued and issued common shares
at September 30, 2005.
If a significant portion of these shares were sold in the public market, the
market value of our common stock could be adversely affected.
History of Losses and Anticipated Further Losses
ISAI has generated no revenues to date and has an accumulated deficit
as of September 30, 2005 of $7,316,544. Further, the Company expects to
continue to incur losses until it establishes a means of generating revenues at
appropriate margins to achieve profitability. There can be no assurance the
Company will ever generate revenues or that it will achieve profitability, or
that its future operations will prove commercially successful, or that it will
establish any means of generating revenues at appropriate margins to achieve
profitability.
Need for Additional Financing
The Company's current capital resources are not sufficient to support the
Company's anticipated day-to-day operations. As such, the Company must obtain
significant additional capital in order to support the Company's anticipated
day-to-day operations and settle the debt incurred by ISAI during its past
operations until it establishes a means of generating revenues at appropriate
margins to achieve profitability
The debt collection business the Company recently entered into is being
analyzed and appropriate business strategy models are being developed. The
Company still needs to secure additional financing and is investigating
new financing strategies.
The Company currently has an agreement with Doubletree Capital Partners, Inc.
(hereinafter referred to as the financial company or DCP) to loan the Company
at the financial company's sole discretion, funds to meet its day-to-day
operational expense and settle certain 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 year
ended September 30, 2005 include an explanatory paragraph concerning the
Company's ability to continue as a going concern.
Reliance on Key Personnel
The Company's future success will be dependent upon the ability to attract and
retain executive officer(s) and certain other key persons. The inability to
attract such individuals or the loss of services of one or more of such persons
would have a material adverse effect on ISAI's ability to implement its current
plans or continue its operations. There can be no assurance the Company will
be able to attract and retain qualified personnel as needed for its business.
Control By Existing Management
One principal shareholder, Doubletree Capital Partners, Inc., a related party
corporation owned 50% by the Company's President and 50% by an affiliated
stockholder, beneficially owns approximately 90.56% of ISAI's outstanding
common stock, which includes common stock that can be converted from preferred
stock owned by the one principal shareholder as well as similar conversion of
convertible loans and related interest due, and accordingly has complete
control of the business and development, including the ability to manage all
operations, establish all corporate policies, appoint future executive
officers, determine management salaries and other compensation,
and elect all members of the Board Board of Directors
Effects of Trading in the Over-the-Counter Market
The Company's common stock is traded in the over-the-counter market on the OTC
Electronic Bulletin Board. The Company's stock symbol is ISAT. Consequently,
the liquidity of the Company's common stock may be impaired, not only in the
number of shares that may be bought and sold, but also through delays in the
timing of transactions, and coverage by security analysts and the news media
may also be reduced. As a result, prices for shares of the Company's common
stock may be lower than might otherwise prevail if the Company's common stock
were traded on a national securities exchange or listed on the NASDAQ Stock
Market. Further, 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 are limited.
There can be no assurance that an established trading market will develop, the
current market will be maintained or a liquid market for the Company's common
stock will be available in the future.
Item 2. DESCRIPTION OF PROPERTY
The principal executive office of the Company is located at 2560 Rice St., St.
Paul, MN 55113. The President of ISAI, at the location of his own accounting
business, provides office space to the Company for an annual charge of $4800
for personnel and consultants employed by the Company and also provides storage
for Company records.
On August 19, 2004, ISAI entered into an asset acquisition agreement wherein
ISAI would issue 5,250,000 shares of ISAI common stock shares on August 19, 2004
and a combination of 4,000,000 bonus common shares and 5,250,000 common
stock warrants at varying prices to purchase additional common shares over a
three year period. The companies from whom the assets were being purchased
(the "California Collection companies") were not able to comply with certain
terms of the agreement wherein two years of certified audits were required as
a part of the acquisition agreement. Consequently, the agreement to purchase
was amended on October 29, 2004, January 13, 2005, and again on April 30, 2005.
The agreement was not completed as of September 30, 2005, due to the inability
of the California Collection Companies to deliver the requested certified
audits for the years 2003 and 2004. Consequently, the agreement has been
terminated in full and will not be pursued any further. The Company incurred
costs in the amount of $146,755 through September 30, 2005. The Company is
carrying as a note receivable-non current the amount of $95,809 which
represents the expenses incurred by the Company through March 31, 2005 for
which the Company received a promissory note and related collateral security
agreement executed by the Collection Companies, wherein the California
Collection Companies agree to reimburse ISA Internationale Inc.
The additional costs incurred through September 30, 2005 in the amount of
$50,946 and all future costs expected to be incurred by the Company are being
carried as a receivable from the Collection Companies at September 30, 2005,
less an allowance for uncollectible receivables of a similar amount of $50,946
at September 30, 2005, due to these Collection Companies having filed a Chapter
7 Petition in U.S. Bankruptcy Court in Woodland Hills, California in October
2005.
Additional costs incurred beyond September 30, 2005 to the date of this report
in the amount of $9,775 and all future additional costs expected to be incurred
as a result of these Bankruptcy Court proceedings will be carried as a account
receivable from the Collection Companies less a similar amount carried as an
allowance for uncollectible costs.
The California Collection Companies have sought the protection of The United
States Bankruptcy Court in Woodland Hills, California by filing voluntary
Chapter 7 bankruptcy proceedings on October 13, 2005. The Company believes it
will recover its incurred costs for these acquisition efforts due to their
timely filed and properly recorded collateral security interest. The common
shares of the Company that were issued in payment of the debt receivables
purchased may provide the means whereby the Company receives its out of pocket
costs. These incurred costs through September 30, 2005 in the amount of
$146,755 were for travel, legal, bookkeeping and accounting and consulting
fees incurred to assist the certified audit process required by the original
asset acquisition agreement dated August 19, 2004. The Company believes it will
collect these costs and any additional costs and damages it incurred from the
bankruptcy process ongoing in U.S. Bankruptcy Court, Woodland Hills, CA.
Item 3. LEGAL PROCEEDINGS
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 was
accrued at December 31, 2003 for $2,500. The debt was settled and paid in July
2004 for $2,500.
Presently, 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. In addition, there is no
material proceeding to which any director, officer or affiliate of the issuer,
any owner of record or beneficially of more than 5% of any class of voting
securities of the Company, or security holder is a party adverse to the Company
or has a material interest adverse to the Company.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fiscal year ended September 30, 2005, there were no submissions of
any matters to a vote of the Company's security holders.
PART II
Item 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
5-A. Market, Holders and Dividends
The Company's Common Stock traded publicly on the NASDAQ Over-The-Counter
Electronic Bulletin Board (OTCBB) under the symbol "ISAI" since May 11, 1998 to
January 21, 2004. From January 22, 2004 to present it has traded and quoted
under the symbol "ISAT".
Information provided regarding periods prior to January 2001 is not an
indication an active market existed for the Company's common stock during such
periods. Further, there can be no assurance the current market for the
Company's common stock will be sustained or grow in the future.
The following Table sets forth the high and low bid closing prices for the
Company's Common Stock as reported by the OTC Bulletin Board during this
period of time after giving effect of the reverse stock split that occurred on
January 12, 2004, effective as of January 22, 2004. These bid quotations
reflect inter-dealer prices, without retail mark-up, mark-down or commission
and may not represent actual transactions.
2002 HIGH BID LOW BID
----
First Quarter $1.40 $1.40
Second Quarter $1.40 $1.40
Third Quarter $1.40 $0.84
Fourth Quarter $0.84 $0.84
2003
----
First Quarter $0.70 $.70
Second Quarter $0.70 $.70
Third Quarter $0.70 $.70
Fourth Quarter $0.70 $.70
2004
----
First Quarter $2.80 $0.52
Second Quarter $0.55 $0.52
Third Quarter $1.01 $0.55
Fourth Quarter $1.25 $0.55
2005
----
First Quarter $1.10 $0.35
Second Quarter $1.25 $0.35
Third Quarter $0.90 $0.55
For the period ending September 30, 2005, there were approximately 5 beneficial
owners and approximately 335 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.
The preferred stock conversion feature was never exercised. To date, the
Company has incurred losses and presently expects to retain its future earnings
to finance development and expansion of its business. The declaration of
dividends is within the discretion of the Board of Directors of the Company.
There are no current restrictions limiting the Company's ability to pay
dividends.
5-B. Sales History of Unregistered Securities
The following information includes a history of all securities sold by the
Company from January 2000 to present:
B.1 From November 1997 to June 1998, the Company sold a total of 1,579,535
(pre-split) Units at a purchase price of $.6536 per Unit, a total amount of
$1,032,376, to a limited number of 16 investors (most of whom are accredited
investors) in a private placement, with each Unit consisting of one share of
Common Stock of the Company and a five-year warrant to purchase two shares
of Common Stock exercisable at $1.00 per share. In December 2003, and in
exchange for mutual releases to the Company, these investors were granted price
concessions in the purchase of their original shares wherein all of the common
share purchases were re-priced to $.02 per share and the Company did issue an
additional 1,547,142 common shares, par value $.0001. Exemption for this
transaction is claimed under Section 4(2) of the Securities Act of 1933 since
it was strictly a private placement whereby all investors agreed to accept the
shares for long-term investment and to have the certificates therefore legended
to prevent further distribution or resale of the securities unless pursuant to
registration or an appropriate exemption there from.
B.2 In November 2000, the Company issued 5,000,000 shares of its Preferred
Stock to Doubletree Capital Partners, Inc., a Minnesota Corporation, in a
private sale at $0.0002 per share, for total consideration of $1,000, and,
2,999,999 (pre-split) shares of its common stock to Doubletree Capital
Partners, Inc. in a private sale at $0.0097 per share, for total consideration
of $29,000. The preferred stock is convertible into common shares at a
conversion rate of 3.5 common shares for each preferred share being converted.
Furthermore, there is an anti-dilution provision clause in the preferred shares
that states upon exercise, the preferred shares will ultimately convert into no
less than a 75% ownership of the then common shares to be outstanding. The
timing of the conversion is at the discretion of the holder. As a result of the
reverse stock split that was declared in January 2004, effective as of January
22, 2004, the conversion feature has changed to .025 common shares for every
preferred shared being converted the dimension, however, remains the same and
Doubletree Capital Partners The anti-dilution will convert into no less than a
75% ownership of the then common shares outstanding. This was an isolated
private transaction and exemption from registration is claimed under Section
4(2) of the Securities Act of 1933, with the stock certificate being legended
to prevent further disposition without registration or an appropriate exemption
there from.
B.3 The Company previously issued 71,270 (post-split) shares of common stock
during the year ended December 31, 2002, as part of a troubled debt
restructuring to satisfy $1,105,644 in principal and accrued interest on
convertible Debentures.
B.4 The Company also authorized 41,376 (post-split) shares of common stock at
the negotiated rate of $0.70 per share during the year ended December 31, 2003,
as part of its troubled debt restructuring, for conversion of convertible debt
and related interest accruals of $115,823 combined. These shares were issued in
2004.
B.5 In December, 2003, The Company's Board of Directors approved for issuance
513,328 (post-split) common stock shares for issuance to all previously
converted debenture holders for the express purpose of equalizing their
respective share conversion price received for debenture principal and interest
due on debenture investments. All of the debenture holders will receive common
shares at the revised price of $0.70 per share (post-split) for the period
ended September 30, 2003, their final date of conversion. This transaction
resulted in settlement expense charge to the income statement of the Company of
$359,329 for the year ended December 31, 2003. Of these shares, 273,220 shares
were issued in May 2004, 160,850 shares were issued in September 2004 due to a
delay in receiving correspondence from the debenture holder and 100,002 are
still remaining to be issued due to the non-timely receipt of certain required
paperwork to complete their issuance. Of the additional 100,002 common shares,
20,747 are issuable to the debenture holder for accrued interest in the quarter
ended September 30, 2004.
