UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2005
Commission File Number: 001-16423
-----------------------------------
ISA INTERNATIONALE INC.
(Exact name of registrant as specified in its charter)
Delaware 41-1925647
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2560 Rice Street, St. Paul, MN 55113
(Mailing address of principal executive offices) (Zip Code)
(Issuer's telephone number) (651) 483-3114
Securities registered under Section 12(g) of the Exchange Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock OTC Bulletin Board
----------------------------------------------------------------------------
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
State the number of shares outstanding of each of the issuer's classes of
Common equity, as of the latest practical date. On February 21, 2006, there
were 3,956,880 of the Registrant's common stock, par value $.0001 per share
outstanding 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 issued (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 0.025 common shares for every preferred share being converted, however, the
preferred shares also contain an anti-dilution provision clause that states
the preferred shares will convert into no less than 75% ownership of the then
common shares to be outstanding.
As of February 21, 2006 the preferred shares upon conversion (post-split basis)
would convert into no less than 13,140,743 additional common shares. The
timing of the conversion is at the discretion of the holder.
Transitional Small Business Disclosure Format (check one). Yes [ ] No [X]
ISA INTERNATIONALE INC.
FORM 10-QSB
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial statements
Condensed Consolidated Balance Sheet as of
December 31, 2005 (unaudited) 3
Condensed Consolidated Statements of Operations for the
three months ended December 31, 2005 and 2004
(unaudited) 4
Condensed Consolidated Statements of Cash Flows for the
three months ended December 31, 2005 and 2004
(unaudited) 5
Notes to Condensed Consolidated Financial Statements 6-16
Item 2. Management's Discussion and Analysis or Plan of Operation 17-24
Item 3. Controls and Procedures 25
PART II OTHER INFORMATION
Item 1. Legal Proceedings 26
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 26
Item 3. Defaults Upon Senior Securities 26
Item 4. Submission of Matters to a Vote of Security Holders 26
Item 5. Other Information 26
Item 6. Exhibits and Reports on Form 8-K 26-27
Signatures 27
Certifications 28-29
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
ISA INTERNATIONALE INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
December 31, 2005
ASSETS ------------
Assets:
Cash and cash equivalents $ 32,341
Trade receivables 11,479
-----------
43,820
Total Current Assets:
Other assets:
Other receivables, less allowance of $50,946
for uncollectible amounts 0
Note and account receivable 109,809
Purchased debt receivables, net of recoveries 943,713
Other assets 325
----------
Total Assets $ 1,097,667
==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Common stock payable $ 16,500
Accounts payable - trade and taxes 40,040
Convertible notes payable - related party 612,521
Accrued interest payable - related party 211,597
Accounts payable - related party 338,000
Convertible debentures, accrued interest,
Accounts payable - disposed business re
Indemnification Agreement - related party 0
----------
Total Liabilities 1,218,658
----------
Stockholders' Deficit:
Preferred stock, $.0001 par value
30,000,000 shares authorized,
5,000,000 shares issued and outstanding 500
Common stock, $.0001 par value,
300,000,000 shares authorized;
3,956,880 shares issued and outstanding 396
Additional paid-in capital 7,325,143
Accumulated deficit (7,447,030)
-----------
Total Stockholders' Deficit (120,991)
-----------
Total Liabilities and Stockholders' Deficit $ 1,097,667
===========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
ISA INTERNATIONALE INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Three Months Ended
December 31, 2005 December 31, 2004
Operating revenue:
Portfolio Collections $ 0 $ 0
Operating expenses:
Portfolio Collection Costs 28,199 0
General & administrative 78,511 38,381
Valuation charge - stock option -- --
Settlement expense -- --
---------- ----------
Subtotal Operating expenses 106,711 38,381
---------- ----------
Operating loss (106,711) (38,381)
Other income (expense):
Interest expense (23,774) (18,887)
---------- ----------
Net (loss) from operations (130,485) (57,268)
---------- ----------
Net Income (Loss) (130,485) (57,268)
========== ==========
Basic and diluted (Loss) per share $ (0.03) (0.02)
========== ==========
Weighted average common shares outstanding:
(restricted for reverse stock split)
Basic & Assuming Diluted 3,956,880 2,573,758
========== ==========
Dividends per share of common stock none none
========== ==========
The accompanying notes are an integral part of these condensed consolidated financial statements.
