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 March 31, 2006
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 May 8th, 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 May 12th, 2006, the preferred shares upon conversion (post-split basis)
would convert into no less than 13,358,789 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
March 31, 2006 (unaudited) 3
Condensed Consolidated Statements of Operations for the
three months ended March 31, 2006 and 2005 and six months
ended March 31, 2006 and 2005 (unaudited) 4
Condensed Consolidated Statements of Cash Flows for the
Six months ended March 31, 2006 and six months ended
March 31, 2005 (unaudited) 5
Notes to Condensed Consolidated Financial Statements 6-15
Item 2. Management's Discussion and Analysis or Plan of Operation 16-23
Item 3. Controls and Procedures 24
PART II OTHER INFORMATION
Item 1. Legal Proceedings 25
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 25
Item 3. Defaults Upon Senior Securities 25
Item 4. Submission of Matters to a Vote of Security Holders 25
Item 5. Other Information 25
Item 6. Exhibits and Reports on Form 8-K 25-26
Signatures 26
Certifications 27-28
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
ISA INTERNATIONALE INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
March 31, 2006
ASSETS ------------
Assets:
Cash and cash equivalents $ 21,687
Trade receivables 23,004
-----------
Total Current Assets: 44,691
Other assets:
Finance Contract Receivables - Net of collections 637,382
Organization Costs - Net of amortization 307
Notes Receivable - Non current portion 113,409
----------
Total Assets $ 795,789
==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accrued consulting expense $ 24,600
Accounts payable - trade and taxes 28,853
Convertible notes payable - related party 622,589
Accrued interest payable - related party 229,870
Accrued expense payable - related party 356,000
Convertible debentures, accrued interest
Accounts payable - disposed business
Indemnification agreement - related party 0
----------
Total Current Liabilities 1,261,912
Long-Term Liabilities: 0
----------
Total Liabilities 1,261,912
----------
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 7,330,321
Accumulated deficit (7,797,340)
-----------
Total Stockholders' Deficit (466,123)
-----------
Total Liabilities and Stockholders' Deficit $ 795,789
===========
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 Six Months Ended Six Months Ended
March 31, 2006 March 31, 2005 March 31, 2006 March 31, 2005
Operating revenue:
Portfolio Collections $ 0 $ 0 $ 0 $ 0
Operating expenses:
Portfolio Collection Costs 30,446 0 58,646 0
General & administrative 76,480 132,213 154,991 170,595
Impairment Charge on
Portfolio Carrying Cost 219,934 -- 219,934 --
---------- ---------- ----------- ----------
Operating expenses 326,860 132,213 433.571 170,595
---------- ---------- ----------- ----------
Operating loss (326,860) (132,213) (433,571) (170,595)
Other income (expense):
Interest expense (23,451) (19,435) (47,225) (38,321)
---------- ---------- ----------- ----------
Net (loss) - operations (350,311) (151,648) (480,796) (208,916)
---------- ---------- ----------- ----------
Net (Loss) (350,311) (151,648) (480,796) (208,916)
========== ========== =========== ==========
Basic and fully diluted
(loss) per share $ (0.09) $ (0.06) $ (0.12) $ (0.08)
========== ========== =========== ==========
Total net Gain (loss)
per share $ (0.09) $ (0.06) $ (0.12) $ (0.08)
========== ========== =========== ==========
Weighted average common shares outstanding:
(restated for reverse stock split)
Basic & Assuming Diluted 3,956,880 2,573,758 3,956,880 2,573,757
========== ========== =========== ==========
Dividends per share
of common stock none none none none
========== ========== =========== ===========
The accompanying notes are an integral part of these condensed consolidated financial statements.