B.6 In addition, the Company's Board of Directors approved the issuance
of 523,572 (post-split) common shares that were given as following: 166,429
(post-split) shares for payment for services rendered by the Company's Board
of Directors for the entire reorganization process and two consultants who
rendered additional reorganization services to the Company and 357,143 (post-
split) common shares to the Company's President as a partial payment for
accrued consulting services due as of December 31, 2003. These shares were
issued in 2004.
B.7 On January 12, 2004, by written action of the holders of a majority of the
common stock outstanding, and at a duly called special meeting of its
shareholders, the Company approved a 1 for 140 reverse stock split, effective
January 22, 2004, for the purpose of reducing the number of shares outstanding
to a more manageable level and make trading volume levels more relevant to the
price of the Company's common stock on the NASDAQ OTC Bulletin Board. At the
same meeting the shareholders also approved the increase of the aggregate
number of shares of preferred stock authorized from 5,000,000 to 30,000,000.
B.8 In July 2004, the Company approved an Indemnification Agreement between
the Company and Doubletree Liquidation Corporation (DLC),a related party,
wherein the Company issued to DLC 1,200,000 unregistered shares of common stock
for the express purpose of receiving as consideration from DLC, a guarantee
from DLC that this issue of common shares will completely and finally settle
the Company's liability to two debenture holders, including their respective
accrued interest that is currently due, and or may be due on an estimated
basis, upon completion of negotiations between the Company and these
creditors whenever it occurs and also included the attempt to resolve the
settlement of any and all liabilities that did arise from the operation of
ShoptroplisTV.com during its final months of operations back in the years
of 1999, 2000 and 2001. This payment of shares will finalize the
Company's payment of these bills and related liabilities and
will further allow the Company to procede with new acquisition efforts to bring
shareholder value to the Company. These shares provide a buffer to protect the
assets of any new acquisition candidate and preserve and protect the acquirees'
assets and insure that their assets are not used to pay off old creditors and
liabilities of ISAI or the Company. The Company, ISAI, chose not to initiate
bankruptcy proceedings but instead reorganized its finances mainly through
frank, friendly negotiations.
DLC will use the shares to pay certain specific liabilities, as documented by
the Indemnification Agreement. The estimated total amount of these potential
liabilities that are involved in this action is approximately $329,714
including estimated legal and administrative costs to settle the liabilities
and provide the Company with legal defense services against these bills and
expenses previously incurred by the Company and its former operating
subsidiary, ShoptropolisTV.com. The 1,200,000 common shares were valued based
upon the consideration given to the Company in the indemnification agreement,
which also approximated the value of the Company's common stock. The issuance
of these shares should constitute full and final resolution by the Company of
these potential liabilities. Whenever DLC settles or completes payment of these
liabilities the Company will be allowed to remove these debts from its
financial statements with no additional obligation to DLC by the Company.
B.9 Subsequent to the recording of the Indemnification Agreement (reference
should be made to note 1(b) of notes to financial statements at September 30,
2004) in July 2004, the Company through DLC settled with Mr. Gerard Ferri for a
$20,000 unpaid trade payable and DLC will issue to him 7,143 shares from the
1,200,000 shares held by DLC for indemnification purposes. The Company removed
the $20,000 accounts payable from its books as of September 30, 2004.
B.10 On August 13, 2004, the Company issued 1,854 shares to two investors to
settle additional interest liabilities in the conversion of Convertible
Debentures to stock at a negotiated price of $.70 per share for an addition to
paid in capital of $1,298.
B.11 On September 14, 2004, the Company issued 160,850 common shares to an
investor to settle convertible debenture liabilities and accrued interest
amounting to $112,595 and previously approved by the Company in December 2003.
B.12 On July 1, 2004 the Board of Directors approved the issuance to
Doubletree Capital Partners, Inc. a 6,000,000 common stock shares option to be
effective as of July 1, 2004. The conversion price was set at $.60 per common
share of common stock exercised. This common stock option will have a term of
five years from July 1, 2004 and will be similar in all respects to a cashless
exercise common stock option. DCP was awarded the common stock option as a
means to preserve ownership interests as required in preliminary acquisition
discussions. The Company recorded $60,000 of expense during the period ended
September 30, 2004 for the granting of these options.
B.13 On June 29, 2005, The Company issued 100,002 shares to an investor to
settle convertible debenture liabilities and accrued interest amounting to
$100,301 and previously approved by the Company on December 2003 And July 2004
B.14 On June 29, 2005, The Company issued 24,240 common shares to a consultant
for accounting and financing services rendered to the Company in the amount of
$30,300.
B.15 On June 29, 2005, The Company issued 1,250,000 common shares to a
subsidiary company, ISA Financial Services Inc., to complete their purchase of
$43,733,000 of debt contract receivables from three California debt Collection
Companies.
C. Stock repurchases
No stock repurchase transactions have occurred during the reporting period.
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Forward Looking Statements
The information herein contains certain forward looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities and Exchange Act of 1934, as amended, which are intended
to be covered by the safe harbors created thereby. Investors are cautioned
that all forward-looking statements involve risks and uncertainties, including,
without limitation, the ability of the Company to continue its present business
strategy which will require it to obtain significant additional working
capital, changes in costs of doing business, identifying and establishing a
means of generating revenues at appropriate margins to achieve profitability,
changes in governmental regulations and labor and employee benefits and costs,
and general economic and market conditions. Such risks and uncertainties may
cause the Company's actual results, levels of activity, performance or
achievements to be materially different from those future results, levels of
activity, performance or achievements expressed or implied by such forward-
looking statements. Although the Company believes that the assumptions and
expectations reflected in these forward-looking statements are reasonable, any
of the assumptions and expectations could prove inaccurate or not be achieved,
and accordingly there can be no assurance the forward-looking statements
included in this Form 10-KSB will prove to be accurate. In view of the
significant uncertainties inherent in these forward looking statements, their
inclusion herein should not be regarded as any representation by the Company or
any other person that the objectives, plans, and projected business results of
the Company will be achieved. Generally, such forward-looking statements can be
identified by terminology such as "may," "anticipate," "expect," "will,"
"believes," "intends," "estimates," "plans," or other comparable terminology.
Overview
ISAI was incorporated in Delaware in 1989 under a former name, and was
inactive operationally for some time prior to its May 1998 recapitalization
through an acquisition of Shoptropolis, which was a wholly owned subsidiary of
ISAI. ISAI acquired its home shopping network business through such purchases,
after which the former shareholders of this subsidiary acquired 89% of the
outstanding common stock of ISAI through a stock exchange. ISAI issued
11,772,600 shares of its common stock in exchange for all of the outstanding
common stock of ShoptropolisTV.com, Inc. This transaction was effected as a
reverse merger for financial statement and operational purposes, and
accordingly, ISAI regards its inception as being the incorporation of
ShoptropolisTV.com, Inc. on October 7, 1997. ISAI's strategy since December
2000 to 2005 has been the restructuring of its financial affairs.
In May 2005, ISAI completed a contract to purchase distressed consumer debt
Receivables. ISAI has outsourced the collection of these debts to an outside
collection agency. The purchase price of $1,094,900 was paid to three
California collection companies via the issuance of 1,250,000 restricted
common shares. ISAI now considers its restructuring to be completed and will
concentrate its efforts in the financial services industry, specifically in the
debt collection business.
Results of Operations for the Twelve Months ended September 30, 2005.
Sales and Gross Profit
As a result of the discontinuance of its two business segments in prior years
and no collection revenues being recognized from the collection efforts of the
purchased portfolios, no sales or collection revenues were recorded for the
twelve month period ended September 30, 2005, for the Company. The Company is
using the "cost recovery" for collection revenue recognition and until such
time as the entire cost of the purchased portfolios is recovered, there will be
no income recognized as collection revenue.
Operating and Interest Expenses
General and administrative expenses were $361,677, for the twelve months ended
September 30, 2005. The expenses for the fiscal year were principally for
office occupancy, telephone changes, consulting costs ($79,694), President's
consulting fees ($80,000), accounting ($66,956) and bad debt ($50,946) costs.
Interest expenses increased to $83,112 in the twelve months ended September 30,
2005 from $50,646 for the nine months ended September 30, 2004 primarily the
result of the increased borrowings from the Company's President and the related
and affiliated finance company that has been the sole source of required
working capital needs. General and administrative expenses were $122,931 for
the nine months ended September 30, 2004. Additional interest charges continue
to be recorded as interest expense due on previously non-converted and
defaulted convertible debt obligations of the Company.
As a result of the Company's entry in the debt collection business, the Company
has no specific anticipation as to new operating expenses in future periods,
except for third party collections cost's which have been set at 35% of gross
collections. These expenses will be recorded as portfolio collection cost as
incurred by the Company on its portfolio debt collections. However, new current
expenses are being incurred for interest, office, telephone, consulting and
legal and professional expenses relating to additional debt portfolio
acquisitions and the Company efforts in developing its new business operations
in the debt collection business.
Gains and Losses.
Net loss for the fiscal year ended September 30, 2005 was $462,708. The
operating loss in 2005 is due principally to charges for services rendered for
consulting services and various legal, professional, accounting costs and bad
debts incurred in the continuing reorganization activities of the Company and
accrued interest expense related to debentures and note payable of the Company
at September 30, 2005.
Liquidity and Capital Resources
For the fiscal year ended September 30, 2005 the Company raised $180,411
respectively from convertible demand notes payable from a related investor. The
demand loans are convertible into common shares of the Company at the rate of
$0.70 per share, bearing interest at the rate of 12% per annum and are
collateralized by all the assets of the Company. Conversion is at the
discretion of the related investor.
As of September 30, 2005, the Company had current assets of $18,963 in cash,
$15,766 in trade receivables due from its third party collector (net of the
third party collection fee of 35%). At the same time, the Company had
$1,148,567 in current liabilities consisting of $13,531 in accounts payable,
$17,400 in common stock payable, $315,000 in accounts payable to a related
party (the President), convertible notes payable of $609,520 and related
interest accruals of $193,116. Accordingly, the Company had a working capital
deficit of $1,113,838 as of September 30, 2005.
The Company's current capital resources are not sufficient to supports its
development and operations. Capital will be necessary to support the ongoing
operation of the Company's general and administrative expenses and interest
expenses now currently due. The Company cannot continue its existence without
a full and complete reorganization effort of all of its financial affairs and
obligations. The Company is currently utilizing the cash collections being
received from the gross collections being made on its purchased debt collection
portfolios, however, these cash collections being generated are not sufficient
to support its future development of the financial services business strategy
being developed as well as the costs associated with the month to month
operations of the Company.
The Company will be seeking new additional sources of debt or equity financing
other than additional convertible notes payable issued by a related party.
Until the answers to new financing needs are solidified, the reorganization
process is not completed and the Company cannot provide assurances as to its
future viability or its ability to prevent the possibility of filing a
bankruptcy petition, either voluntary or involuntary, by any creditor of the
Company. As a result of the Company's history of operating losses and its need
for significant additional capital, the reports of the Company's independent
auditors' on the Company's financial statements for the twelve months ended
September 30, 2005 include explanatory notes concerning the Company's ability
to continue as a going concern.
