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U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-KSB
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___ to ___
Commission File Number 000-27373
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ISA INTERNATIONALE INC.
(Name of small business issuer in its charter)
DELAWARE 41-1925647
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1601 EAST HIGHWAY 13, SUITE 100 55337
BURNSVILLE, MINNESOTA (Zip Code)
(Address of principal
executive offices)
Issuer's telephone number (952) 736-0619
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class: Name of each exchange on which registered:
NONE NOT APPLICABLE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.0001 PAR VALUE
(Title of class)
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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 ___
Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to the Form 10-KSB. ____
State issuer's revenues for its most recent fiscal year. $3,543,516.
State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was sold, or the average bid and asked price of such common equity, as of a
specified date within the past 60 days. (See definition of affiliate in Rule
12b-2 of the Exchange Act. $23,368,991 as of February 29, 2000.
The number of shares outstanding of the issuer's common stock as of February 29,
2000: Common stock, $.0001 Par Value - 14,382,115.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
Transitional Small Business Disclosure Format (check one):
Yes No X
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ISA INTERNATIONALE INC.
FORM 10-KSB
TABLE OF CONTENTS
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PART I
Item 1. Description of Business.............................................................................. 3
Item 1-A. Important Factors.................................................................................... 9
Item 2. Description of Properties............................................................................11
Item 3. Legal Proceedings....................................................................................12
Item 4. Submission of Matters to a Vote of Security Holders..................................................12
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.............................................13
Item 6. Management's Discussion and Analysis of Financial Condition and Results of Operations................14
Item 7. Financial Statements.................................................................................17
Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................35
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with
Section 16(a) of the Exchange Act....................................................................36
Item 10. Executive Compensation...............................................................................37
Item 11. Security Ownership of Certain Beneficial Owners and Management.......................................38
Item 12. Certain Relationships and Related Transactions.......................................................38
Item 13. Exhibits and Reports on Form 8-K.....................................................................40
Signatures...........................................................................................41
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FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-KSB contains certain forward-looking
statements within the meaning of the Private Securities Litigation Reform Act
of 1995. For this purpose, any statements contained in this Form 10-KSB that
are not statements of historical fact may be deemed to be forward-looking
statements. Without limiting the foregoing, words such as "may," "will,"
"expect," "believe," "anticipate," "estimate," "plan," or "continue" or the
negative or other variations thereof or comparable terminology are intended
to identify forward-looking statements. These statements by their nature
involve substantial risks and uncertainties, and actual results may differ
materially depending on a variety of factors, including those set forth in
the section below entitled "Important Factors."
PART I
Item 1. DESCRIPTION OF BUSINESS
Through its two wholly-owned subsidiary Minnesota corporations,
ShoptropolisTV.com, Inc. (f/k/a Internationale Shopping Alliance Inc.)
("STV") and International Strategic Assets, Inc., ISA is engaged in two
distinct businesses: (i) the development of a multimedia home shopping
network primarily for the purpose of generating direct retail sales of varied
products from TV viewers and Internet shoppers, and (ii) direct sales via
outbound telemarketing of precious metals consisting mainly of gold and
silver coins and bars.
As used herein, the terms "ISA" and the "Company" refer to ISA
Internationale Inc. and its subsidiaries, unless the context indicates
otherwise.
A. Corporate Organization and Recapitalization
ISA was incorporated in Delaware in 1989 under a former name, and
was inactive operationally for some time prior to its May 1998
recapitalization through a merger with ShoptropolisTV.com, Inc. which is now
a wholly-owned subsidiary of ISA. ISA acquired its home shopping network
business through such merger, after which the former shareholders of this
subsidiary acquired 89% of the outstanding common stock of ISA through a
stock exchange. ISA issued 11,772,600 shares of its common stock in exchange
for all of the outstanding common stock of ShoptropolisTV.com, Inc. This
merger was effected as a reverse merger for financial statement and
operational purposes, and accordingly, ISA regards its inception as being the
incorporation of ShoptropolisTV.com, Inc. on October 7, 1997.