ISA INTERNATIONALE INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
(Unaudited)
Six Months Ended Six Months Ended
March 31, 2006 March 31, 2005
------------------- ------------------
Cash flows from operating activities:
(Loss) before extraordinary item from
continuing operations $ (480,796) $ (208,916)
Adjustments to reconcile net (loss) from operations
to cash flow used in operating activities:
Amortization of incorporation costs 39 -
Costs incurred for pending acquisitions - (56,003)
Reduction of debt receivable purchase price
Due to gross collections received 159,240 -
Impairment charge on debt receivable purchase
Price carrying cost 219,934 -
Charge off of costs incurred for unsuccessful
acquisition 9,305 -
Interest charge for indemnification agreement 10,471 -
Trade account receivables (7,238) -
Notes receivable for incurred acquisition costs (17,600) -
Accrued consulting expense (1,861) 30,300
Accounts payable and accrued expenses 20,407 73,643
Accrued expenses - related party 41,000 70,000
Accrued interest payable - related party 36,754 27,850
---------- ----------
Cash used in operating activities (10,345) (63,126)
Cash flows from financing activities:
Proceeds from issuance of convertible debt
to related party 13,069 64,762
---------- ----------
Cash provided by financing activities 13,069 64,762
Increase (decrease) in cash and cash equivalents 2,724 1,636
Cash at beginning of period 18,963 2,655
---------- ----------
Cash and cash equivalents at end of period $ 21,687 $ 4,291
========== ==========
Non-cash investing and financing transactions:
Additional Paid-in Capital for Indemnification
Agreement Payment of convertible debentures and
Accrued interest thereon $ 10,471 $ 10,471
--------- ----------
Total non-cash transactions $ 10,471 $ 10,471
========== ==========
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 March 31, 2006, the Company did record a write down of its portfolio
carrying costs and a related charge to profit and loss of the Company in the
amount of $219,934 to record estimated unrecoverable investments and worthless
portions of the portfolio debt receivables purchased on May 18, 2005. The
Company does believe that the remaining portfolio debt receivable carrying
costs of $637,382 will be recovered by the Company from future gross
collections to be received in the next 48 to 60 months commencing from March
31, 2006 and forward.
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 March 31, 2006 were as
follows:
Quarter Ended
March 31, 2006
----------------
Balance at beginning of period, January 1, 2006 $ 943,713
Acquisition of debt receivables 0
Cash collections applied to principal (86,397)
Impairment write down to carrying cost (219,934)
-----------------
Balance at the end of the period, March 31, 2006 $ 637,382
=================
Estimated Remaining Collections ("ERC")(Unaudited) * $ 1,051,682
=================
* 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 six months ended March 31, 2006.
Under SOP-03-3 debt security impairment is recognized only if the fair market
value of the debt has declined below its amortizable costs. Currently no
additional amortizable costs are below fair market value.
1.b) Presentation
The condensed consolidated balance sheet at March 31, 2006 contains contra
account statement presentation for certain convertible debenture notes
payable, related accrued interest payable and accounts payable-disposed
business in the amount of $344,752. Reference should be made to note 4.d in
these notes to financial statements for additional information as to
consolidated financial statement presentation at March 31, 2006.
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 March 31, 2006, 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 March 31, 2006 there were 13,358,789 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 $7,797,340
at March 31, 2006. The net loss for the six month period ended March 31, 2006
was $480,796. The Company had convertible debenture debt in default in the
amount of $ 200,000, plus related accrued interest payable of $120,752.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 $200,000.
The accompanying consolidated financial statements have been prepared on a
going concern basis, which assumes continuity of operations and realization of
assets and liabilities in the ordinary course of business. The consolidated
financial statements do not include any adjustments that might result if the
Company was forced to discontinue its operations. The Company's current plans
are to continue to insert itself into the debt collection industry as a result
of its recent consumer debt asset acquisition agreement. The Company has begun
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 $182,921 as of March 31, 2006 related to
this acquisition activity. Of these amounts of incurred costs, there has been
recorded as a note receivable non current 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.Additional costs of $36,166 since October
31, 2005, have been charged to profit and loss of the Company for additional
legal, consulting and travel costs.
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 March 31, 2006, 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. There were no additional common
shares issued during the quarter ended March 31, 2006, but the Company has
recorded an accrued expense in the amount of $24,600 for consulting services
rendered to that date. For this amount of accrued expense, 19,680 common
shares will be issued during the quarter ended June 30, 2006. 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
March 31, 2006, 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 March 31, 2006:
Description of debt indemnification: Current Long-term
Defaulted convertible debenture payable $ 150,000 $ 0
Defaulted accrued interest payable 120,752 0
Account payable-disposed business 24,000 0
Convertible debenture payable 50,000 0
Less, contra-indemnification receivable (344,752) 0
--------- ---------
Balances per Balance Sheet, at
March 31, 2006: $ 0 $ 0
========= =========
The Company believes that beyond the $344,752 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 March 31, 2006, the Company was in default on the terms of payment of
quarterly interest on these debentures amounting to $120,752. Accordingly,
two remaining convertible debentures have been classified as a current
liability amounting to $200,000. 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.