Income Tax Benefit
The Company has an income tax benefit from net operating losses, if any, which
is available to offset any future operating profits. None of this benefit was
recorded in the accompanying financial statements as of September 30, 2005.
Federal tax laws impose significant restrictions on the utilization of
net operating loss carry-forwards in the event of a change in ownership of the
Company which constitutes an "ownership change", as defined by the Internal
Revenue Code, Section 382. The Company's net operating loss carry-forward will
be subject to the above limitations.
Cash Flows and Expenditures
Year ended September 30, 2005
During the year ended September 30, 2005 the Company, acquired $1,094,900 of
receivable portfolio acquisitions and collected $78,343 in gross collections.
After the collections fees were applied and related verification costs, the
Company received, on a net basis, $60,424 from portfolio collections.
The Company currently utilizes three collection agencies for the collection of
the distressed debt receivables and utilizes various law firms on a contingency
basis.
Portfolio Data
The following table shows the Company's portfolio buying activity during the
quarter, including, among other things, the purchase price, actual cash
collections and estimated cash collection as of September 30, 2005.
Purchase Actual Cost
Purchase Period Price(1) Collections, net (2) Estimated (3)
09/30/2005 $1,094,900 $ 60,424 $ 1,797,780
(1) Purchase price refers to the cost paid to a seller to acquire defaulted
receivables, plus certain capitalized expenses, less the purchase price
refunded by the seller due to the return of non-compliant accounts (also
defined as buybacks). Non-compliant refers to the contractual representations
and warranties between the seller and the buuyer. These representations and
warranties from the sellers generally cover account holders' death or
bankruptcy and accounts settled or disputed prior to sale. The seller has the
option to replace or repurchase these accounts.
(2) Actual cash collections, net of recovery costs or sale.
(3) Total estimated collections refer to the actual cash collections,
including cash sales, plus estimated remaining collections. The Company
will take an impairment charge if the actual recoveries fall short of
expected recoveries.
Inflation
The Company's management believes that inflation has not had a material
impact on our results of operations for the year ended September 30, 2005.
Critical Accounting Policies
The Company utilizes the cost recovery method under guidance provided by the
AICPA issued Statement of Position ("SOP") 03-03 to determine income recognized
on finance receivables.
In October 2003, the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") 03-03, "Accounting for Loans or Certain
Securities Acquired in a Transfer." This SOP proposes guidance on accounting
for differences between contractual and expected cash flows from an investor's
initial investment in loans or debt securities acquired in a transfer if those
differences are attributable, at least in part, to credit quality. This SOP is
effective for loans acquired in fiscal years beginning after December 15, 2004.
The SOP would limit the revenue that may be accrued to the excess of the
estimate of expected future cash flows over a portfolio's initial cost of
accounts receivable acquired. The SOP would require that the excess of the
contractual cash flows over expected cash flows not be recognized as an
adjustment of revenue, expense, or on the balance sheet. The SOP would freeze
the internal rate of return, referred to as IRR, originally estimated when the
accounts receivable are purchased for subsequent impairment testing. Rather
than lower the estimated IRR if the original collection estimates are not
received, the carrying value of a portfolio would be written down to maintain
the original IRR. Increases in expected future cash flows would be recognized
prospectively through adjustment of the IRR over a portfolio's remaining life.
The SOP provides that previously issued annual financial statements would not
need to be restated.
Other Going Concern matters
One remaining officer, Bernard L. Brodkorb, is currently managing the Company.
The Company is still in default under the terms of its obligation to make
quarterly interest payments of certain defaulted convertible 12% debentures
issued between September 1999 and June 2000. The debentures in default total
$150,000 in principal and $105,031 in related interest as of September 30,
2005. No interest payments were ever made by the Company on the debentures.
These debentures are classified as current liabilities.
The Company converted $940,000 of principal and accrued interest in the
amount of $165,644 into 15,794,917 (pre-split) common shares of the Company
at the rate of $0.07 per share during the year ended December 31, 2001. The
Company also converted during the year ended December 31, 2002, $386,640
in principal and $112,247 in related interest into 9,977,750 (pre-split) shares
of common stock at the rate of $0.05 per share.
During the twelve months ended December 31, 2003, $65,000 in debentures payable
plus additional accrued interest due on extended debentures payable of $50,000
in the amount of $21,633 were converted into common shares at a negotiated
price of $0.70 per share. Accordingly, 41,358 (post-split) common shares were
issued to these debenture holders. The Company is presently attempting to
convert the remaining debenture holder to common shares.
Item 7. FINANCIAL STATEMENTS
The following consolidated financial statements of ISA Internationale Inc. and
its wholly owned subsidiaries
Independent Auditor's Reports thereon are included herein:
TABLE OF CONTENTS Page
Report of Independent Registered Public Accounting Firm---------------25
Report of Prior Independent Registered Public Accounting Firm---------26
Consolidated Balance Sheet as of September 30, 2005-------------------27
Consolidated Statements of Operations for the twelve months ended
September 30, 2005 and nine months ended September 30, 2004. -------28
Consolidated Statements of Stockholders' Deficit for the twelve months
ended September 30, 2005 and nine months ended September 30, 2004 --29
Consolidated Statements of Cash Flows for the twelve months ended
September 30, 2005 and nine months ended September 30, 2004---------30
Notes to Consolidated Financial Statements-------------------------31-48
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To: The Board of Directors
ISA Internationale Inc.
St. Paul, MN
We have audited the accompanying consolidated balance sheet of ISA
Internationale Inc. and subsidiaries as of September 30, 2005, and the related
consolidated statements of operations, stockholders' deficit, and cash flows
for the twelve months then ended. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of ISA
Internationale Inc. and subsidiaries as of September 30, 2005 and the results
of its consolidated operations and its consolidated cash flows for the twelve
months 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 no operations, suffered
recurring losses and has debt in default. These matters raise substantial doubt
about its ability to continue as a going concern. Management's plans in regard
to these matters are also described in note 2. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
De Joya Griffth & Company
Henderson, NV
January 13, 2006
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To: The Board of Directors
ISA Internationale Inc.
St. Paul, MN
We have audited the accompanying balance sheet of ISA Internationale Inc. as of
September 30, 2004 and the related statements of operations, stockholders
deficit, and cash flows for the nine months then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of ISA Internationale, Inc. as of
September 30, 2004 and the results of its operations and its cash flows for the
nine months then ended in conformity with accounting principles generally
accepted in the United States of America.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in note 2 to the financial
statements, the Company has no operations, suffered recurring losses and has
debt in default. These matters raise substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters are
also described in note 2. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Stonefield Josephson, Inc.
Los Angeles, CA
February 11, 2005
ISA INTERNATIONALE INC. and SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Audited)
ASSETS Sept 30, 2005
------------
Current assets:
Cash and cash equivalents $ 18,963
Trade receivable 15,766
------------
Total Current assets 34,729
Other assets:
Other receivable
less allowance of $50,946 for uncollectible amount 0
Note receivable 95,809
Purchased debt receivables, net 1,016,557
Other assets 345
------------
Total Assets $1,147,440
============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Common stock payable $ 17,400
Accounts payable - trade and taxes 13,531
Convertible notes payable - related party 609,520
Accrued interest payable - related party 193,116
Accounts payable - related party 315,000
Convertible debentures, accrued interest
Accounts payable - disposed business
Indemnification agreement - related party 0
------------
Total Liabilities 1,148,567
------------
Stockholders' deficit:
Preferred convertible stock, par value $.0001;
30,000,000 shares authorized,
5,000,000 shares issued and outstanding 500
Common stock, par value $.0001; 300,000,000
shares authorized; 3,948,000 shares issued and
outstanding at September 30, 2005 394
Additional paid-in capital 7,314,523
Accumulated deficit (7,316,544)
------------
Total Stockholders' deficit (1,127)
------------
Total Liabilities and Stockholders' deficit $1,147,440
============
The accompanying notes are an integral part of these financial statements.
ISA INTERNATIONALE INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Audited) (Audited)
Twelve Months Ended Nine Months Ended
September 30, 2005 September 30, 2004
------------------- -------------------
Operating revenues
Portfolio Collections $ 0 $ 0
Operating expenses:
Portfolio Collection Costs 17,920
General & Administrative 361,677 122,931
Valuation charge - stock option -- 60,000
Settlement expense -- 14,523
------------ -----------
Subtotal Operating expense 379,597 197,454
------------ -----------
Operating loss (379,597) (197,454)
Other income (expense):
Interest (expense) (83,111) (50,646)
------------ -----------
Net (loss) from operations (462,70835,267) (248,100)
Net income (loss) $ (462,708) $ (248,100)
============ ===========
Basic and diluted (loss) per share
$ (0.16) $ (0.28)
============ ===========
Weighted Average common shares outstanding:
(restated for reverse stock split)
Basic & Assuming Diluted 2,923,907 874,085
============ ===========
The accompanying notes are an integral part of these financial statements.
ISA INTERNATIONALE INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
TWELVE MONTHS ENDED September 30, 2005 and NINE MONTHS ENDED September 30, 2004
Preferred Stock Common Stock Additional Total
Number of Par Numbers of par Paid-in Accumulated Stockholders
shares Value Shares value Capital Deficit Deficit
----------------------------------------------------------------------------------------------------------
Balance, December 31, 2003 5,000,000 500 372,880 37 4,986,437 (6,605,736) (1,618,762)
Stock issued for conversion of
convertible debentures at $0.70
per share 838,174 84 586,634 586,718
Stock issued for interest due
to convertible debenture holders
at $0.70 per share 1,854 0 1,298 0 1,298
Issuance of common stock as
Settlement to former convertible
debenture holders and stockholders
at $0.70 per share 160,850 16 112,579 0 112,595
Issuance of common stock for DLC
Indemnification Agreement 1,200,000 120 329,593 0 329,713
Value assigned to option
Agreement 60,000 60,000
Indemnification Agreement additional
interest for two debenture holders 3,567 3,567
Net income (loss) for period (248,100) (248,100)
----------------------------------------------------------------------------
Balance, September 30, 2004 5,000,000 $500 2,573,758 $257 $6,080,108 $(6,853,836) $ (772,971)
Issuance of common stock as
Settlement to former convertible
debenture holders and stockholders
at $0.70 per share 100,002 10 69,991 70,001
Issuance of common stock for service 24,240 2 21,208 21,210
Issuance of common stock to purchase
debt receivables 1,250,000 125 1,094,775 1,094,900
Beneficial conversion expense related
To convertible notes, related party 27,441 27,441
Indemnification Agreement additional
interest for two debenture holders 21,000 21,000
Net income (loss) for period (462,708) (462,708)
---------------------------------------------------------------------------
Balance, September 30, 2005 5,000,000 $500 $3,948,000 $394 $7,314,523 ($7,316,544289,103) $(1,127)
============================================================================
The accompanying notes are an integral part of these financial statements.
ISA INTERNATIONALE INC.