In January 1999, the Company redeemed and cancelled 1,650,000 shares
held by three of the founding shareholders. No consideration was paid to the
founding shareholders for the redemption. This transaction was the final
settlement of the recapitalization of the Company upon merger with
ShoptropolisTV.com, Inc.
ISA incorporated its precious metals subsidiary, International
Strategic Assets, Inc., in March 1999.
B. The ISA Home Shopping Network
ISA's primary business strategy is its development of
ShoptropolisTV.com, a multimedia home shopping network for the purpose of
offering in-home shoppers a convenient electronic shopping experience through
broadcast television, cable, satellite or the Internet, and featuring a broad
diversity of high-quality, moderately priced, unique consumer products.
When established, ISA's home shopping network will offer a wide
variety of consumer merchandise, much of which will not be available from
other sources. ISA merchandise will include jewelry, gemstones, watches,
varied collectibles, household appliances and cookware, consumer electronic
products, books, art, antiques, apparel items, sports equipment and
memorabilia, and other items which can be portrayed favorably through
television programming or Internet website presentation. ISA intends to
obtain its merchandise from numerous domestic and overseas vendors and
manufacturers. Due to pre-existing relationships with potential key vendors,
ISA believes that it will be able to procure more products on a consignment
basis than would be otherwise possible.
ISA is devoted to establishing STV as a premier diversified media
specialty retailer in the television home shopping network and e-commerce
industries. The Company believes that an emphasis on programming, production
presentation, ease of use, quality control, superior customer service, and
aggressive advertising will create a unique environment that will attract
television and on-line shoppers of all ages. Superior customer service will
also be a key factor in STV's goal of achieving customer retention, repeat
business, reduction of returns and customer loyalty. The STV concept is based
on providing a fun, exciting, entertaining and easy-to-shop environment.
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BACKGROUND OF THE ISA SHOPPING NETWORK. ISA's multimedia home
shopping concept was commenced in October 1997, and from then until the
summer of 1998, ISA formulated its strategic business plan and obtained its
initial capitalization through a private placement of its common stock with
related warrants. During the last half of 1998, ISA acquired extensive
television broadcast and satellite uplink transmission equipment, leased a
satellite transponder site, leased TV production/broadcast facilities in
Knoxville, Tennessee, and retained programming and technical personnel in
order to commence a test launch of its proprietary TV home shopping network.
While the Company is currently negotiating with several satellite access
providers, the Company does not currently have any contracts for satellite
transmission of its broadcast signal.
From November 1998 through May 1999, ISA launched its home shopping
network from Knoxville, Tennessee via satellite transmission to a nationwide
television audience consisting primarily of homeowners having large-dish
antenna satellite receiver systems. During this test launch, ISA tested its
broadcast operations, show programming procedures, customer ordering and
product fulfillment, and sales support and technical TV broadcast systems.
ISA believes that its program content, broadcast transmission, and customer
ordering and support operations functioned professionally and met ISA's
planned performance standards in all material respects.
MULTIMEDIA BUSINESS STRATEGY. ISA plans to implement multiple direct
sales operations as part of the STV business strategy. TV broadcasting will
be transmitted to cable TV networks, broadcast stations and satellite
receivers. Internet e-commerce retailing will be conducted through a
proprietary ISA Website. ISA has chosen its multimedia approach because of
its belief that "exposure" to potential consumers is the most important
element in creating sales in the home shopping industry. ISA believes that
its ability to realize substantial and growing sales will be primarily
dependent upon achieving a large amount of merchandise exposure to potential
customers through a multimedia strategy.
ISA TELEVISION NETWORK. Current plans of ISA are to commence full TV
home shopping broadcasting within 90 to 120 days following the receipt of
sufficient funding, which will be transmitted via communications satellite to
various targeted audiences primarily representing cable TV subscribers of
various cable TV systems with which ISA plans to enter into affiliation
agreements. ISA also plans to seek a closed caption sponsor to allow its
programming to accommodate the 24 million Americans with hearing impairment.