ISA INTERNATIONALE INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
(Unaudited)
Three Months Ended Three Months Ended
December 31, 2005 December 31, 2004
----------------------------------------
Cash flows from operating:
(Loss) before extraordinary item from
continuing operations $ (130,485) $ (57,268)
Adjustments to reconcile net (loss) from operations
to cash flow used in operating activities:
Amortization of incorporation costs 21 --
Reduction of debt receivable purchase price
On gross collection received 72,843 --
Costs incurred for unsuccessful acquisition -- (32,121)
Beneficial conversion charge -- --
Trade receivables 4,287 --
Note receivable for incurred acquisition costs (14,000) --
Deposits and other assets -- (2,000)
Common stock payable - services (900) --
Common stock issued - services (9,061) --
Accounts payable and accrued expenses 47,251 10,795
Accrued expenses - related party 23,000 35,000
Accrued interest payable - related party 18,481 13,594
-----------------------------
Cash used for operating activities 10,371 (32,000)
Cash flows from financing activities:
Proceeds from issuance of convertible debt
to related party 3,001 40,659
------------------------------
Cash provided by financing activities 3,001 40,659
Increase (decrease)in cash and cash equivalents 13,378 8,659
Cash at beginning of period 18,963 2,655
--------=---------------------
Cash and cash equivalents at end of period $ 32,341 $ 11,314
==============================
Non-cash investing in financing transactions:
Stock issued to related party for
indemnification agreement
Capital contribution from related party 5,293 5,293
-----------------------------
Total non-cash transactions 5,293 5,293
=============================
The accompanying notes are an integral part of these condensed consolidated financial
statements.
ISA INTERNATIONALE INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1.) NATURE OF BUSINESS AND SIGNIFICANT EVENTS
1.a) Nature of Business
ISA Internationale Inc. (the Company or ISAI) was incorporated on June 2, 1989,
under the laws of the State of Delaware under a former name and became a
reporting publicly held corporation on November 15, 1999. On May 8, 1998,
Internationale Shopping Alliance Incorporated (Internationale), a Minnesota
corporation, was merged with the Company, a Delaware corporation, pursuant to
a merger agreement dated April 23, 1998. Upon consummation of the merger,
Internationale became a wholly owned subsidiary of the Company. During 2000,
the Company sold its International Strategic Assets, Inc. subsidiary and
discontinued the operations of its ShoptropolisTV.com subsidiary. Since then,
reorganization specialists, Doubletree Capital Partners LLC, has internally
reorganized the Company's financial affairs and changed its direction to focus
on the financial services industry.
These condensed consolidated financial statements 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
December 31, 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 quarter ended December 31, 2005 were
as follows:
Quarter Ended
December 31, 2005
----------------
Balance at beginning of period October 1, 2005 $ 1,016,557
Acquisition of debt receivables 0
Cash collections applied to principal ( 72,843)
-----------------
Balance at the end of the period $ 943,714
=================
Estimated Remaining Collections ("ERC")(Unaudited) * $ 1,668,957
=================
* 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 December 31, 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 December 31, 2005.
The Company will have sufficient collection statistics as of March 31, 2006
from the debt portfolios that it purchased to enable an impairment analysis to
be completed. Portions of the debt receivables that were purchased in May 2005
and further replaced due to discovered uncollectible portions in August and
September 2005, have further been deemed uncollectible due to a variety of
reasons that include new bankruptcy law enactments and related actions. The
Company does believe that an impairment write down will occur if the currently
known uncollectible account portions in the face value of the debt portfolios
continue to increase. Approximately twenty-five percent of the face value of
the purchased debts are known to be uncollectible at this date. The Company is
continuing to accurately determine the collectibility of and remaining fair
market value of the remaining collectible portions of the purchased debt
receivables compared to the $943,714 carrying cost As of December 31, 2005.