STATEMENTS OF CASH FLOWS
Twelve Months Ended September 30, 2005
(AUDITED) (AUDITED)
Twelve Months Ended Nine Months Ended
September 30, 2005 September 30, 2004
------------------ ------------------
Cash flow from operations:
(Loss) before extraordinary item from
continuing operations $ (462,708) $ (248,100)
Adjustments to reconcile net (loss) from operations
to cash flow used in operating activities:
Amortization of incorporation costs 47 --
Reduction of debt receivable purchase price
on gross collections received 78,343 --
Charge off of costs incurred for unsuccessful
acquisitions 39,806 --
Costs incurred for unsuccessful acquisition (39,806)
Beneficial conversion charge 27,441 --
Trade receivables (15,766) --
Note receivable for incurred acquisition costs (95,809) --
Common stock payable - services 17,400 --
Common stock issued - services 21,210 --
Accounts payable & accrued expenses 3,214 2,541
Accrued expenses - related party 140,000 75,000
Accrued interest payable 83,112 49,348
Stock options valuation charge - related party -- 60,000
Common stock payable - interest expense -- 15,820
---------- ----------
Cash used in operations (163,710) (85,197)
---------- ----------
Cash flow from investing activities:
Incorporation costs- new subsidiary (393) --
---------- ----------
Cash (used in) investing activities (393) --
---------- ----------
Cash flows from financing activities
Proceeds from issuance of convertible
debt related party 180,411 82,797
---------- ----------
Cash Provided by financing activities 180,411 82,797
---------- ----------
Increase (decrease) in cash and cash equivalents 16,308 (2,400)
Cash and cash equivalents, beginning of period 2,655 5,055
---------- ----------
Cash and cash equivalents, end of period 18,963 2,655
========== ==========
Non-cash investing in financing transactions:
Issuance of common stock for services by directors,
consultants and President of Company -- 366,503
Payment of convertible debentures and accrued
interest thereon with common stock 70,001 --
Issuance of common stock as settlement to former
convertible debenture holders -- 332,810
Stock issued for investment in subsidiary to
purchase debt receivables 1,094,900 --
Stock issued to related party for
indemnification agreement 329,714
Capital contribution from related party 21,000
---------- ----------
Total non-cash transactions $ 1,185,901 $ 1,029,027
========== ==========
The accompanying notes are an integral part of these financial statements.
ISA INTERNATIONALE INC. and SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
TWELVE MONTHS ENDED SEPTEMBER 30, 2005
1.) NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
1.a) NATURE OF BUSINESS
ISA Internationale Inc. (the Company or ISAI) was incorporated on June 2, 1989,
under the laws of the State of Delaware under a former name and became a
reporting publicly held corporation on November 15, 1999. On May 8, 1998,
Internationale Shopping Alliance Incorporated (Internationale), a Minnesota
corporation, was merged with the Company, a Delaware corporation, pursuant to a
merger agreement dated April 23, 1998. Upon consummation of the merger,
Internationale became a wholly owned subsidiary of the Company. During 2000,
the Company sold its International Strategic Assets, Inc. subsidiary and
discontinued the operations of its ShoptropolisTV.com subsidiary. Since then,
reorganization specialists, Doubletree Capital Partners LLC, has internally
reorganized the Company's financial affairs and changed its direction to focus
on the financial services industry.
These consolidated financial statements included the parent Company, ISA
Internationale, Inc., its wholly owned subsidiary, ISA Financial Services, Inc.
(formerly ISA Acquisition Corporation), and further its wholly owned
subsidiary, ISA Acceptance Corporation. As a result of a distressed consumer
debt receivable that commenced on May 18, 2005 and completed in September 2005,
the Companies currently operate as debt collection companies.
On August 19, 2004, the Company signed an asset purchase agreement with five
California Companies, wherein common shares of the Company would be used to
purchase the assets being acquired. Terms of the agreement, as previously
reported in 8K filings by the Company on August 23, 2004, November 3, 2004,
January 14, 2005 and recently April 30, 2005, were not complied with by the
seller of the assets enumerated in the agreement and, accordingly, the Company
was not able to complete the asset purchase agreement. Certified audits of the
seller companies were required by the agreement and the seller companies were
not able to deliver these required certified audits for the years 2003 and
2004. However, on May 18, 2005, the Company did consummate the purchase of a
portion of the companies consumer receivable portfolios for $1,094,900.
The Company accounts for its debt receivables under the guidance of Statement
of Position ("SOP") 03-3, "Accounting for Loans or Certain Debt Securities
Acquired in a Transfer." This SOP limits the yield that may be accreted
(accretable yield) to the excess of the Company's estimate of undiscounted
expected principal, interest and other cash flows (cash flows expected at the
acquisition to be collected) over the Company's initial investment in the
debt receivables. Subsequent increases in cash flows expected to be
collected are recognized prospectively through adjustment of the debt
receivables yield over its remaining life. Decreases in cash flows expected
to be collected are recognized as impairment to the debt receivable
portfolios. The Company's proprietary collections model is designed to track
and adjust the yield and carrying value of the debt receivables based on the
actual cash flows received in relation to the expected cash flows. This method
is commonly referred to as the "cost recovery method" for revenue recognition
under which no revenue is recognized until the investment amount of $1,094,900
has been recovered.
In the event that cash collections would be inadequate to amortize the
carrying balance and the resulting estimated remaining fair market value of
the remaining portfolio debt receivables were to be less than the carrying
value, an impairment charge would need to be taken with a corresponding write
-off of the "impaired" or deficient receivable carrying value with a
corresponding charge to profit and loss of the Company at that time. At
September 30, 2005, the Company does not maintain an allowance for an
"impairment" loss or other expected credit losses.
The agreements to purchase the aforementioned receivables include general
representations and warranties from the sellers covering account holder
death or bankruptcy, and accounts settled or disputed prior to sale. The
representation and warranty period permitting the return of these accounts
from the Company to the seller is typically 90 to 180 days. Any funds
received from the seller of debt receivables as a return of purchase
price are referred to as buybacks. Buyback funds are simply applied
against the debt receivable balance received. They are not included in
the Company's cash collections from operations nor are they included in
the Company's cash collections applied to principal amount. Gains on sale
of debt receivables, representing the difference between sales price
and the unamortized value of the debt receivables, are recognized when
debt receivables are sold.
Changes in debt receivables for the year ended September 30, 2005 were
as follows:
Year Ended
September 30, 2005
----------------
Balance at beginning of period October 1, 2004 $ 0
Acquisition of debt receivables 1,094,900
Cash collections applied to principal ( 78,343)
-----------------
Balance at the end of the period $ 1,016,557
=================
Estimated Remaining Collections ("ERC")(unaudited) * $ 1,797,780
=================
* The Estimated Remaining Collection refers to the sum of all future projected
cash collections from acquired portfolios. ERC is not a balance sheet item,
however, it is provided for informational purposes. There was no revenue
recognized on debt receivables for the year ended September 30, 2005.
Under SOP-03-3 debt security impairment is recognized only if the fair market
value of the debt has declined below its amortized costs. Currently no
amortized costs are below fair market value, therefore, the Company has not
recognized any impairment for the finance receivables at September 30, 2005.
1.a.1) Change in Fiscal Year
On November 4, 2004 the Company announced with an 8-K filing it was changing
its fiscal year from December 31 to September 30, therein making fiscal year
2004 a nine-month period that commenced on January 1, 2004 and accordingly
ends on September 30, 2004. Any references to the fiscal year 2004 will
therefore be for a nine-month period of time from January 1 to September 30,
2004.
1.b) Stock split
On January 12, 2004, the Company's Board of Directors approved a reverse stock
split of 1 to 140, effective on common shares outstanding as of January 22,
2004. The accompanying financial statements and notes reflect all shares and
per share amounts on a post-split basis.
4351.c) Presentation
The Consolidated Balance Sheet at September 30, 2005 contains contra account
statement presentation for certain convertible debenture notes payable, related
accrued interest payable and accounts payable-disposed business in the amount
of $334,281. Reference should be made to note 4.e.c in these notes to financial
statements for additional information as to consolidated financial statement
presentation at September 30, 2005.
For comparison purposes, the following condensed statements of operations are
presented below for the twelve month periods ending September 30, 2005 and
September 30, 2004 respectively.
(Audited) (Unudited)
Twelve Months Ended Twelve Months Ended
September 30, 2005 September 30, 2004
------------------ ------------------
Operating (loss) $ (379,597) $ (841,221)
Interest Expense (83,112) (66,225)
Extraordinary gain on
Extinguishment of debt 0 44,351
Net Income (loss) (462,708) (863,094)
Net loss per share continuing operations (0.16) (1.04)
Net loss per share extraordinary item 0.00 0.05
Total net gain (loss) per share (0.16) (0.99)
Average number of shares of common stock
Outstanding: Basic and diluted 2,923,907 874,085
Comparison cash flow information for the twelve month periods ending September
30, 2005 and 2004 are presented as follows below:
(Audited) (Unaudited)
Twelve Months Ended Twelve Months Ended
September 30, 2005 September 30, 2004
------------------ ------------------
Net (loss) from operations $ (462,708) $ (863,094)
Adjustments to reconcile net loss from
operations to cash flow used in
operating activities:
Amortization of incorporation costs 47
Amortization of debt receivable purchase
price on gross collections received 78,343
Charge off of costs incurred on acquisitions 39,806
Costs incurred on acquisitions (39,806)
Beneficial conversion charge 27,441
Trade receivable (15,766)
Note receivable for incurred acquisition costs (95,809)
Common stock payable-services 17,400 631,706
Common stock - services 21,210
Accounts payable & accrued expense 143,214 42,582
Accrued interest payable 83,112 59,049
Stock options valuation Charge 60,000
Common stock payable- interest expense 15,820
---------- ----------
Cash (used for) all operations (163,710) (93,743)
Cash invested in incorporation costs (393)
Proceed from issuance of convertible notes 180,411 95,312
---------- ----------
Increase (decrease) in cash
and cash equivalents 16,308 1,569
Cash at beginning of period 2,655 1,086
---------- ----------
Cash at end of period $ 18,963 $ 2,655
========== ==========
1.d) 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.
In 2004, significant estimates of the fair value of the Company's common stock
were computed under FASB Statement No. 123, Accounting for Stock-Based
Compensation and used to value the 6,000,000 shares stock option for $60,000 to
DCP, a related party corporation owned 50% by the company's President and 50%
by an affiliated stockholder and the 1,200,000 shares to DLC a related party
corporation owned 50% by the company's President and 50% by an affiliated
stockholder for an indemnification agreement to the Company in the amount of
$329,714. The valuations were based upon the Company's estimates of the goods
or services or transactional related value of consideration received by the
Company. Since no established market exists for the Company's common shares,
the Company, for consummated agreements through September 30, 2004, used
alternative valuations of estimates.
1.e) REVENUE RECOGNITION
There were no operating revenues in 2005. Revenue will be recognized based on
AICPA Statement of Position 03-3, if the management is reasonably comfortable
with expected cash flows. In the event, expected cash flows cannot be
reasonably estimated, the Company will use the "Recovery Method" under which
revenues are only recognized after the initial investment has been recovered.
1.f) ADVERTISING COSTS
No advertising expenses were incurred in 2005.
1.g) LOSS PER SHARE
Basic loss per share excludes dilution and is computed by dividing the net
loss by the weighted average number of common shares outstanding during the
period. Diluted loss per share includes assumed conversion shares consisting
of dilutive stock options and warrants determined by the treasury stock method
and dilutive convertible securities. In 2005 and 2004, all potentially issuable
shares have been excluded from the calculation of loss per share, as their
effect is anti-dilutive. The weighted average calculation includes the common
stock payable transactions as enumerated in note 5b. For the period ended
September 30, 2005, there were 12,910,508 anti-dilution common shares
potentially issuable.
1.h) INCOME TAXES
The Company has adopted the asset and liability method of accounting for
income taxes. Deferred tax assets and liabilities are recognized for the
expected future tax consequences of temporary differences between the
financial statement carrying amount and tax basis of assets and liabilities.
The Company provides for deferred taxes at the enacted tax rate that is
expected to apply when the temporary differences reverse.