ISA believes that sales from TV shopping will constitute the largest source
of its future revenues.
FUTURE TV PRODUCTION AND BROADCAST OPERATIONS. ISA television home
shopping will be presented live from a fully equipped digital production
studio, and will employ modern photography procedures, leading computer
graphics technology and other creative merchandising techniques intended to
present ISA merchandise to TV viewers in a friendly and informal sales
environment. Program format will emphasize an interactive and entertaining
atmosphere intended to effectively describe and demonstrate the merchandise
being offered by show hosts. All STV programming will be produced by
full-time ISA production personnel at the broadcast studio facilities of
Broadcast Video, Inc., and transmitted from there via satellite to the
targeted viewing audiences. STV may also employ fiber optic transmission
technology to deliver program signals via telecommunication lines.
STV merchandise will be presented by professional on-air TV hosts,
and TV viewers can place their orders immediately and directly via a
toll-free dedicated telephone number shown on their TV screens. Orders will
be processed immediately at the STV Call Center by trained telemarketing
service personnel using specialized order processing computer equipment. STV
programming will include targeted category, themed and general merchandise
presentations. Special themed programs will be aired for established holidays
and events including Mother's Day, Father's Day, Valentine's Day, and the
Christmas season. Programming will be divided into specifically timed
segments, with each segment having a live TV show host who presents the
merchandise and conveys information on specific products such as price,
quality, and special or unique product features. Besides regular programming,
ISA intends to feature occasional celebrity or special guests to promote
products they are associated with, including TV or movie stars, recording
artists or recognized athletes.
ISA will place and maintain a high priority on the hiring and
training of TV show hosts and their support personnel, since ISA believes
they are a key factor for inducing viewers to make the type of "impulse"
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purchase decisions characteristic of TV home shopping. Show hosts will be
encouraged to develop distinct individual personality traits and presentation
techniques to promote positive bonding with TV viewers.
PROGRAMMING AND FORMAT. The Company intends to develop on-air and
on-line programming which will feature a unique selection of products and
services with a mix of programming, categories, consumer education in an
entertaining format designed to attract men, women and families of all ages.
In addition, the Company will seek to attract customers by designing unique
programs that are exciting, interactive and entertaining. While the
programming format will be entertaining and fun for customers, the primary
focus will be on a presentation of unique products and on maintaining high
standards of customer service.
ISA INTERNET E-COMMERCE. Electronic retail shopping via the
Internet, popularly known as "e-commerce", has experienced significant and
rapid growth in the past few years. E-commerce transactions grew from $6
billion in 1997 to over $18 billion in 1998, and are expected to exceed $300
billion by 2002. The Internet is being recognized increasingly by the general
population as an effective retailing medium, with one of four Americans
already having made at least one online retail purchase. ISA believes that a
large and growing segment of the population now regards e-commerce as a
convenient, affordable and pleasing alternative to other shopping channels.
Accordingly, ISA's business strategy places strong emphasis on the
development of an effective professional STV website presence on the Internet
to participate fully in this unique retailing channel. ISA has acquired its
proprietary website address, www.shoptropolistv.com, and is now in the final
phases of development. ISA plans to continuously display numerous products
from varied merchandise categories on its website, and intends to change
product offerings frequently. On the website, customers will be able to view
products being sold via broadcast on a real time basis, obtain additional
product information, place orders for products and review STV policies. ISA
intends to utilize state-of-the-art computer and server equipment suitable
for volume e-commerce retail sales.
ISA has retained professional e-commerce website designers Visual
Fire, Inc. to create its website presentation, and ISA intends to develop a
comprehensive website presence featuring merchandise portrayed in
easy-to-view graphics and accompanying narrative designed to appeal to
Internet online shoppers. ISA believes e-commerce sales will represent a
substantial portion of its total revenues, and that the STV website will
become an effective marketing channel both for initial sales to new customers
and for aftermarket sales to the existing STV customer base.