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.
1.b) Presentation
The condensed consolidated balance sheet at December 31, 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 $339,574. 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 December 31, 2005.
1.c) Use of Estimates
The preparation of the financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenue
and expenses during the reporting period. Actual results could differ from
those estimates.
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 December 31, 2005, they used
alternative valuations of estimates.
1.d) 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.e) Loss per Share
Basic loss per share excludes dilution and is computed by dividing the net
loss by the weighted average number of common shares outstanding during the
period. Diluted loss per share includes assumed conversion shares consisting
of dilutive stock options and warrants determined by the treasury stock method
and dilutive convertible securities. In 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
December 31, 2005, there were 13,140,743 anti-dilution common shares
potentially issuable.
1.f) 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.g) Fair Value of Financial Instruments
The Company uses the following methods and assumptions to estimate the fair
value of each class of financial instruments for which it is practicable to
estimate such value:
Cash and short-term investments: The carrying amount approximates fair value
because of the short maturity of those instruments.
Accounts payable: The carrying value of accounts payable approximates fair
value due to the short-term nature of the obligations.
Convertible debentures and notes payable: The carrying value of the Company's
convertible debentures and notes payable, which are in default, approximates
fair value due to the short-term nature of the obligations.
1.h) 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.
1.i) 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
ended 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. Fiscal year 2005 will be from October 1, 2004 to September 30, 2005.
The Company has adjusted its presentation of comparable prior year periods to
facilitate similar period of time comparison.
(2.) LIQUIDITY AND GOING CONCERN MATTERS
The Company has had limited operations and only recently entered into new
operations in the debt collection business. The Company has incurred losses
since its inception and, as a result, has an accumulated deficit of $7,447,029
at December 31, 2005. The net loss for the three month period ended December
31, 2005 was $130,485. The Company had convertible debenture debt in default
in the amount of $ 150,000, plus related accrued interest payable of $115,574.
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 as of 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 $156,060 as of December 31, 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 December 31, 2005.
NOTE 3) 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 December 31, 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 13,140,743 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 December 31, 2005, 3,956,880 shares of Common stock were issued and
outstanding, of which 8,880 shares of Common stock were issued during the
three month period ending December 31, 2005. These shares were valued based
upon the amount of the liability settled at a negotiated per share 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.c) Stock Options
On July 1, 2004, the Company's Board of Directors granted a stock option for
6,000,000 common shares to a related party Doubletree Capital Partners,
Inc.(DCP) at an exercise price of $.60 per share for a five year term
commencing July 1, 2004. The option was granted to DCP as a means to preserve
ownership interest as required in preliminary acquisition discussions. As of
September 30, 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.
(4.d) Indemnification Agreement - Related Party
On July 1, 2004, the Company approved the issuance of 1,200,000 common shares
to an affiliated company, Doubletree Liquidation Corporation (DLC). DLC is a
corporation owned 50% by the Company's President and 50% by an affiliated
stockholder, whose ownership exceeds, beneficially, 5% of the Company's common
stock. The affiliated company, DLC, has issued an indemnification guarantee to
the Company wherein it will process, review, and guarantee payment for certain
prior Company liabilities (both actual and contingent) that may arise during
the 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 December 31, 2005:
Description of debt indemnification: Current Long-term
Defaulted convertible debenture payable $ 150,000 $ 0
Defaulted accrued interest payable 115,571
Account payable-disposed business 24,000
Convertible debenture payable 50,000 0
Less, contra-indemnification receivable (339,574) 0
--------- ---------
Balances per Balance Sheet, at
December 31, 2005: $ 0 $ 0
========= =========
The Company believes that beyond the $339,574 referred to above, there will be
no additional charge or exposure for past liabilities, contingent or otherwise
to the Company and if any do occur, they will be the responsibility of DLC in
accordance with their guarantee to the Company as enumerated in the
Indemnification Agreement.