1.i) STOCK-BASED COMPENSATION
Shares of the Company's common stock were issued for consulting services and
settlement expenses. The common stock share issuances for the settlement
expenses were computed using a negotiated common stock price of $0.70 per
share. These stock issuances were valued based upon the fair value of the
consideration of debt relief to the Company. See Note 1.c) above for
discussion of the use of estimates in share valuation. The common stock shares
issued for consulting services were issued utilizing a negotiated common stock
price of $1.25 per share.
1.j) FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company uses the following methods and assumptions to estimate the fair
value of each class of financial instruments for which it is practicable to
estimate such value:
Cash and short-term investments: The carrying amount approximates fair value
because of the short maturity of those instruments.
Accounts payable: The carrying value of accounts payable approximates fair
value due to the short-term nature of the obligations.
Convertible debentures and notes payable: The carrying value of the Company's
convertible debentures and notes payable, which are in default, approximates
fair value due to the short-term nature of the obligations.
1.k) NEW ACCOUNTING PRONOUNCEMENTS
In December 2004, the FASB issued SFAS No.153, "Exchanges of Nonmonetary
Assets, an amendment of APB Opinion No. 29, Accounting for Nonmonetary
Transactions. "The amendments made by Statement 153 are based on the principle
that exchanges of nonmonetary assets should be measured based on the fair value
of the assets exchanged. Further, the amendments eliminate the narrow exception
for nonmonetary exchanges of similar productive assets and replace it with a
broader exception for exchanges of nonmonetary assets that do not have
commercial substance. Previously, Opinion 29 required that the accounting for
an exchange of a productive asset for a similar productive asset or an
equivalent interest in the same or similar productive asset should be based on
the recorded amount of the asset relinquished. Opinion 29 provided an exception
to its basic measurement principle (fair value) for exchanges of similar
productive assets. The Board believes that exception required that some
nonmonetary exchanges, although commercially substantive, be recorded on a
carryover basis. By focusing the exception on exchanges that lack commercial
substance, the Board believes this Statement produces financial reporting that
more faithfully represents the economics of the transactions. The Statement is
effective for nonmonetary asset exchanges occurring in fiscal periods beginning
after June 15, 2005. Earlier application is permitted for nonmonetary asset
exchanges occurring in fiscal periods beginning after the date of issuance.
The provisions of this Statement shall be applied prospectively. The Company
has evaluated the impact of the adoption of SFAS 153, and does not believe the
impact will be significant to the Company's overall results of operations or
financial position.
In December 2004, the FASB issued SFAS No.123 (revised 2004), "Share-Based
Payment". Statement 123(R) will provide investors and other users of financial
statements with more complete and neutral financial information by requiring
that the compensation cost relating to share-based payment transactions be
recognized in financial statements. That cost will be measured based on the
fair value of the equity or liability instruments issued. Statement 123(R)
covers a wide range of share-based compensation arrangements including share
options, restricted share plans, performance-based awards, share appreciation
rights, and employee share purchase plans. Statement 123(R) replaces FASB
Statement No. 123, Accounting for Stock-Based Compensation, and supersedes APB
Opinion No. 25, Accounting for Stock Issued to Employees. Statement 123, as
originally issued in 1995, established as preferable a fair-value-based method
of accounting for share-based payment transactions with employees. However,
that Statement permitted entities the option of continuing to apply the
guidance in Opinion 25, as long as the footnotes to financial statements
disclosed what net income would have been had the preferable fair-value-based
method been used. Public entities (other than those filing as small business
issuers) will be required to apply Statement 123(R) as of the first interim or
annual reporting period that begins after June 15, 2005. The Company has
evaluated the impact of the adoption of SFAS 123(R), and does not believe the
impact will be significant to the Company's overall results of operations or
financial position.
In March 2004, the FASB approved the consensus reached on the Emerging Issues
Task Force (EITF) Issue No. 03-1, "The Meaning of Other-Than-Temporary
Impairment and Its Application to Certain Investments." The objective of this
Issue is to provide guidance for identifying impaired investments. EITF 03-1
also provides new disclosure requirements for investments that are deemed to be
temporarily impaired. In September 2004, the FASB issued a FASB Staff Position
(FSP) EITF 03-1-1 that delays the effective date of the measurement and
recognition guidance in EITF 03-1 until after further deliberations by the
FASB. The disclosure requirements are effective only for annual periods ending
after June 15, 2004. The Company has evaluated the impact of the adoption of
the disclosure requirements of EITF 03-1 and does not believe the impact will
be significant to the Company's overall results of operations or financial
position. Once the FASB reaches a final decision on the measurement and
recognition provisions, the company will evaluate the impact of the adoption of
EITF 03-1.
In November 2004, the FASB issued SFAS No. 151 "Inventory Costs, an amendment
of ARB No. 43, Chapter 4". The amendments made by Statement 151 clarify that
abnormal amounts of idle facility expense, freight, handling costs, and wasted
materials (spoilage) should be recognized as current-period charges and require
the allocation of fixed production overheads to inventory based on the normal
capacity of the production facilities. The guidance is effective for inventory
costs incurred during fiscal years beginning after June 15, 2005. Earlier
application is permitted for inventory costs incurred during fiscal years
beginning after November 23, 2004. The Company has evaluated the impact of the
adoption of SFAS 151, and does not believe the impact will be significant to
the Company's overall results of operations or financial position.
In December 2004, the FASB issued SFAS No.152, "Accounting for Real Estate
Time-Sharing Transactions, an amendment of FASB Statements No. 66 and 67" (SFAS
152). The amendments made by Statement 152 This Statement amends FASB Statement
No. 66, Accounting for Sales of Real Estate, to reference the financial
accounting and reporting guidance for real estate time-sharing transactions
that is provided in AICPA Statement of Position (SOP) 04-2, Accounting for Real
Estate Time-Sharing Transactions. This Statement also amends FASB Statement No.
67, Accounting for Costs and Initial Rental Operations of Real Estate Projects,
to state that the guidance for (a) incidental operations and (b) costs incurred
to sell real estate projects does not apply to real estate time-sharing
transactions. The accounting for those operations and costs is subject to the
guidance in SOP 04-2. This Statement is effective for financial statements for
fiscal years beginning after June 15, 2005, with earlier application
encouraged. The Company has evaluated the impact of the adoption of SFAS 152,
and does not believe the impact will be significant to the Company's overall
results of operations or financial position.
(2.) LIQUIDITY AND GOING CONCERN MATTERS
The Company has had limited operations and only recently entered into new
operations in the debt collection business and incurred losses since its
inception and, as a result, has an accumulated deficit of $7,316,544 at
September 30, 2005. The net loss for the twelve month period ended September
30, 2005 was $462,708. The Company had convertible debenture debt in default
in the amount of $ 150,000, plus related accrued interest payable of $110,281.
These factors raise substantial doubt about the Company's ability to continue
as a going concern.
The Company's ability to continue as a going concern depends upon successfully
restructuring its debt, obtaining sufficient financing to maintain adequate
liquidity and provide for capital expansion until such time as operations
produce positive cash flow. The Company has been in reorganization and at the
present time is entering into the debt collection business within the financial
services industry and remains in default on certain debenture obligations
amounting to $150,000.
The accompanying consolidated financial statements have been prepared on a
going concern basis, which assumes continuity of operations and realization of
assets and liabilities in the ordinary course of business. The consolidated
financial statements do not include any adjustments that might result if the
Company was forced to discontinue its operations. The Company's current plans
are to continue to insert itself into the debt collection industry as a result
of its recent consumer debt asset acquisition agreement. The Company has began
again to resume operations after an approximate five year reorganization
period. However, there can be no assurance that these actions will be
successful.
Recent acquisition agreement contracts were previously announced in the
Company's 8-K filings that did not result in a successful asset acquisition as
originally planned. Due to the inability of the Company to receive certified
audits of the assets of the acquired companies, as required in the asset
acquisition agreement, none of the acquisition companies assets were acquired
except for a smaller purchase of $43,733,000 in consumer debt assets that was
completed in September 30, 2005. The Company did provide audit and bookkeeping
assistance to enable the completion of the agreement for the certified audits
for the years 2003 and 2004 as required by the contract terms. The Company
incurred costs of $146,755 as of September 30, 2005 related to this acquisition
activity and these have been recorded as a note receivable - non current in the
amount of $95,809 and a related receivable from the seller in the amount of
$50,946 less an allowance for uncollectible amounts in a similar due to the
Companies from whom the assets were to be purchased from having filed Chapter 7
Petition in the U.S. Bankruptcy Court in California in the consolidated
financial statements for the period ending September 30, 2005.
(3.) INCOME TAXES
The Company has incurred significant net operating losses. The Company has not
reflected any benefit of such net operating loss carry-forwards in the
accompanying financial statements. The income tax expense benefit
differed from the amount computed by applying the U.S. federal income tax rate
of 34% to income before income taxes as a result of the following:
2005 2004
--------- ---------
Computed "expected" tax benefit 34.0% 34.0%
State income tax, net of federal benefit 3.8% 3.8%
Change in valuation allowance (37.8%) (37.8%)
--------- ---------
The tax effect of temporary differences that give rise to significant portions
of the deferred tax assets for the period ended September 30, 2005 and
September 30, 2004 is presented below:
2005 2004
--------- ---------
Deferred tax assets:
Net operating loss carry forward $2,226,000 $2,039,000
Start up costs -
Other -
--------- ---------
Total gross deferred tax assets 2,226,000 2,039,000
Valuation allowance 2,226,000 (2,039,000)
--------- ---------
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
September 30, 2005
For the period ended September 30, 2005, the Company reported a net operating
tax loss carry-forwards of approximately $5,827,855. The federal net operating
loss carry-forwards begin to expire in the year 2011.
Federal tax laws impose significant restrictions on the utilization of net
operating loss carry-forwards in the event of a change in ownership of the
Company that constitutes an "ownership change," as defined by the Internal
Revenue Code, Section 382. The Company's net operating loss carry-forward will
be subject to the above limitations.
(4.) STOCK ISSUANCE
(4.a) PREFERRED STOCK
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. 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 125,000
(post-split) common shares (after giving effect to the reverse stock split
that was effective on January 22, 2004) or 75% ownership of the common
stock to be outstanding, based upon an anti-dilution provision clause 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. As a result
of the shares issued and common stock payable as of September 30, 2005, common
shares issuable to the Financial Company for its convertible loans and accrued
interest payable and computed on a post-split basis, the preferred shares upon
conversion would convert into no less than 12,910,508 additional common shares.
The timing of the conversion is at the discretion of the holder.
On January 12, 2004, by written action of the stockholders of a majority of the
common stock outstanding, and at a duly called special meeting of its
shareholders, the Company approved the increase of the aggregate number of
shares of preferred stock authorized from 5,000,000 to 30,000,000. The
principal purpose of the authorizing of a preferred share increase was to
enable the Company to have additional means to facilitate new capital
attraction at the time of the completion of the reorganization process.
(4.b) COMMON STOCK
As of September 30, 2005, 3,948,000 shares of Common stock were issued and
outstanding, of which 1,374,242 shares of Common stock were issued during the
twelve month period ending September 30, 2005. Of these shares, 100,002 were
valued based upon the amount of the liability settled at a negotiated per
share price of $0.70 per share. The remaining 1,274,240 were issued as follows:
1,250,000 restricted common shares as payment for the purchase of $43,733,000
of distressed defaulted consumer debt receivables and 24,240 restricted common
shares for services rendered for consulting services to the Company.