ISA estimates that its e-commerce website will be fully developed
and operational 90 to 120 days prior to TV broadcast delivery. After
becoming operational, ISA intends to actively promote its Internet website
both through STV television programming on-air announcements and through
considerable independent advertising in various print and electronic media
sources.
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C. Merchandise Purchasing and Suppliers.
Through its STV multimedia home shopping network, the Company plans
to offer a wide range and varied mix of unique quality merchandise. ISA
anticipates that jewelry (including watches and gemstones) will represent its
largest and most offered category. ISA intends to feature certain jewelry
merchandise designed exclusively for sale by ISA. Types of merchandise
planned to be offered by ISA include standard product lines, products made to
specifications from ISA, and certain overstock or close-out inventory offered
by wholesalers and liquidation vendors. ISA also intends to offer home
shoppers new or unique products on a regular basis which are not available
from other home shopping sources. The mix of products and sources of
merchandise will vary from time to time depending upon a variety of factors
such as price and product availability. ISA will use an experienced
buying staff to purchase its merchandise.
ISA intends to obtain its merchandise from numerous domestic and
foreign suppliers, including manufacturers, wholesalers, distributors,
importers and other vendors. ISA has developed an extensive database of
potential vendors which can provide a wide variety of goods in many
categories which ISA considers suitable for television shopping presentation.
This vendor database includes many suppliers in the United States as well as
other countries. Based on the initial test launch of its TV shopping network
and the past industry experience of ISA management, ISA does not anticipate
any difficulties obtaining ample and varied merchandise inventory from
suppliers, nor does ISA expect to encounter any material delays in having
product orders fill by suppliers.
ISA's merchandising department will negotiate directly with the many
suppliers providing products to be sold through the STV multimedia shopping
network. ISA will strive to obtain the lowest prices available from suppliers
while at the same time ensuring good product quality and durability. ISA will
negotiate with leading domestic and foreign manufacturers to carry their
first-run products, which will provide such manufacturers considerable free
exposure for such new products. ISA will also acquire products from smaller
vendors, which produce a limited line of products and carry small
inventories. ISA also plans to purchase and carry closeout merchandise on a
regular basis, which will be obtained from various manufacturers and vendors.
In addition to dealing with established vendors and new suppliers who contact
ISA to sell their goods, ISA intends to attend 30 to 40 major trade shows
annually where vendors display and offer their products to direct sales
retailers.
The Company anticipates that a substantial portion of products sold
by STV will be obtained from vendors on a consignment basis. Pursuant to such
arrangements, ISA will not be required to make any payment for these goods
until they are sold to in-home shoppers and will not required to obtain
inventory financing.
The Company plans to enter into agreements with certain
manufacturers to set aside a specified quantity of their goods to be sold on
one, two or three segments of network airtime. ISA believes that such a
policy will allow it to purchase only the quantity of goods actually sold
while not requiring the vendor to hold the merchandise for extended periods
of time. Products from smaller vendors with limited financial resources will
be shipped to the Company prior to the products being offered on air, which
will reduce the risk to the Company that such small vendors will be unable to
deliver products to fill customer orders. With respect to product lines which
are not completely sold when offered on the STV network, the Company will
seek to enter into arrangements allowing the unsold products to be shipped
back to the vendor at no cost to the Company.
Since there are multiple sources of supply for the various product
categories planned to be offered by STV's home
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shopping network, ISA does not plan on entering into any long-term commitments
or arrangements with suppliers. ISA also will attempt to take full advantage
of any volume discounts offered by suppliers.
D. Marketing and Customers
ISA believes that a significant and growing portion of the general
population now prefers to shop direct from their homes via television and
Internet. ISA plans to offer a wide variety of quality merchandise directly
to home shoppers at or below the market price. ISA does not expect to use
excessive discounting, but expects to focus on adding value by offering
additional incentives to purchase and providing exceptional service. STV
expects to realize sales in its home shopping network from three sources, (i)
new customers from households viewing STV television programming or
connecting online with the STV e-commerce website, (ii) new customers from
additional cable TV audiences from added cable TV affiliations to be entered
into by ISA from time to time, and (iii) repeat sales to loyal customers
already having purchased products from one or more of ISA's shopping media.