Note 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 December 31, 2005, the Company was in default on the terms of payment of
quarterly interest on these debentures amounting to $115,574. 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 three months ended
December 31, 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
$18,481 during the three months ended December 31, 2005. Accrued interest on
these notes was $211,597 at December 31, 2005.
(6.) RELATED PARTY TRANSACTIONS
Convertible Notes Payable - See note 5 b.
The Company incurred expenditures with its President who is also a stockholder
for consulting services amounting to $30,000 in the three months ended
December 31, 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 $338,000. 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. The Company has not authorized the issuance of any additional
shares for services of these directors since December 31, 2003.
NOTE 7) SUBSEQUENT EVENTS
None
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Forward Looking Statements
The information herein contains certain "forward looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995, Section
27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities and Exchange Act of 1934, as amended, which are intended to be
covered by the safe harbors created thereby. Investors are cautioned that all
forward looking statements involve risks and uncertainties, including, without
limitation, the ability of the Company to continue its present business
strategy which will require it to obtain significant additional working
capital, changes in costs of doing business, identifying and establishing a
means of generating revenues at appropriate margins to achieve profitability,
changes in governmental regulations and labor and employee benefits and costs,
and general economic and market conditions. Such risks and uncertainties may
cause the Company's actual results, levels of activity, performance or
achievement to be materially different from those future results, levels of
activity, performance or achievements expressed or implied by such
forward-looking statements.
Although the Company believes that the assumptions and expectations reflected
in these forward looking statements are reasonable, any of the assumptions and
expectations could prove inaccurate or not be achieved, and accordingly there
can be no assurance the forward looking statements included in this Form 10-QSB
will prove to be accurate. In view of the significant uncertainties inherent
in these forward-looking statements, their inclusion herein should not be
regarded as any representation by the Company or any other person that the
objectives, plans, and projected business results of the Company will be
achieved. Generally, such forward looking statements can be identified by
terminology such as "may," "could," "anticipate," "expect," "will," "believes,"
"intends," "estimates," "plans," or other comparable terminology.
Overview
The Company (ISAI), through its two former wholly owned subsidiaries Minnesota
corporations, ShoptropolisTV.com, Inc. (f/k/a Internationale Shopping Alliance,
Inc.) and International Strategic Assets, Inc., was engaged in two distinct
businesses: (1) the development of a multimedia home shopping network
primarily for the purpose of generating direct retail sales of varied products
from T.V. viewers and internet shoppers, and (2) direct sales via outbound
telemarketing of precious metals consisting mainly of gold and silver coins
and bars.
ISAI has been attempting to financially restructure itself. ISAI disposed
of International Strategic Assets, Inc. on May 19, 2000, and ISAI disposed
of the ShoptropolisTV.Com, Inc. on March 29, 2001 as a part of its
reorganization efforts. Additional reorganization efforts include negotiation
with creditors to restructure and convert debt to equity and actively seeking
new business opportunities. After successful completion of its reorganization
efforts, ISAI plans to pursue strategic alternatives that may include the
purchase of a business or acquisition by another entity. With the consummation
of the indemnification agreement, ISAI believes it can now effect an
acquisition and or a merger in 2005 and resume operations.
ISAI was incorporated in Delaware in 1989 under a former name, and was inactive
operationally for some time prior to its May 1998 recapitalization through a
acquisition with ShoptropolisTV.com, Inc. (f/k/a Internationale Shopping
Alliance Inc.), which was a wholly owned subsidiary of ISAI. This subsidiary
was acquired when the former shareholders of this subsidiary acquired 89% of
the outstanding common stock of ISAI through a stock exchange. ISAI issued
11,772,600 shares of its common stock in exchange for all of the outstanding
common stock of ShoptropolisTV.com, Inc. This merger was effected as a reverse
merger for financial statement and operational purposes. Accordingly, ISA
regards its inception as being the incorporation of ShoptropolisTV.com, Inc.
on October 7, 1997. ISAI sold ShoptropolisTV.com, Inc. on March 29, 2001. In
January 1999, the Company redeemed and cancelled 1,650,000 shares held by three
of the founding shareholders. No consideration was paid to the founding
shareholders for the redemption.