As discussed in Note 1, the Company has entered into an asset purchase
agreement with five California Companies which was subsequently terminated as
result of the failure to provide required certified audits by the California
Companies. However, the Company had issued approximately 8,000,000 shares of
common stock related to this unsuccessful asset purchase agreement which had
not been returned from an escrow account designated to facilitate the
transaction. The Company is currently seeking the return of these shares from
the escrow account and believes it will be successful. The Company has not
included these shares in the accompanying consolidated financial statements as
either issued or outstanding since there were no consideration given for these
shares and the asset purchase agreement was terminated.
(4.b.1) COMMON STOCK PAYABLE
During the year ended September 30, 2005, the Company and its board of
directors approved for issuance 8,880 restricted common (post-split) shares
for additional consulting services. These shares have been issued subsequent
to September 30, 2005. Consequently, these transactions were recorded as
"common stock payable" as of September 30, 2005.
There are due for issuance an additional 5,040 of restricted common shares
for the year ended September 30, 2005 that had not yet been approved by the
Board of Directors. These shares will be issued subsequent to September 30,
2005.
(4.c) STOCK WARRANTS
Between October 1997 and April 2000, the Company issued warrants, exercisable
over 5 years, to purchase 3,732,990 (pre-split) shares of common stock at
$1.00 per share.
The Company applies the FASB 123 standard in accounting for the stock-based
compensation costs of employee stock options in the financial statements. No
warrants were issued to employees in 2004 and 2003. Therefore, pro forma net
loss is the same as reported net loss. The following table contains
information about stock warrants as of September 30, 2004; adjusted for the
reverse stock split of 1 for 140 that occurred on January 2004.
Stock Warrants Shares Warrant Price
Outstanding and exercisable (post-split) (post-split)
----------------------------------------- ----------------- -----------
Outstanding at December 31, 2003 26,665 $3.00
Granted - -
Exercised - -
Expired or cancelled (25,843) $3.00
--------- -----
Outstanding and exercisable at September 30, 2004 821 $3.00
Expired or cancelled (25,843)
Outstanding and exercisable at September 30, 2005 0 0
========= =====
(4.d) STOCK OPTIONS
On July 1, 2004, the Company's Board of Directors granted a stock option for
6,000,000 common shares to a related party Doubletree Capital Partners,
Inc.(DCP) at an exercise price of $.60 per share for a five year term
commencing July 1, 2004. The option was granted to DCP as a means to preserve
ownership interest as required in preliminary acquisition discussions. As of
September 30, 2005, the stock options were still outstanding and none of the
options had been exercised.
The Company has followed the "minimum value" approach as explained in FASB
Statement No. 123, wherein the valuation method used more appropriately
determined a fair value of the Company's common shares for determining the fair
market value of the options issued. The Company made a charge to the Company's
income statement in the amount of $60,000 for the estimated value of the
options at the date of issuance on July 29, 2004. The options carry a five year
term from the date of issuance and a related exercise price of $0.60 per common
share exercised. Using a conservative risk-free rate of return for a five year
investment of 2.25%, we further discounted the exercise price by 2.25% to
arrive at the present value of $0.54. Using an average then current stock bid
price of $.55 and expected dividends of zero from the Company, we calculated a
minimum present value of the stock option to be $0.01 for the issuance of the
6,000,000 options. The Company feels this approach is very conservative based
upon the current status of the Company's operations, the lack of trading volume
and active market for the Company's common stock.
As of September 30, 2005, the following table is a summary of the stock options
outstanding on that date adjusted for the reverse stock split of 1 for 140 that
occurred in January 2004
Weighted Average
Number of Exercise
Stock Options Shares Price
(post-split) (post-split)
----------------------------------------- --------- --------
Outstanding and exercisable at December 31, 2003 23,661 $3.00
Granted 6,000,000 0.60
Exercised - -
Expired or cancelled - -
--------- --------
Outstanding & exercisable at September 30, 2004 6,023,661 1.78
Granted 0 0
Exercised - -
Expired or cancelled (23,661) (3.00)
--------- --------
Outstanding & exercisable at September 30, 2005 6,000,000 $ .60
========= ========
The weighted average estimated fair value of stock options granted during
2004 and 2003 was $0.01 and $0 per share, respectively.
(4.e) INDEMNIFICATION AGREEMENT - RELATED PARTY
On July 1, 2004, the Company approved the issuance of 1,200,000 common shares
to an affiliated company, Doubletree Liquidation Corporation (DLC). DLC is a
corporation owned 50% by the Company's President and 50% by an affiliated
stockholder, whose ownership exceeds, beneficially, 5% of the Company's common
stock. The affiliated company, DLC, has issued an indemnification guarantee to
the Company wherein it will process, review, and guarantee payment for certain
prior Company liabilities (both actual and contingent) that may arise during
the next four years from June 30, 2004. The Company has deemed the value of the
transaction to be $329,714 based upon the consideration given to the Company in
the indemnification agreement.
During the four years of the agreement, DLC will endeavor to finalize and bring
to a conclusion, the payment of prior operation's liabilities. As the remaining
liabilities are paid or resolved, The Company will receive such notification of
the resolution and may be allowed to reduce the carrying value of the
indemnification receivable. The remaining unpaid liabilities can be summarized
as (1) one defaulted convertible debenture in the amount of $150,000 and one
converted debenture loan payable in the amount of $50,000. Both of these notes
are included on the books of the Company along with related accrued interest
payable in the amount of $110,281, (2) One account payable - disposed business
in the amount of $24,000 is also covered by this indemnification agreement.
The following is summary of the presentation of the liabilities in the Balance
Sheet at September 30, 2005:
Description of debt indemnification: Current Long-term
Defaulted convertible debenture payable $ 150,000 $ 0
Defaulted accrued interest payable 110,281
Account payable-disposed business 24,000
Convertible debenture payable 50,000 0
Less, contra-indemnification receivable (334,281) 0
--------- ---------
Balances per Balance Sheet, at
September 30, 2005: $ 0 $ 0
========= =========
The Company believes that beyond the $334,281 referred to above, there will be
no additional charge or exposure for past liabilities, contingent or otherwise
to the Company and if any do occur, they will be the responsibility of DLC in
accordance with their guarantee to the Company as enumerated in the
Indemnification Agreement.
(4.f) Restatement of June 30, 2004 Financial Statements and 10-QSB
The value of the indemnification agreement transaction had been recorded during
the quarter ended June 30, 2004 in the previously determined amount of
$561,000. The $561,000 was based upon a more encompassing list of unpaid
liabilities from all prior operations of the Company, both parent and
subsidiary included, The Company now deems their potential debt payment
exposure to be limited to only the liabilities included on the Company's
financial statements in the amount of $329,714 at the date of the issuance of
the Indemnification Agreement by DLC, plus accrued interest that may occur
until all debts are settled and paid. The valuation change herein discussed
will require a change to the Company's previously filed Form 10-QSB financial
statement report with the Securities and Exchange Commission. Also the Company
will record an additional $14,523 in expense to issue an additional 20,747
shares of common stock for additional interest due to the conversion of a
convertible debenture. The Company made these changes in an amended report
to the SEC on June 13, 2005. The following table summarizes the changes to the
financial statements as of June 30, 2004 before and after the revisions:
As Reported Revised
Total Assets $ 403 403
Total Liabilities 1,709,249 1,162,772
Stockholders Equity (1,593,045) (1,032,045)
Loss on extinquishment of debt 14,523
General and Administrative expense 83,916 83,916
Interest expense 31,885 31,885
Net (loss) (115,802) (130,324)
(5.) CONVERTIBLE DEBT
(5.a) CONVERTIBLE DEBENTURES
The Company issued convertible debentures in a private placement between
November 1999 and May 2000. These debentures were convertible at the option
of the holder into common stock at $1.50 per share and bear interest, which
is payable quarterly beginning June 30, 2000 at 12%. The debentures had a
term of three years and mature between November 2002 and May 2003. The
issuance of these debentures included a beneficial conversion feature with
intrinsic value resulting from the market price for common stock being
greater than the option price. The beneficial conversion feature amounted to
$422,920, which was greater than the proceeds of the related debentures
by $25,000.
The amount of the beneficial conversion feature not exceeding the
proceeds from the debentures is immediately recognized as interest expense
because the right to convert to common stock is vested upon issuance of the
debentures. Accordingly, interest expense for the year ended December 31,
2000 included $397,920 related to the beneficial conversion feature.
As of September 30, 2005, the Company was in default on the terms of payment of
quarterly interest on these debentures amounting to $110,251. Accordingly, two
remaining convertible debentures have been classified as a current liability
amounting to $150,000. Reference should be made to note 4.e in these notes to
financial statements as this amount has been offset by a contra-indemnification
receivable.
During 2003, the Company extended one previously defaulted $50,000 convertible
debenture to a future due date of March 31, 2006 with interest payable at that
date. The interest rate was also lowered to 6% par annum. The debenture is also
convertible into common shares of the Company at the rate of $3.00 per share at
the option of the holder. It is classified as a current liability and has been
offset by a contra-indemnification receivable.
(5.b) CONVERTIBLE NOTES PAYABLE - RELATED PARTY
The Company issued convertible notes payable during the twelve months ended
September 30, 2005 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 $0.70 per share. These convertible notes were previously convertible
at the rate of $2.80 per share, but in July 2004, the Board of Directors
changed the conversion rate to $.70 per share. The change did not result in any
beneficial intrinsic value to their holders and no change to the Company's
financial statements was required as the fair value of the Company's common
stock was less than the $0.70 per share.
The issuance of these notes did not include a beneficial conversion feature
with intrinsic value resulting from the market value for common stock being
less than the conversion price. Interest expense on these notes amounted to
$62,112 during the twelve months ended September 30, 2005. Accrued interest on
these notes was $193,116 at September 30, 2005.
(6.) 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 $140,000 in the twelve months ended
September 30, 2005. In December 2003, the Company's Board of Directors approved
the issuance of 357,143 common shares as partial payment for services rendered
to date. These unpaid consulting services remain as accrued expenses at
September 30, 2005 in the amount of $315,000. As a Director, the President
received an additional 35,715 common shares authorized to him during the year
ended December 31, 2003 for his services as a director of the Company and
issued in 2004. Three other directors received a total of 107,145 shares for
their services.
(7.) OTHER INFORMATION AND SUBSEQUENT EVENTS
Other Information (this could be removed as we have no significant subsequent
events)
On January 27, 2005, the Company Board approved a Code of Business Conduct and
Ethics policy. This Code provides clear rules to assist our employees, officers
and directors in taking the proper actions when faced with an ethical dilemma.
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Company changed accountants during 2003 and again in 2004. There were no
disagreements with accountants on matters of accounting and financial
disclosure in 2005, 2004 and 2003
On August 3,
2004 the Company announced the engagement of Stonefield Josephson, Inc.
Certified Public Accountant, as their principal certifying accountants.
Stonefield Josephson, Inc was founded in 1975 and is one of the largest
regional CPA firms based in California, headquartered in Santa Monica, CA. The
decision to accept the engagement of Stonefield Josephson, Inc C.P.A. was
approved by the Board of Directors on August 3, 2004.
On October 19, 2005, the Company announced the resignation of Stonefield
Josephson, Inc., as their principal certifying accountants. Stonefield
Jospehson, Inc. notified the Company that they were resigning effective
immediately as of October 13, 2005.