ISA believes that its multimedia approach will enable it to reach a broad
shopping population of varying income, occupational, socio-economic and
cultural backgrounds, and having varying merchandise category preferences.
ISA intends to aggressively promote, advertise and market its
electronic retail operations directly to television viewers and Internet
e-commerce shoppers. ISA TV programming and website presentation will be
targeted to both men and women to assure maximum exposure to both genders.
ISA also believes that television shopping sales will represent a substantial
majority of the revenues to be received by ISA.
In order to inform potential customers about ISA TV programming and
website presentation, ISA plans to conduct substantial ongoing advertising
and promotional activities to publicize STV television scheduling and
programming and website presentation. Such marketing activities will include
advertising in various TV guides and Internet sites, on-air media
advertising, advertising in selected periodicals and other print media,
direct-mail campaigns to the STV customer base and other targeted potential
customer groups, and maintaining STV program scheduling on the STV Internet
website.
E. Merchandise Ordering/Fulfillment and Customer Service
Product ordering and fulfillment will be conducted through ISA's
specialized computer telephone system.
Automated order fulfillment functions of the ISA computer system
will facilitate timely delivery of merchandise to customers by tracking
individual purchase orders, inventory and shipping data, and customer payment
data such as credit verification or other payment terms. Customer payments
can be made through recognized credit cards and electronic checks. ISA
anticipates that a substantial majority of customers will pay by credit card.
ISA intends to ship merchandise orders to customers within 24 hours of their
receipt by ISA, and ISA anticipates product delivery to customers will occur
by 7 to 10 days after the initial order. ISA intends to offer a 30-day return
policy.
ISA considers customer service as a key element of its overall
business strategy, and the ISA Customer Service department will handle
various customer service functions such as specific customer requests and
complaints, product return policies, warranty matters, and specific product
information. ISA intends to have full-time trained customer service personnel
to handle customer inquiries directed to ISA via the ISA toll-free telephone
lines. These ISA customer service personnel will be online with the ISA
computerized order entry and fulfillment systems and thus will have immediate
access to each customer's purchase and credit history while on the phone line
with the customer, which ISA believes will enable it to promptly resolve most
inquiries and requests from customers.
F. Strategy
The Company's goal is to establish STV as a premier home shopping
network and internet retailer. In order to achieve its goal, the Company
intends to implement the following strategies:
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- Develop a unique, exciting, educational, entertaining and
interactive television and internet home shopping format.
- Differentiate STV from competitors by offering best-in-class
customer service from order placement, tracking and returns.
- Increase sales through the use of unique value-added promotions
and on-air events.
- Develop programming formats to appeal to a wide variety of
demographics.
- Employ a variety of advertising outlets, including print, direct
mail, e-commerce, and catalogs with greater frequency and
creativity than established competitors.
- Attract customers and create customer retention and loyalty by
maintaining a continuously changing assortment of products,
features and programming to attract and entertain customers.
G. Precious Metals Direct Sales
ISA conducts outbound direct telemarketing sales of precious metals
through its wholly-owned Minnesota subsidiary, International Strategic
Assets, Inc., which is based in suburban Minneapolis/St. Paul. ISA offers and
sells gold, silver, platinum and palladium in bullion form including bars and
coins of various types and face amounts. Based on sales to date, ISA believes
that at least 75% of ISA precious metals sales will consist of gold bullion,
with silver bullion representing a majority of the remaining 25%.
Precious metals sales are made via direct selling activities of
ISA's full-time precious metals sales representatives. Their sales efforts
are directed primarily to wealthy or upper-income persons who desire to
diversify and balance their investment portfolios through the holding of a
core position of precious metals. ISA sales representatives are paid a set
commission based on the amount of their sales. After obtaining a customer
order for precious metals, ISA purchases the specific amount of bullion from
one of the many precious metals wholesalers or bullion banks dealing in
precious metals. Shipments of precious metals by ISA are sent registered and
insured, and are made to ISA customers promptly upon receipt of full payment
from the customer. There are many sources of supply available to ISA for
precious metals to fill customer orders, and the loss of one or more of such
sources would not have any material effect on the business of ISA.