ISAI incorporated its precious metals subsidiary, International Strategic
Assets, Inc., as a Minnesota corporation in March 1999. Its business was
direct sales via outbound telemarketing of precious metals consisting mainly
of gold and silver coins and bars. ISAI sold International Strategic Assets,
Inc. on May 19, 2000 to an individual who was an officer and director of ISAI.
Since December 2000, the Company has been operationally dormant. The Company
believes its shareholder base is its major asset. For the last four years,
from January 2001 to present, the Company has been actively reorganizing its
financial affairs and actively seeking merger or acquisition candidates
offering growth and profit potential for its shareholders.
On May 11, 2005, the Company through its wholly owned subsidiary, ISA
Acquisition Corporation, purchased $36,097,726 of portfolio debt receivables
and intends to commence operations in the troubled debt collection business.
Due to substitutions and replacements for debt considered to be non-
collectible,as determined by the Company prior to September 30, 2005, the
Company received additional consumer debt receivables considered to be
replacement debt in the additional net amount of $7,635,274 bringing the total
consumer debt receivable purchase to $43,733,000 as of September 30, 2005. The
Company through its third party collection agent is evaluating this overall
debt purchase for its collectibility and net estimable realizable value in
comparison to the purchase price paid in the amount of $1,094,900 with the
issuance of 1,250,000 of the Company's restricted common shares of stock. The
Company now considers itself to be out of the reorganization period and again
an operating company.
Results of Operations for the three months ended December 31, 2005 and 2004.
Sales and Gross Profit
No revenues were recorded for the three months ended December 31, 2005 and
2004 while the Company again resumes its operations. The Company resumed
operations in the third quarter of 2005 in the troubled debt collection
business as a result of its purchase of $43,733,000 (face value) in debt
receivables valued at $1,094,900 and engaged the services of third party
collection companies. Collection receipts from the debt portfolios of $72,843
were collected in the quarter ended December 31, 2005, but this amount has
been recorded as a reduction of the purchase price carrying value of the
purchased debt receivables. There were no collections of debt receivables in
the quarter ended December 31, 2004.
The Company is currently in the process of obtaining from third party
collectors currently employed by the Company estimates cash flow revenues that
may come to the Company from these specific debt purchases. The Company does
not believe that the cash flow estimates will be anywhere close to the amount
estimated to be required to sustain Company operations in the future.
Therefore, additional efforts are being expended to bring to the Company
additional debt portfolio receivables for the operational source of future
additional revenues.
Operating Expenses
Operating expenses included general and administrative expenses and interest
expenses related to convertible debenture and convertible notes payable.
General and administrative expenses were $78,511 for the three months ended
December 31, 2005 compared to $38,381 for three months ended December 31, 2004.
The expenses in 2005 and 2004 were principally for audit, consulting, office
and salaries and new operating costs necessary to commence business operations
for the debt collection business. For the quarter ended December 31, 2005, the
Company incurred $28,199 in direct debt collection costs including third party
agency collection costs. There were no debt collection costs incurred by the
Company in the quarter ended December 31, 2004. Additionally, new current
expenses are being incurred for interest, office, telephone, consulting, and
legal and professional expenses relating to potential acquisitions and the
Company efforts in obtaining new business operations. No advertising expense
was incurred in 2005 or 2004. At this time, the Company has no anticipation as
to its operating expenses in future periods as it begins to operate in the
debt collection business.
Liquidity and Capital Resources
ISAI obtained its original capitalization through the sale of equity securities
to a limited group of private investors known to management of ISAI. From the
inception of ISAI in 1997 through December 31, 1997, ISAI raised $400,000 in
cash through the sale of its common stock with accompanying warrants. In
calendar year 1998, ISA raised an additional $833,376 in cash through sales of
common stock and common stock with accompanying warrants. During a period from
January through February 1999, ISAI raised a total of $1,171,040 through the
exercise of outstanding warrants by existing shareholders, of which $528,702
was in cash and $642,838 was in gold bullion and coins transferred to ISAI.
