ISA INTERNATIONALE INC.
2564 RICE STREET
ST. PAUL, MN 55113
SEC File No. 1-16423
August 29, 2008
U.S. Securities and Exchange Commission
Division of Corporation Finance
Washington, DC 20549
Mail Stop 4561
Attn: Mr. Daniel L. Gordon
Branch Chief
Dear Mr. Gordon:
We are responding to your letter dated August 7, 2008 concerning our Form 10-
KSB dated 09/30/2007 and Forms 10-QSB for the quarters ended 12/31/07, and
03/31/08. Our response will correspond to the points referenced in your
letter. The Registrant, ISA International Inc., will be referred to in this
letter as the "Company" or "ISAT".
Form 10-KSB for the year ended September 30, 2007
1. Item 6. Management's discussion and Analysis or Plan of Operation
Off-balance sheet arrangements.
Currently our operations are entirely within the United States and we do not
need to use hedge contracts or other derivative contracts to mitigate
financial exposure risks due to foreign currency exchange rate changes or
interest rate changes. Nor are we in a business subject to large commodity
purchases where hedge contracts are available. Presently, we have no off-
balance sheet contracts and do not foresee an immediate need to make any such
arrangements. In our future reports we shall disclose we have no off-balance
sheet arrangements or similar arrangements that are material to potential
investors or current shareholders. We fully intend to comply with Item 303(c)
of Regulation S-B and will file amended Forms 10-KSB for the period ended 09-
30-2007 and amended Forms 10-QSB for 12-31-2007 and 03-31-2008 stating we
have no off-balance sheet arrangements.
2. Notes to Consolidated Financial Statements
Note 1.k New Accounting Pronouncements
SFAS NO. 155 - Accounting for Certain Hybrid Financial Instruments, which
Amends SFAS No. 133, Accounting for Derivatives Instruments and Hedging
Activities and SFAS No. 140, Accounting for Transfers and Servicing of
Financial Assets and Extinguishment of Liabilities. SFAS No. 155 amends SFAS
NO. 133 to narrow the scope exception for interest-only and principal-only
strips on debt instruments to include only such strips representing the
rights to receive a specified portion of the contractual interest or
principal cash flows. SFAS No. 155 also amends SFAS No. 140 to allow
qualifying special-purpose entities to hold a passive derivative financial
instrument pertaining to beneficial interests that by itself is a derivative
instrument.
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The Company does not use derivative instruments or hedging activities in our
business which is distressed debt collection. The adoption of SFAS No. 155
would have no effect on our financial statements as of 09-30-2007. We will
disclose we have adopted SFAS No. 155 in future reports in our notes to our
financial statements and will file amended Forms 10-KSB for the period ended
09-30-2007 and amended Forms 10-QSB for 12-31-2007 and 03-31-2008 stating we
have adopted SFAS No. 155 and 156.
SFAS No. 156 - Accounting for Servicing of Financial Assets, issued in March
2006, provides an approach to simplify efforts to obtain hedge-like (offset)
accounting. This Statement amends FASB No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities, with regard
to the accounting for separately recognized servicing assets and servicing
liabilities. The Statement briefly summarized:
(1) requires an entity to recognize a servicing asset or servicing liability
each time it undertakes an obligation to service a financial asset by
entering into a servicing contract in certain situations;
(2) requires a separately recognized servicing asset or servicing liability
be initially measured at fair value, if practicable;
(3) permits an entity to choose either the amortization method or the fair
value method for subsequent measurement for each class of separately
recognized servicing assets or liabilities;
(4) permits at initial adoption a one-time reclassification of available-
for-sale securities to trading securities by an entity with recognized
servicing rights, provided the securities reclassified offset the entity's
exposure to changes in the fair value of the servicing assets or liabilities;
(5) requires separate presentation of servicing assets and servicing
liabilities subsequently measured at fair value in balance sheet and
additional disclosures for all separately recognized servicing assets and
liabilities. SFAS No. 156 is effective for our Company beginning with our
fiscal year ended September 30, 2007.
We have adopted SFAS No. 155 and SFAS 156 accordingly as they apply to our
Company, and we will change our notes to our financial statements to conform
to your request.
3. Note 4.e Indemnification Agreement- Related Party
In July 1, 2004, the Company approved an Indemnification Agreement between
the Company and Doubletree Liquidation Corporation (DLC), a related investing
stockholder, wherein the Company issued to DLC 1,200,000 unregistered shares
of common stock for the express purpose of receiving as consideration from
DLC, a guarantee from DLC that this issue of common shares will completely
and finally settle the Company's liability to two debenture holders,
including their respective accrued interest that is currently due, and or may
be due on an estimated basis, upon completion of negotiations between the
Company and these creditors whenever it occurs.
The agreement was specifically designed to transfer certain current and
potential liabilities from ISAT to DLC, including interest on these note
payables which would continue to accrue on ISAT books but would be offset by
an equal increase in the contra-indemnification account receivable. Since
2004 we have been reporting the transactions using this contra-receivable
account and netting the notes payable and accrued interest against the
contra-receivable on the consolidated balance sheets with the concurrence of
our auditors at that time, Stonefield Josephson, Santa Monica, CA.
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Subsequently, our current auditors, DeJoya, Griffith and Company, Henderson,
NV, have continued to concur with the transaction presentation.