The Company is currently evaluating the possible divestiture of its
precious metals business through a sale of such business or by other
appropriate means.
H. Competition
All segments of direct retail merchandising are highly competitive,
and numerous competitors of ISA have substantially greater financial,
management, marketing and operational resources than those of ISA. ISA will
also compete with all forms of retail businesses including department,
discount, mass merchandise, warehouse and specialty stores, other home
shopping channels including TV and e-commerce and catalog operations,
outbound telemarketing organizations, precious metals sellers of all sizes,
and other direct sellers of consumer merchandise. The television home
shopping industry is dominated by two networks, QVC and Home Shopping
Network, and also has other well-established networks including ValueVision
and Shop-at-Home. ISA's Internet e-commerce will encounter a crowded and
highly competitive marketplace filled with numerous organizations including
major catalog sales companies, existing and rapidly emerging e-commerce
websites.
ISA believes that the principal competitive factors in its industry
are exposure of broadcasting, product quality and price, TV program and
website presentation, name recognition and customer service. ISA will be at a
competitive disadvantage in attracting TV audiences since it is unknown, its
programming will not be broadcast fulltime, and it will have a much smaller
potential customer viewing audience compared to its main competitors. ISA
will be at a similar disadvantage in its e-commerce operations since many of
its online competitors will have already established their businesses and be
well recognized as an Internet shopping source. ISA also will need to compete
with established companies in hiring and recruiting experienced home shopping
personnel, and in entering into cable television affiliations for broadcast
carriage on their cable systems. ISA cannot predict the degree of success
with which it will be able to meet competition in the future.
I. Governmental Regulations
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ISA's home shopping operations will be subject to licensing and
other regulation by federal, state and local governmental authorities
regarding television broadcasting, health and safety conditions, labor and
employment matters, facility sanitation and other matters. ISA does not
anticipate any difficulties or delays in complying with such federal, state
or local licensing and regulations, and ISA believes it will be able to
remain in material compliance with such licensing and regulatory matters
regarding all planned future operations. Any failure by ISA to satisfy
regulatory requirements could affect the business and financial condition of
ISA adversely.
The television industry in particular is subject to extensive
regulations of the Federal Communications Commission (FCC), which are subject
to change including further legislation. There can be no assurance that laws,
rules or policies of the FCC which could adversely affect ISA will not be
enacted at a future date. ISA holds the necessary license from the FCC to
engage in television home shopping operations. Currently there is little
regulation of the Internet, but there can be no assurance future legislation
will not lead to regulation of e-commerce retailing on the Internet which
would impact ISA adversely.
J. Personnel
As of December 31, 1999, ISA had 15 full-time employees including
three executive officers, three administrative and accounting personnel, and
nine precious metals sales representatives.
K. Seasonality
ISA anticipates that all segments of its planned multimedia home
shopping business will be subject to seasonal fluctuations, with the highest
sales activity most likely occurring in the fourth quarter of each calendar
year due to general increased spending of consumers for the yearend holiday
season.
ITEM 1A - IMPORTANT FACTORS
The following factors are important and should be considered
carefully in connection with any evaluation of the Company's business,
financial condition, results of operations and prospects. Additionally, the
following factors could cause the Company's actual results to materially
differ from those reflected in any forward-looking statements of the Company.