Such gold bullion and coins were immediately liquid to ISA, and were converted
to cash. From September 1999 through February 2000, the Company raised
$1,336,640 through the sale of unsecured convertible debentures.
From March 2000 through May 2000, the Company raised $255,000 from the sale of
unsecured convertible debentures. In May 2000 the Company sold its wholly
owned subsidiary, International Strategic Assets, Inc. (ISA), for a cash sum
of $175,000. The $175,000 purchase price consisted of $75,000 for the purchase
of approximately 43% of the outstanding common stock of ISA and $100,000 paid
in connection with the subsequent redemption of the remaining 57% of the
outstanding common stock of ISA. During the quarter ended June 30, 2000, the
Company had one option exercised for 5,000 common shares for $6,850.
From July 2000 through October 2000, the Company sold a total of 902,857 shares
of its Common Stock: 200,000 shares at a purchase price of $0.10 per share,
299,999 shares at a purchase price of $0.15 per share, and 385,000 shares at a
purchase price of $0.20 per share, and 17,858 shares at a purchase price of
$4,100 for a total amount of $146,100. In November 2000 the Company sold
5,000,000 shares of its Preferred Stock at a purchase price of $0.0002 per
share for total consideration of $1,000, and, 2,999,999 shares of its Common
Stock at a purchase price of $0.0097 per share for total consideration of
$29,000. Also in November and December 2000 the Company obtained loans
Totaling $88,527 to settle unsecured debts using the Company's television
broadcast and production equipment and office equipment and furniture as
collateral. In March 2001 the collateral was disposed of in the sale of the
discontinued operations of the Company.
In 2001 the Board of Directors of the Company issued additional shares to
these stockholders to reflect a uniform purchase price for those shares
purchased from July 2000 through October 2000 at a price of $0.06 per share.
This resulted in an additional 1,547,142 shares being issued.
In the nine months ended June 30, 2005, the Company received $157,821 from
convertible demand notes payable from a related investor in connection with
the continuing reorganization efforts. The convertible note holder, since
November 2000, has held a secured collateral interest in any assets the Company
owns or may acquire in the future until the convertible notes are either paid
in full or converted into common shares of stock at the option of the
convertible note holder.
As of December 31, 2005, the Company had Total Assets of $1,097,667 consisting
of $32,311 in cash, $11,479 in Trade receivables, $943,713 in Purchased
receivables - net, $109,809 in Note and account receivables and $325 in Other
assets for organization costs. It had $1,218,657 in Current Liabilities
consisting of $16,500 in Common stock payable, $378,040 in accounts payable
and accrued expenses including $338,000 in related party accrued compensation
payable, convertible notes payable-related party of $612,521 and related
interest accruals of $211,597.
The Company's current capital resources are not sufficient to supports its
development and operations. Additional capital will be necessary to support
future growth of the Company as well as general and administrative and interest
expenditures. The Company cannot continue its existence without a full and
complete reorganization of all of its financial affairs and obligations as
well as the capital requirements to support its operational activities
required now as a result of the troubled debt purchase on May 11, 2005 and
the related expenditures that will be required.
The Company is not currently seeking any additional sources of debt or equity
financing beyond which is already in place with the financing agreement
consummated in November 2000 with Doubletree Capital Partners, Inc. Until the
reorganization process is completed and capital needs required to be made as a
result of the entry by the Company into the troubled debt collection as of
May 11, 2005 are determined and defined, the Company cannot provide assurances
as to its future viability or its ability to prevent the possibility of a
bankruptcy filing petition either voluntary or involuntary by creditors of
the Company.
As a result of the Company's history of operating losses and its need for
significant additional capital, the reports of the Company's independent
auditors' on the Company's financial statements for the year ended September
30, 2005, should be read including explanatory paragraphs concerning the
Company's ability to continue as a going concern.
Income Tax Benefit
The Company has an income tax benefit from net operating losses, which is
available to offset any future operating profits. None of this benefit was
recorded in the accompanying financial statements as of December 31, 2005
because of the uncertainty of future profits. The ability to utilize the net
operating losses may be limited due to ownership changes.