There were no disagreements with Stonefield Josephson Inc. on matters of
accounting and financial disclosure in 2004, from September 30, 2004 and
through October 13, 2005, the date of their resignation as certifying
accountants. In connection with the audit of the fiscal year ended September
30, 2004, and the subsequent interim period through through October 13, 2005,
there were no disagreements with the Company's principal accountants on any
matter of accounting principles or practices, financial statement disclosure,
or 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 October 13, 2005, there
have been no reportable events (as defined in Regulation S-K Item 304
(a)(1)(V)).
On November 23, 2005, the Company announced the engagement of De Joya
Griffith & Company, LLC., Certified Public Accountants, as their principal
certifying accountants. De Joya Griffith & Company was founded in 2004 and is
the combination of two prior CPA firms. The firm is based in Las Vegas, Nevada.
The decision to accept the engagement of De Joya Griffith & Company was
approved by the Board of Directors on November 21, 2005. De Joya Griffith &
Company will be performing the annual audit of the Company's consolidated
financial statements or the fiscal year ending September 30, 2005.
Item 8.a. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Within the 90 days prior to the end of the period covered by this report, the
Registrant carried out an evaluation of the effectiveness of the design and
operation of its disclosure controls and procedures pursuant to rule 13a-15
under the Securities Exchange act of 1934, as amended ("Exchange Act"). This
evaluation was done under the supervision and with the participation of the
Registrant's President. Based upon that evaluation, they concluded that the
Registrant's disclosure controls and procedures are effective in gathering,
analyzing and disclosing information needed to satisfy the Registrant's
disclosure obligation under the Exchange Act. There were no significant changes
in the Registrant's disclosure Controls and procedures, or in its factors that
could significantly affect those controls since the most recent evaluation of
such controls.
As a non-accelerated filer with a fiscal year end of September 30, the Company
must first begin to comply with the requirements of Section 404 of the
Sarbanes-Oxley Act of 2002 ("Section 404") for the fiscal year ending September
30, 2006. During fiscal 2005, management will review and evaluate the
effectiveness, and where necessary, enhance the Company's internal controls
over financial reporting. The Company anticipates that it may need to engage a
third party to assist it with the design of such internal controls over
financial reporting. As of the date of this report, the Company has not yet
engaged any such third party. This review and any enhancements, if necessary,
will likely involve significant time and expense by the Company and its
independent auditors. Accordingly, there can be no assurances that the Company
will be in compliance with the requirements of Section 404 by September 30,
2006.
Item 8.b. 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 SUMMARY
On November 3, 2004, the Company announced it had amended its acquisition
agreement originally dated August 19, 2004 to complete and finalize the
acquisition of the privately-held network of financial services companies
composed of Harrison Asset Management Inc. (HAMI), Money Asset Management, Inc.
(MAMI), Cash Asset Management Inc. (CAMI), E-commerce Bank, First American
Financial Family Services (FAFFS), and United Recovery Inc. (URI) - a wholly-
owned subsidiary of MAMI to November 1, 2004 On August 19, 2004, ISAI completed
the agreement to exchange common shares and common share warrants of ISAI for
certain assets of the group of companies above. Paragraph 2.5 of the Asset
Purchase Agreement, previously filed with the SEC in an 8-K dated 8-23-04,
stated ISA Internationale Inc. would be provided audited financial statements
within 70 days of closing and such audited statements would be used to
apportion the 5,000,000 shares of common stock of ISAI among the three
companies in accordance with the asset values being transferred from each of
the companies to ISAI.
On November 4, 2004, the Company announced it changed its fiscal year end to
September 30. Formerly it was December 31, 2004. Fiscal year 2004 will have
only three quarters of activity from January 1, 2004 to September 30, 2004.
ISAI will be reporting its year-end results in Form 10-KSB. The Board of
Directors of the Company approved the resolution to change its fiscal year as
authorized under Article IX of its corporation bylaws on November 2, 2004.
On January 14, 2005, the Company announced it amended again its agreement to
complete and finalize the acquisition of the assets of a privately held network
of financial services companies composed of Harrison Asset Management Inc.
(HAMI), Money Asset Management, Inc. (MAMI), Cash Asset Management Inc. (CAMI),
E-commerce Bank, First American Financial Family Services (FAFFS), and United
Recovery Inc. (URI) - a wholly-owned subsidiary of MAMI to April 30, 2005. A
related Stock Acquisition Agreement was also amended.
On May 12, 2005, the Company announced it signed a new Portfolio Debt Purchase
Agreement wherein the Company would deliver 1,250,000 shares of ISAI common
stock in exchange for debt receivables with a fair market value of $1,088,732.
The Company also again amended its agreement to complete and finalize the
acquisition of the assets of a privately held network of financial services
companies composed of Harrison Asset Management Inc. (HAMI), Money Asset
Management, Inc. (MAMI), Cash Asset Management Inc. (CAMI), E-commerce Bank,
First American Financial Family Services (FAFFS), and United Recovery Inc.
(URI) - a wholly-owned subsidiary of MAMI to September 30, 2005. A related
Stock Acquisition Agreement was also amended.
On July 28, 2005, the Company announced that ISA Acquisition Corporation (a
Minnesota Corporation), a wholly owned subsidiary of ISAI, had changed its name
to ISA Financial Services Inc. The Company also announced that it had formed a
new 100% wholly owned subsidiary named ISA Acceptance Corporation (a Nevada
Corporation), after receiving notification from the State of Nevada as to its
formation on July 26, 2005. ISA Acceptance Corporation will actively manage
debt portfolios with the assistance of third party collection agency servicers
upon commencement of business operations within the next 30 days and is
considering a private preferred stock equity offering under Rule 506 of
Regulation D of the Securities Act.
On August 25, 2005, the Company announced the resignation of Roger Garmann as a
Director of the Company for personal reasons and that there had been no
disagreements between between Roger Garmann and the Company.
On September 29, 2005, The Company announced that it completed a revised
Portfolio Debt Purchase Agreement Addendum C on September 27, 2005 by and
between Money Asset Management, Inc., Harrison Asset Management, Inc. and Cash
Asset Management, Inc. (hereinafter referred to as "Sellers"), with their
principal address at 5000 N. Parkway Calabasas, Suite 303, Calabasas CA 91302
and ISA Acquisition Corporation, now renamed as ISA Financial Services, Inc.
and its wholly owned subsidiary ISA Acceptance Corporation, (Hereinafter
referred to as "Buyers")(both are wholly owned subsidiaries of the registrant,
ISA Internationale Inc.).
On September 30, 2005, the Company announced that it will not be extending the
terms of our original Asset Purchase Agreement signed on August 19, 2004,
subsequently amended to expire as of September 30, 2005, by and between Money
Asset Management, Inc., Harrison Asset Management, Inc. and Cash Asset
Management, Inc. (hereinafter referred to as the "Sellers", Calabasas, Ca
91302. The Company was the potential buyer in the agreement, but due
to the failure by the seller to deliver of the audits as required by the U.S
Securities and Exchange Commission and the Company's contract, the transaction
was not completed and has now expired.
On October 19, 2005, the Company announced their principal certifying
accounting firm Stonefield Josephson, Inc., headquartered in Santa Monica, CA.,
had resigned effective as of October 13, 2005. Stonefield Josephson, Inc.
performed the annual audit of ISA Internationale, Inc. financial statements for
the nine-month period ending September 30, 2004 and quarterly reviews for the
interim periods of December 31, 2004 through June 30, 2005.
On October 28, 2005, the Company again announced that their principal
certifying accounting firm Stonefield Josephson, Inc., headquartered in Santa
Monica, CA. had resigned effective as of October 13, 2005. Stonefield
Josephson, Inc. performed the annual audit of ISA Internationale Inc. financial
statements for the nine-month period ending September 30, 2004 and quarterly
reviews for the interim periods of December 31, 2004 through June 30, 2005.
Stonefield Josephson, Inc. reports on Registrant's audited fiscal year 2004
financial statements contained no adverse opinion or disclaimer of opinion and
were not qualified or modified as to uncertainty, audit scope, or accounting
principles except as discussed in note 2 to the financial statements in it's
Form 10-KSB for the interim period ended September 30, 2004 stating that the
Company has no operations, suffered recurring losses and has debt in default.
These matters raise substantial doubt about its ability to continue as a going
concern.
During the two most recent fiscal years and through the date of their
resignation on October 13, 2005 (date correction of October 19, 2005), there
have been no reportable events as defined in Item 304(a)(1(iv)(A) of Regulation
S-B. Registrant submitted as exhibit 16.1, a letter dated October 13, 2005 from
Stonefield Josephson, Inc. confirming their resignation.
Registrant also submitted as an exhibit a letter dated October 25, 2005
addressed to the Securities and Exchange Commission, Washington, D.C., from
Stonefield Josephson, Inc. confirming their agreement with our statements in
paragraph one, two, four and five of item 4.01 in the Form 8-K filed on
October 19, 2005 by the Company, which Form 8-K is again stated herein as to
paragraphs one, two, three, four and five of this item 4.01 herein reported
upon.
On November 23, 2005, the Company announced the engagement of De Joya Griffith
& Company LLC, Certified Public Accountants and Consultants, as their principal
certifying accountant. De Joya Griffith & Company LLC firm is based in
Henderson, Nevada. The decision to accept the engagement of and hiring of
De Joya Griffith & Company LLC, was approved by the Board of Directors on
November 21, 2005. De Joya Griffith & Company will be performing the annual
audit of ISA Internationale Inc. and subsidiaries financial statements for
the fiscal year ending September 30, 2005 and the subsequent interim
quarterly periods ended December 31, 2005, March 31, 2006 and June 30, 2006.
PART III
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Directors and Executive Officers of the Company
Set forth below are the names of the directors and executive officers of the
Company as of September 30, 2005, their ages, the year first elected as an
executive officer and/or director of the Company, and employment history for
the past five years.
Also set forth below are the changes to names of the directors and executive
officers of the Company as of January 1, 2004 through September 30, 2005,
their ages, the year first elected as an executive officer and/or director of
the Company, and employment for select persons for the past five years.
Name Positions with the Company Age Since
Bernard L. Brodkorb, President, Chief Executive Officer,
Chief Financial Officer and Director
Chairman of the Board of Directors [1] 64 January 2001
[1] (Note: Was Treasurer, Chief Financial Officer and Director from October
1997 to July 2000.
Donald G. Kampmann Outside Director 51 January 2001
James S. Dixon Outside Director 57 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
it's inception in October 1997. Mr. Brodkorb resigned as Treasurer, Chief
Financial Officer and Director on July 2000. He was elected to the board of
directors in January 2001, elected by the board of directors as interim
President, Chief Executive Officer, and Chief Financial Officer in February
2001. Mr. Brodkorb is an independent practicing licensed Certified Public
Accountant (CPA) within the State of Minnesota for many years, and has
extensive experience in financial and accounting matters relating to both
private and public companies, including auditing, financial consulting and
advising on corporate taxation. He is a member of the Minnesota Society of
Certified Public Accountants and the American Institute of Certified Public
Accountants.
DONALD G. KAMPMANN (January 2000 to present) is an outside director of the
Company from January 2000 to present. Mr. Kampmann has been an allotted board
member by Doubletree Capital Partners, Inc. Mr. Kampmann is President of
Freeland Financial Services and Minneapolis Financial Center, a Minnesota
mortgage placement and service center for mortgage loans for over the last six
years.
JAMES S. DIXON (January 2000 to present) is an outside director of the Company
from January 2000 to present. Mr. Dixon has been an allotted board member by
Doubletree Capital Partners, Inc. Mr. Dixon has been Vice President and
Secretary of West America Securities, Inc. of Scottsdale, Arizona during the
last six years.