NEW BUSINESS VENTURE - With respect to the core business strategy of
developing and launching its multimedia home shopping network, ISA has only a
very limited operating history on which to base an evaluation of its business
and prospects. Therefore the Company's prospects must be considered in light
of the many risks, expenses and difficulties encountered frequently by
companies in their development stage, particularly companies in rapidly
changing markets such as the direct sales electronic retailing being
developed by ISA. 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 may
encounter, it must implement and successfully execute its operational and
marketing strategy, obtain and offer quality products to home shoppers at
competitive prices, develop and effectively operate its TV, Internet, and
other home-shopping media, provide effective customer service and merchandise
fulfillment, develop and implement effective financial and other internal
business systems, respond to competitive developments, and attract, retain
and motivate qualified personnel. There can be no assurance the Company will
be successful in addressing the many risks and difficulties it will
encounter, and the failure to do so would have a material adverse effect on
the Company's business, prospects, financial condition and results of
operations.
HISTORY OF LOSSES AND ANTICIPATED FURTHER LOSSES - ISA has generated
only limited revenues to date and has an accumulated deficit as of December 31,
1999 of $3,032,984. Further, the Company expects to continue to incur losses
until it establishes its home shopping network and begins selling its
merchandise to consumers in sufficient quantities and at appropriate margins
to achieve profitability. There can be no assurance the Company will ever
generate substantial revenues from its home shopping network strategy, or
that it will achieve profitability, or that its future, multimedia home
shopping operations will prove commercially successful.
NEED FOR ADDITIONAL FINANCING - The Company's current capital
resources are only sufficient to support the Company's anticipated operations
for the next two to three months. As such, the Company must obtain
significant additional capital in order to fund the development of its home
shopping program and internet website. The Company is currently
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continuing an offering of debentures which it began in November 1999. In
addition, the Company is continuing to seek additional sources of debt or
equity financing. The actual amount and timing of the Company's future
capital requirements will depend on, among other factors, the amount of
additional proceeds raised from its current debenture offering, the amount
and timing of future revenues, and the costs associated with the
implementation of the Company's business plan. 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 sufficient financing or to
generate funds from operations sufficient to meet its operating and
development needs, the Company will be unable to implement its current plans
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 independent auditors on the Company's consolidated financial
statements for the years ended December 31, 1999 and 1998 include an
explanatory paragraph concerning the Company's ability to continue as a going
concern.
GENERAL INDUSTRY CONDITIONS - Direct retail sales of consumer
products are affected by changes in consumer preferences, demographic trends,
general economic conditions, inflation, changing governmental or sales tax
regulations, lack of availability of qualified management and marketing
personnel, and other factors beyond the Company's control, and any such
material changes could adversely affect its business from time to time.
MARKET ACCEPTANCE OF THE ISA HOME SHOPPING CONCEPT - The Company's
financial condition and prospects will depend upon obtaining significant
retail sales in an intensely competitive marketplace, and there is no
assurance that home shopping concept will achieve the market acceptance with
the consuming public necessary to become profitable. Since the Company is
developing a new and unknown brand name in the home shopping marketplace, it
intends to commit substantial resources toward promoting and maintaining its
brand name. If the Company is unable to develop favorable brand recognition
with consumers, its business would be adversely affected.
DEPENDENCE UPON THIRD PARTY SUPPLIERS - The Company will depend upon
a number of third party manufacturers and vendors for its product
merchandise, and the Company will have only limited control over these third
parties. Although the Company does not anticipate any material difficulties
or delays obtaining suitable merchandise for its home shopping network on a
timely basis, the failure of any significant source of supply, along with an
inability to develop an alternative source, could have an adverse effect on
the Company's business.
RELIANCE ON KEY PERSONNEL - The Company's future success will be
dependent upon the efforts and experience of its executive officers and
certain other key employees. The loss of services of one or more of such
persons would have a material adverse effect on ISA and its business.
Moreover, the Company will be dependent upon staffing its home shopping
operations with qualified and experienced TV production and technical
personnel, show hosts and sales support personnel, telemarketers, merchandise
purchasing personnel, and customer service and fulfillment personnel. 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 - The Company's officers, directors
and principal shareholders beneficially own approximately 71.5% of ISA's
outstanding common stock, and accordingly have complete control of its
business and development, including the ability to manage all operations,
establish all corporate policies, appoint future executive officers,
determine management salaries and other compensation, and elect all members
of the Board of Directors of ISA.