Impact of Inflation
The Company believes that inflation has not had any material effect on its
development or operations since its inception in 1997. Furthermore, the
Company has no way of knowing if inflation will have any material effect
for the foreseeable future.
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 December 2000 to sell the Shoptropolis subsidiary and cease
development of the home shopping network. All efforts of the Company at the
present time have been directed to a complete reorganization of all of its
affairs. Therefore, the Company's prospects for new business ventures must be
considered in light of the many risks, expenses and difficulties encountered
frequently by companies in reorganization. Such major risks include, but are
not limited to, an evolving business model and the overall effective management
of future growth. To address the many startup risks and difficulties the
Company has encountered, it must in the future have the ability to successfully
execute any of its operational and marketing strategies that it may develop in
any new business venture. There would be no assurance the Company would be
successful in addressing the many risks and difficulties it could encounter
and the failure to do so would continue to have a material adverse effect on
the Company's business, prospects, financial condition and results of any
operations it pursues or tries to develop, pending successful reorganization
of its financial affairs. There can be no assurance that ISAI can find and
attract new capital for any new business ventures and if successful in finding
sufficient capital, that it can successfully grow and manage the business or
new business venture into a profitable and successful operation. No assurance
can be given on any of these developments. The Company will continue to
complete its financial reorganization, attempt to develop a successful business
in the debt collection business and endeavor to find suitable candidates for
merger or acquisition.
History of Losses and Anticipated Further Losses
ISAI has generated only limited revenues to date and has an accumulated deficit
as of December 31, 2005 of $7,447,029. Further, the Company expects to continue
to incur losses until it generates revenues at appropriate margins to achieve
profitability. There can be no assurance the Company will ever generate revenues
or that it will achieve profitability, or that its future operations will prove
commercially successful, or that it will establish any means of generating
revenues at appropriate margins to achieve profitability.
Need for Additional Financing
The Company's current capital resources are not sufficient to support the
Company's anticipated day-to-day operations. As such, the Company must obtain
significant additional capital 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 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, includes an explanatory paragraph concerning the
Company's ability to continue as a going concern.
Reliance on Key Personnel
The Company's future success will be dependent upon the ability to attract and
retain executive 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., beneficially
owns approximately 90.6% of the Company's outstanding common stock as of
December 31, 2005 compared to 95.10% on December 31, 2004. DCP's beneficial
ownership includes common stock that can be converted from preferred stock
owned by the one principal shareholder as well as similar conversion of
convertible loans and related interest due, and all options issued. DCP
accordingly has complete control of the business and development, including
the ability to manage all operations, establish all corporate policies,
appoint future executive officers, determine management salaries and other
compensation, and elect all members of the Board of Directors of ISAI.
Effects of Trading in the Over-the-Counter Market
The Company's common stock is traded in the over-the-counter market on the OTC
Electronic Bulletin Board. The Company's stock symbol is ISAT. Consequently,
the liquidity of the Company's common stock may be impaired, not only in the
number of shares that may be bought and sold, but also through delays in the
timing of transactions, and coverage by security analysts and the news media
may also be reduced. As a result, prices for shares of the Company's common
stock may be lower than might otherwise prevail if the Company's common stock
were traded on a national securities exchange or listed on the NASDAQ Stock
Market. Further, 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.
< Liquidity And Going Concern Matters
The Company incurred losses since its inception and, as a result, has an
accumulated deficit of $7,447,029 at December 31, 2005. The net loss for the
three month period ended December 31, 2005 was $130,485. The Company had
convertible debenture debt in default in the amount of $150,000, plus related
accrued interest payable of $109,525. 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 is in reorganization at the present
time except for its uncompleted acquisition activities and related purchase of
troubled debt and remains in default on certain debenture obligations amounting
to $150,000 plus related interest of $109,525.