Changes to names of Directors and Officers during the period from October 1,
2003 through September 30, 2005:
Resignations (August 25, 2005):
ROGER G. GARMANN (August 2000 to August 25, 2005) was an outside director of
the Company from August 2000 to August 25, 2005. Mr. Garmann has a law
enforcement background and worked for ISAI's wholly owned subsidiary
International Strategic Assets, Inc for five years as a salesman.
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, Charles
Newman and Doubletree Capital Partners, Inc. filed Statements of Beneficial
Ownership on Form 3. In 2004, Bernard Brodkorb, Charles Newman and Doubletree
Capital Partners, Inc. filed Statements of Beneficial Ownership on Form 3.
CODE OF ETHICS
We have adopted a code of ethics that applies to our principal executive
officers, principal financial officer, principal accounting officer or
controller, or persons performing similar functions as well as all Board of
Director's members.
Item 10. EXECUTIVE AND DIRECTOR COMPENSATION
For the twelve months ended September 30, 2005 and the nine months ended
September 30, 2004, no cash compensation was paid to executive officers
or directors.
The following table sets forth information the remuneration of our chief
executive officer during any part of our last two fiscal years, including
non cash compensation.
SUMMARY EXECUTIVE AND DIRECTOR COMPENSATION
-----------------------------------------------------------------------------------------------------------
ANNUAL COMPENSATION LONG TERM COMPENSATION
AWARDS PAYOUTS
OTHER RESTRICTED SECURITIES
NAME AND ANNUAL STOCK UNDERLYING LTIP ALL OTHER
PRINCIPAL FISCAL COMPENSA AWARD OPTIONS PAYOUTS COMPENSA
POSITION YEAR SALARY ($) BONUS ($) TION ($) ($) SARS ($) ($) TION($)
-----------------------------------------------------------------------------------------------------------
Bernard L. 2005 $140,000(1) -0- -0- -0- -0- -0- $ -0-
Brodkorb 2004 $ 75,000(1) -0- -0- -0- -0- -0- -0-
President
-----------------------------------------------------------------------------------------------------------
All Other 2005 -0- -0- -0- -0- -0- -0- 0
Directors 2004 -0- -0- -0- -0- -0- -0- 0
----------------------------------------------------------------------------------------------------------
(1) This compensation was recorded on the books of the Company as compensation
-non cash-consulting and accrued as Accounts Payable -Related Party.
< Director Compensation
In 2004, Directors did receive 142,850 compensational shares as compensation
for their services as directors for the four years ended December 31, 2003.
These shares were voted and approved by the Board of Directors in December
2003 and were valued at $.70 per common share to be issued, ($100,000) for the
year ended December 31, 2003. This is the only compensation ever paid to any
of the directors for their services on the Company's Board.
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
13,279 (post-split) shares of common stock of the Company at an exercise price
of $1.00 per share (post split adjusted) over a five-year term, with Mr.
Durand receiving warrants to purchase 7,143 (post-split) common shares, Mr.
Brodkorb receiving warrants to purchase 2,857 (post-split) of these shares,
and Mr. Wolfbauer receiving warrants to purchase 3,279 (post-split) of these
shares. All of these warrants have expired as of September 30, 2005.
No Director compensation has been authorized for services for the year 2005
through January 11, 2006, the date of this 10KSB transition report filing.
Stock Options Granted for Compensation
We do not have any stock option plans at this time, but plan to adopt a plan
for our employees in the future.
In July 2004 the Company's Board of Directors granted a stock option for
6,000,000 common shares to a related party, Doubletree Capital Partners, Inc.,
at an exercise price of $.60 per share for a five year term commencing July 1,
2004. The option was granted to DCP as a means to preserve ownership interests
as required in preliminary acquisition discussions. As of September 30, 2005,
the stock options were still outstanding and none of the options had been
exercised.
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of September 30, 2005, certain information
regarding the beneficial ownership of shares of common stock of the Company by
(1) each person or entity who is known by the Company to own more than 5% of
the Company's common stock, (2) each director of the Company, and (3) all
directors and executive officers of the Company as a group.
11-A. Security Ownership of Certain Beneficial Owners
11-B. Security Ownership of Management
Shares of Common Stock Percent of
Name and Address of Beneficial Owner Beneficially Owned Outstanding
-------------------------------------------------------------------------
Doubletree Capital Partners, Inc. (1) 21,310,701 87.11%
A Minnesota corporation
12201 Champlin Drive, Champlin, MN 55318
Bernard L. Brodkorb (2) 11,498,136 47.00%
St. Paul, MN.
(1) Includes 12,910,508 shares which may be acquired upon conversion of
5,000,000 shares of Preferred Stock; includes 1,146,623 shares which may be
acquired upon Conversion of convertible loans payable and accrued interest
payable at September 30, 2005; 21,429 common shares acquired in November, 2000
and 1,232,143 common shares held by an affiliated company to be distributed to
creditors of ShoptropolisTV.com, a former subsidiary company of ISAI, as may
be deemed necessary for the resolution of any contingent, non-contingent and
or real liabilities that may arise in the future.
(2) Includes a beneficial interest in warrants to purchase 6,000,000 shares
exercisable at $0.60 per share issued to Doubletree Capital Partners, Inc.;
includes 50% beneficial interest in Doubletree Capital Partners, Inc.;
includes 8,929 common shares owned since 1998 and 383,857 common shares issued
in 2004, which would result in total ownership shares of 11,498,136.
Number of Common Stock Percent of
Name and Address of Beneficial Owner Beneficially Owned Outstanding
Bernard L. Brodkorb, Jr. (3) 22,153,487 90.56%
St. Paul, MN
Donald G. Kampman (5) 35,714 .15%
Prior Lake, MN.
James S. Dixon (5) 35,714 .15%
Scottsdale, AZ.
---------- ------
Directors and executive officers as a group 22,224,915 90.86%
(4 persons, including those named above)
(3) Includes 50% beneficial interest in warrants to purchase shares
exercisable at $.60 per share.
(4) Includes 35,714 common shares issued in 2004.
(5) Includes 35,714 common shares issued in 2004.
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) also 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. Their services were valued on the basis of $.0001 per share
(Pre-split).
Name of Founder Common Shares Issued Common Shares
Exercisable by
Warrant
(post-split) (post-split)
--------------------------------------------------------------------------
Gerald J. Durand 42,857 0
Bernard L. Brodkorb 12,500 6,000,000
Ronald G. Wolfbauer 3,279 0
Michael G.W. Birch 12,500 0
In January 1999, the Company redeemed a total of 11,786 (post-split) 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 (post-split)
Gerald J. Durand 4,286
Bernard L. Brodkorb 3,750
Michael G.W. Birch 3,750
In February 1999, Barbara McLean exercised warrants to purchase 10,929
(post-split) shares of common stock of the Company for $0.50 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 $0.50 for a temporary period. In total, warrants
to purchase 16,729 (post-split) shares of common stock were exercised for
$528,202 in cash and $642,838 value in gold bullion and coins.
In June 2002, Barbara McLean was issued 71,270 (post-split) shares of common
stock in exchange for convertible debt of $498,887 in principal and accrued
interest
In December 2003, the Company authorized issuing to the President, 392,857
(post-split) common shares as payment for consulting services rendered during
the three years from 2001 to 2003 as the Company's President and his services
as a Director. These shares were issued in June 2004.
On July 1, 2004, the Company approved the issuance of 1,200,000 common shares
to an affiliated company, Doubletree Liquidation Corporation (DLC). DLC is a
corporation owned 50% by the Company's President and 50% by an affiliated
stockholder, whose ownership exceeds, beneficially, 5% of the Company's common
stock. The affiliated company, DLC, has issued an indemnification guarantee to
the Company wherein it will process, review, and guarantee payment for certain
prior Company liabilities (both actual and contingent) that may arise during
the next four years from June 30, 2004. The Company has deemed the value of the
transaction to be $329,714 based upon the consideration given to the Company in
the indemnification agreement.
ITEM 13. PRINCIPAL ACCOUNTANT FEES AND SERVICES
13.1 Audit Fees.
The aggregate fees billed for each of the two fiscal years for professional
services for the audit of the Registrant's annual financial statements, and
review of financial statements included in the company's Form 10-QSB's:
2005 - $66,956; 2004 - $22,327.
13.2 Audit-Related Fees.
The aggregate fees billed in each of the last two fiscal years for assurance
and related services that are reasonably related to the performance of the
audit or review of the Registrant's financial statements and are not under
Audit Fees above: $0 and $0 in 2005 and 2004.
13.3 Tax Fees.
The aggregate fees billed in each of the last two fiscal years for
professional services rendered for tax compliance and tax
planning: $0 and $0 in 2005 and 2004.
13.4 All Other Fees.
The aggregate fees billed in each of the last two fiscal years for products
and services other than the services reported above:
$0 and $0 in 2005 and 2004.
13.5 Audit Committee's pre-approval policies and procedures.
The Registrant's committee consists of two Directors. The audit committee has
adopted a written charter. The Registrant's Board of Directors has determined
the Company does have a financial expert serving on its audit committee.
The Registrant does not have any pre-approval policies and procedures. The
audit committee makes recommendation concerning the engagements of independent
public accountants, review with the independent public accountants the scope
and results of the audit engagement, approves all professional services
provided by the independent accountants, reviews the independence of the
independent public accountants, considers the range of audit and non-audit
fees, and review the adequacy of the Registrant's internal accounting
controls.
13.6 Work performed by other than the principal accountant's engagement of
full time permanent employees.
The percentage of time expended by other than full time permanent employees of
the principal accountant did not exceed 50%.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Signature Title Date
___________________________________________________________________________
ISA INTERNATIONALE INC.
_____________________________________
/s/Bernard L. Brodkorb
By Bernard L. Brodkorb January 13, 2006
President, Chief Executive Officer, and Director
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.
______________________________________
/s/ Bernard L. Brodkorb, January 13, 2006
By: Bernard L. Brodkorb
President, Chief Executive Officer, and Director
______________________________________
/s/ Donald G. Kampmann January 13, 2006
By: Donald G. Kampmann Director
______________________________________
/s/ James S. Dixon January 13, 2006
By: James S. Dixon Director
SECTION 302 CERTIFICATION
I, Bernard L. Brodkorb, certify that:
1. I have reviewed the annual report on Form 10-KSB of ISA Internationale
Inc.;
2. Based on my knowledge, this report does not contain any untrue statements
of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered
by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this report (the "Evaluation Date"); and
c) presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses
in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls.
6. The registrant's other certifying officers and I have indicated in this
report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
/s/ Bernard L. Brodkorb
President, CEO, CFO, Chairman of the Board Date: January 13, 2006
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of ISA Internationale Inc., (the
"Company") of Form 10-KSB for the period ending September 30, 2005, as filed
with the Securities and Exchange Commission on the date hereof (the "Report"),
I, Bernard L. Brodkorb, Chief Executive Officer of the Company, certify,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the
Sarbanes-Oxley Act of 2002, that to the best of my knowledge and belief:
(1.) the report fully complies with the requirements of Section 13(a)
or 15 (d) of the Securities Exchange Act of 1934; and
(2.) the information contained in the Report fairly presents, in all material
respects, the financial condition and result of operations of the Company.
/s/ Bernard L. Brodkorb
By: Bernard L. Brodkorb
President, Chief Executive Officer, and Chief Financial Officer
Date: January 13, 2006
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)).
End of Report
1