On our books, these assets and liabilities are separated but not presented in
the consolidated financial statements because they net to zero. The rationale
behind this is because these servicing assets and servicing liabilities have
been legally assumed by DLC with the Indemnification Agreement signed in July
2004 with the suggestion and concurrence of our auditors at the time that
they should no longer show on our Balance Sheet.
The Company cites further substantiation for its position by citing FIN 39 -
"Offsetting of Amounts Related to Certain Contracts" and believes all of the
conditions stated by the opinion on whether a right of standoff exists are
covered by the Indemnification Agreement between the two parties.
FIN 39 issued March 1992 restates APB Opinion No. 10, Omnibus Opinion-1966,
paragraph 7, states that "it is a general principle of accounting that the
offsetting of assets and liabilities in the balance sheet is improper except
where a right of setoff exists." This interpretation defines right of setoff
and specifies what conditions must be met to have that right.
APB Opinion 10, paragraph 7, states that "it is a general principle of
accounting that the offsetting of assets and liabilities in the balance sheet
is improper except where a right of setoff exists." A right of setoff is a
debtor's legal right, by contract or otherwise, to discharge all or a portion
of the debt owed to another party by applying against the debt an amount that
the other party owes to the debtor. A right of setoff exists when all of the
following conditions are met:
Each of two parties owes the other determinable amounts.
The reporting party has the right to set off the amount owed
with the amount owed by the other party.
The reporting party intends to set off.
The right of setoff is enforceable at law.
A debtor having a valid right of setoff may offset the related
asset and liability and report the net amount.
In this case, ISAT is the debtor of a determinable amount and has the right
to offset the amount owed to the creditors because payment is guaranteed by
DLC (the indemnifier) in the event a claim is made by a creditor by the terms
and conditions of the enforceable Indemnification Agreement. The creditors of
these realized and/or potential liabilities for debenture notes and other
liabilities from the discontinued operations of ISAT for the year 2000 and
prior have never brought suit to the debtor, ISAT, and have gone beyond the
statute of limitations on the unsecured debt. Furthermore, none of these
creditors have ever presented claims to ISAT or DLC on their behalf. Several
attempts to contact the creditors have failed to result in settlement
agreements and DLC has remained in a position of guarantor for these debts.
The Company offers this explanation to properly and adequately support out
position. We do not feel we have to amend our reports or financial
presentation on this item.
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4. Note 7 Extraordinary Gain and Subsequent Events
Gain on shares of ISAT common stock.
The gain of $537,500 was recorded to reflect the market value of 1,250,000
shares of our stock returned to us as part of the bankruptcy settlement of a
group of California companies given our stock in exchange for their debt
receivables. The stock was valued at $.43 which was the average closing price
of our stock at the time of the transaction. This was a non cash transaction.
The offset to this gain was recorded as treasury stock net asset of $537,500
on our balance sheet. ISAT had previously incurred litigation costs and
expenses and debt portfolio write-downs totaling in excess of $878,000. This
transaction results in ISAT recovering part of its prior losses and expenses.
We do not believe a change in accounting treatment is warranted at this time
and will not be amending our reports for this item in question.
5. Item 8.a Controls and Procedures.
We have revised our reporting accordingly to comply with Item 307 of
Regulation S-B for Item 8.a and paragraph 4(b) of our Section 302
Certification. Please refer to our last 10-QSB filing exhibits 32.1 f
We will file revised Form 10-KSB for the period ended 09-30-2007 and Form 10-
QSB for the periods ended 12-31-07 and 03-31-08 with the revised
certifications.
6. Section 302 Certification
We have revised our reporting accordingly to comply with Item 601(b) (31) of
Regulation S-B for our Section 302 Certification. Please refer to our last
Form 10-QSB filing exhibits 31.1 and 32.1 for the period ended 06-30-2008. We
will file a revised Form 10-KSB for the period ended 09-30-2007 and Form 10-
QSB for the periods ended 12-31-07 and 03-31-08 with the revised
certifications.
Form 10-QSB for the period ended March 31, 2008
7. Exhibit 31.1 Section 302 Certification
We have revised our reporting accordingly to comply with Item 601(b) (31) of
Regulation S-B for our Section 302 Certification. Please refer to our last
10-QSB filing exhibits 31.1 and 32.1 for the period ended 06-30-2008. We will
file a revised 10-KSB for the period ended 09-30-2007 and Form 10-QSB for the
periods ended 12-31-07 and 03-31-08 with the revised certifications.
Acknowledgements:
The registrant hereby acknowledges that:
1. the Company is responsible for the adequacy and accuracy of the disclosure
in our filings;
2. staff comments or changes to disclosure reported to the SEC in response to
staff comments do not foreclose the SEC from taking any action with respect
to the filing; and
3. the Company may not assert staff comments as a defense in any proceeding
initiated by the Commission or any person under the federal securities laws
of the United States.
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We are attempting to fully comply with the reporting requirements of the SEC.
We will attempt to conduct a more thorough quality review of our future
submissions to reduce the probability of similar errors referenced in your
letter and respectfully ask for your agreement with our conclusions in this
correspondence. Please contact me at 651-483-3114 or by fax at 651-489-2254
if you have additional comments or questions.
Sincerely,
/s/Bernard L. Brodkorb
President, CEO, and CFO
ISA Internationale Inc.