The accompanying financial statements have been prepared on a going concern
basis, which assumes continuity of operations and realization of assets and
liabilities in the ordinary course of business. The financial statements do not
include any adjustments that might result if the Company was forced to
discontinue its operations. The Company's current plans are to complete its
pending asset acquisition agreement, resume operations, and bring to a
conclusion its reorganization efforts. There can be no assurance these actions
will be successful.
One remaining officer is currently managing the Company. The Company is in
default under the terms of its obligation to make quarterly interest payments
on convertible 12% debentures issued between September 1999 and June 2000.
These debentures in default are classified as current liabilities and totaled
$150,000 in principal and $109,525 in accrued interest as of December 31, 2005.
No interest payments were ever made by the Company on the debentures. One
convertible debenture holder with a principal amount due of $50,000 agreed to
extend the terms and conditions of his debenture so that debenture has been
reclassified as long-term debt and is not in default. The indemnification
agreement has been designed to cover these liabilities. The Company is
attempting to convert the remaining convertible debenture debt to common
shares.
Item 3. CONTROLS AND PROCEDURES
Within the 90-day period prior to the filing of this report, an evaluation was
carried out as to the effectiveness 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 on that evaluation, the
President has concluded that the Company's disclosure controls and procedures
are effective in gathering, analyzing, and disclosing information required to
be disclosed by the Company under the Exchange Act.
Subsequent to the date of their evaluation, there were no significant changes
in the Company's internal controls or in other factors that could
significantly affect the disclosure controls, including any corrective
actions with regard to significant deficiencies and material weaknesses.
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 2006, management will review and evaluate the
effectiveness, and where necessary, enhance the Company's internal controls
over financial reporting. The Company anticipates 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.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
During the quarter ending December 31, the Company was not sued in any new
legal matters.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
During the quarter ended December 31, 2005, there were 8,880 common stock
shares issued to a consultant engaged by the Company (8,880) for services
rendered in an advisory capacity. An additional 13,200 common shares are due
to be issued to the same consultant for additional services rendered during
the quarter ended December 31, 2005. It is anticipated that these common shares
will be issued during the quarter ended March 31, 2006.
Item 3. Defaults Upon Senior Securities
The defaults previously present on the Convertible Debentures as of December
31, 2003 continue as of December 31, 2005, after partial conversions into
common stock of the Company. These defaults arose because the Company has
missed payment of quarterly interest payments since June 2000. The remaining
default consists of short-term convertible debt principal amounting to $150,000
and one additional short-term convertible debt in the amount of $50,000,which
is not in default, with combined accrued interest thereon of $115,574 as of
December 31, 2005.
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits: none
(b) Form 8-K:
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.
On February 3, 2006, the Company filed its annual 10KSB report for the year
ended September 30, 2005 on January 13, 2006 without the permission of its
previous accountant, Stonefield Josephson Inc., to include their previous
Accountant's Report in the 10KSB, due to a communication misunderstanding
between ISA Internationale Inc., Stonefield Josephson Inc. and the ISA's new
auditors, DeJoya Griffith & Company, CPA's. The permission to file was received
from Stonefield Josephson Inc. on February 3, 2006 and no changes were
requested by Stonefield Josephson Inc. to be made to the annual 10KSB report
that was previously filed by ISA Internationale Inc. on January 13, 2006.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
ISA INTERNATIONALE INC.
/s/ Bernard L. Brodkorb
By: Bernard L. Brodkorb
President, Chief Executive Officer, and Chief Financial Officer
Date: February 21, 2006
Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a):
I, Bernard L. Brodkorb, certify that:
1. I have reviewed the Quarterly Report on Form 10-QSB 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. I am 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. I have disclosed, based on my 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. 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
By: Bernard L. Brodkorb
President, Chief Executive Officer, and Chief Financial Officer
Date: February 21, 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 Quarterly Report of ISA Internationale Inc.,
(the "Company") of Form 10-QSB for the period ending December 31, 2005,
as filed with the Securities and Exchange Commission on the date hereof
(the "Report"), I, Bernard L. Brodkorb, President, Chief Executive Officer,
and Chief Financial 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
Dated: February 21, 2006