As of the date of this report May 12th, 2006, the currently due $50,000
convertible debenture principal has not yet been paid nor has the related
interest due thereon in the amount of %9,000. The $150,000 previous defaulted
debenture notes and their related interest both continue to remain unpaid.
(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 for the six
months ended March 31, 2006 amounted to $36,754. Accrued interest on these
notes was $229,870 at March 31, 2006.
(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 $55,000 in the six months ended March 31,
2006.
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 March 31, 2006 in the
amount of $356,000. 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
There are no reportable events subsequent to March 31, 2006 to the date of
this report, May 12th, 2006.
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 10QSB
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 and through May 2005, 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 May 2005, 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 commenced operations in the troubled debt collection business. Upon a
detailed examination of the individual debts and accounts purchased, the
Company determined that it should receive replacement debt receivables from
the Seller companies due to substitutions and replacement debt considered to
be non-collectible, as determined by the Company prior to September 30, 2005.
Accordingly, the Company was given and did receive additional consumer debt
receivables considered to be replacement debt in the additional net amount of
$7,635,274 bringing the total consumer debt receivable purchase to
$43,733,000m as of September 30, 2005.
The substituted debts, as revised, amount to a larger face value of debt
purchased but have the same computed fair market value due to different
categories of debts received as well as different ages of the debts. For the
most part, the new and revised group of debts received in accordance with the
original purchase agreement is now considered to be older in age and of
slightly less individual value. The Company, through its third party
collection agent, is evaluating this overall debt purchase for its current
fair market value, future collectibility and net estimated net 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 does now consider itself to be out of the reorganization period
and now an operating company.
At March 31, 2006, the Company has determined that due to portions of the
purchased debt receivables in the final group as finally received possessing
reduced, diminished or no value due to debt worthlessness and losses or
further the existence of newly discovered prior sales of portions of the debt
receivables that were purchased, the Company has recorded a fair market value
impairment write down in the amount of $219,934 to the carrying value of the
purchased debt receivables.
At March 31, 2006, the current carrying value of the Company's purchased debt
receivables, net after gross collections from date of original purchase in the
amount of $237,584 and an impairment write down in the amount $219,934, was
$637,382. The Company believes that this carrying value on its Balance Sheet
is a fair carrying value and the amount as stated at March 31, 2006 will be
realized from the gross collections received after required third party
collection fees in the minimum amount of 35% of the gross collections
received.
Results of Operations for the six months ended March 31, 2006 and 2005.
Sales and Gross Profit
No revenues were recorded for the six months ended March 31, 2006 and 2005
while the Company again resumes its operations. The Company did resume
operations in the third quarter of 2005 in the troubled debt collection
business as a result of its purchase of face value debt receivables amounting
to $43,733,000 originally valued at $1,094,900. The Company has engaged the
services of third party collection companies to assist in the collection
efforts on the purchased debt receivables. Collection receipts from the debt
portfolios in the amount of $159,241 were collected in the six months ended
March 31, 2006. 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 recorded as income in the six months ended
March 31, 2005.
The Company does not believe that the net collection cash flows received from
the debt receivables recently purchased will be anywhere close to the amount
of cash flows 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 $154,911 for the six months ended
March 31, 2006 compared to $170,594 for six months ended March 31 2005.
The expenses in 2006 and 2005 were principally for audit, consulting, office
and salaries and new operating costs necessary to commence business operations
for the debt collection business. For the six months ended March 31, 2006, the
Company incurred $56,394 in direct debt collection costs including third party
agency collection costs. There were no debt collection costs incurred by the
Company in the six months ended March 31, 2005. Additionally, new current
expenses are being incurred for interest, office, telephone, consulting, and
legal and professional expenses relating to potential acquisitions and the
Company's efforts in obtaining new business operations. No advertising expense
was incurred in 2006 or 2005. At this time, the Company has no anticipation as
to its specific 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 March 31, 2006, the Company had Total Assets of $795,789 consisting of
$21,687 in cash, $23,004 in Trade receivables, $637,382 in Purchased
receivables - net, $113,409 in Notes receivables and $307 in other assets for
organization costs. It had $1,261,912 in Current Liabilities consisting of
$24,600 in Common stock payable, $384,853 in accounts payable and accrued
expenses including $356,000 in related party accrued compensation payable,
convertible notes payable-related party of $622,589 and related interest
accruals of $229,870.
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 receivable 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 March 31, 2006 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 March 31, 2006 of $7,797,340. 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 90.79% of the Company's outstanding common stock at March
31, 2006 compared to 95.01% on March 31, 2005. 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 future development, including the ability to
manage all operations, establish all corporate policies, appoint future
executive officers, determine management salaries and other compensation, and
elect all members of the Board of Directors of ISAI.
Effects of Trading in the Over-the-Counter Market
The Company's common stock is traded in the over-the-counter market on the OTC
Electronic Bulletin Board. 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 $7,798,340 at March 31, 2006. The net loss for the six
month period ended March 31, 2006 was $480,796. The Company had convertible
debenture debt in default in the amount of $200,000, plus related accrued
interest payable of $120,752. 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 $200,000 plus
related interest of $120,752.
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
$200,000 in principal and $120,752 in accrued interest as of March 31, 2006 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 currently 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 six months ending March 31, 2006, 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 19,680 common shares are due
to be issued to the same consultant for additional services rendered during
the six months ended March 31, 2006. It is anticipated that these common
shares will be issued during the quarter ended June 30, 2006.
Item 3. Defaults Upon Senior Securities
The defaults previously present on the Convertible Debentures as of December
31, 2003 continue as of March 31, 2006, after partial conversions into common
stock of the Company. These defaults arose because the Company has missed
payment of quarterly interest payments since June 2000. The remaining defaults
consist of short-term convertible debt principal amounting to $150,000 and one
additional short-term convertible debt in the amount of $50,000, which also is
now in default since as of the date of this report, May 8th, 2006, the
convertible debt has not been paid by the Company. Accrued interest due
thereon on these notes combined amounts to $120,752 as of March 31, 2006.
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:
ISA Internationale Inc. (ISA) 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. ISA Internationale, Inc. was notified by
Stonefield Josephson on January 24, 2006 via email and later by a follow up
letter.
The financial statements referred to by Stonefield Josephson are the audited
financial statements for the nine month period ended September 30, 2004. The
financial statements that were included in the form 10KSB report filed on
January 13, 2006 are correct and can be relied upon as being correct.
The communication misunderstanding that led to the apparent unauthorized
inclusion of the Stonefield Josephson audit report in Form 10-KSB was due to a
misunderstanding of an email received on January 11, 2006 by ISA
Internationale Inc. and the Company's new auditors.
The Company's audit committee and two members of the board of directors were
made aware of these matters and were involved in the discussion and resolution
of this matter. One of these board members did discuss the matter with
representatives of Stonefield Josephson Inc. accounting firm.
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 Form 10-KSB that does contain the Stonefield Josephson audit report for
the period ended September 30, 2004 that was previously filed by ISA
Internationale Inc. on January 13, 2006.
This 8-k filing has been submitted to Stonefield Josephson Inc. this 24th day
of February, 2006, for acknowledgement of their respective agreement of the
above facts. ISA Internationale, Inc. is requesting that ISA Internationale,
Inc. receive a letter of agreement with the above facts and upon receipt of
the letter, ISA Internationale, Inc. will file a copy of their agreement as an
exhibit to the above facts in a subsequent 8-K filing.
As of the date of this report on May 12th, 2006, the Company has not yet
received any reply from Stonefield Josephson Inc. on this matter and has also
reported this fact to the SEC. The Company has discussed the matter with
Stonefield Josephson Inc. but has not yet received any further correspondence
from them regarding this matter.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
ISA INTERNATIONALE INC.
/s/ Bernard L. Brodkorb
By: Bernard L. Brodkorb
President, Chief Executive Officer, and Chief Financial Officer
Date: May 12th, 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: May 12th, 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 June 30, 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: May 12th, 2006