COMPETITION - The direct retail sales industry is intensely
competitive regardless of the medium chosen to reach consumers, and the
Company will compete with numerous large, medium and small companies and
other direct sellers, many of which have substantially greater financial,
marketing, personnel and other resources than those of ISA. In addition, many
of the Company's competitors have already attained a loyal customer base and
achieved brand name recognition for their marketing networks. There can be no
assurance the Company will be able to compete effectively against its many
competitors, or that the Company will be able to respond adequately to the
various competitive factors characteristic of its industry. In the future,
the Company also will likely encounter additional new competitors entering
its marketplaces from time to time.
GOVERNMENT REGULATIONS - ISA and its operations are subject to
various federal, state and local governmental regulations, and any failure by
ISA to comply with such regulations or obtain any required licensing could
have a material adverse effect on the business and operations of ISA.
EFFECTS OF TRADING IN THE OVER-THE-COUNTER MARKET - The Company's
common stock is traded in the over-the-counter market on the OTC Electronic
Bulletin Board. Consequently, the liquidity of the Company's common stock may
be impaired, not only in the number of shares that may be bought and sold,
but also through delays in the timing of transactions, and coverage by
security analysts and the news media may also be reduced. As a result, prices
for shares of the Company's
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common stock may be lower than might otherwise prevail if the Company's
common stock were traded on a national securities exchange or listed on the
Nasdaq Stock Market. Further, the recent adoption of new eligibility
standards and rules for broker dealers who make a market in shares listed on
the OTC Election Bulletin Board may limit the number of brokers willing to
make a market in the Company's common stock.
LIMITED MARKET FOR SECURITIES - There is a limited trading market
for the Company's common stock, which is not listed on any national stock
exchange or The Nasdaq Stock Market. The Company's securities are subject to
the "penny stock rules" adopted pursuant to Section 15(g) of the Securities
Exchange Act of 1934, which applies to non-Nasdaq companies whose common
stock trades at less than $5 per share or has tangible net worth of less than
$2,000,000. These "penny stock rules" require, among other things, that
brokers who sell covered "penny stock" to persons other than "established
customers" complete certain documentation, make suitability inquiries of
investors and provide investors with certain information concerning trading
in the security, including a risk disclosure document and quote information
under certain circumstances. Many brokers have decided not to trade
"penny-stock" because of the requirements of the "penny stock rules" and, as
a result, the number of broker-dealers willing to act as market makers in
such securities is limited. There can be no assurance that an established
trading market will develop, the current market will be maintained or a
liquid market for the Company's common stock will be available in the future.
Item 2. DESCRIPTION OF PROPERTIES
The Company owns considerable television broadcast and transmission
equipment, studio programming and editing equipment, data processing,
telephony and computer equipment, and furniture, all of which relates to the
Company's television and Internet home-shopping network activities. The
television broadcast and transmission equipment, studio programming and
editing equipment and the telephony equipment are presently in a secure
storage facility in Minneapolis, Minnesota. The Company's two satellite
dishes are located in Knoxville, Tennessee. The computer equipment and
furniture are in use at the Company's present office site. Management
believes that all stated equipment is in good working condition and suitable
for television broadcast operations.
The Company is presently officed at leased office space in
Burnsville, Minnesota. This facility is approximately 4,996 square feet and
is being leased under a four (4) year lease, expiring December 31, 2003, with
option to downsize and/or relocate the leased premises, and option to
terminate the lease. Monthly rental installments currently are approximately
$7,486, which includes base rental amount and tenant's share of overall
building complex maintenance expense and real estate taxes increase. The
Company's wholly-owned subsidiary, ShoptropolisTV.com, Inc., is also
presently officed in the Burnsville facility.
The Company's wholly-owned subsidiary, International Strategic
Assets, Inc., leases its sales and administrative facilities for its precious
metals sales operations in a large office complex in Eagan, Minnesota, a
suburb of Minneapolis/St. Paul. These facilities consist of approximately
7,300 square feet and are being leased under a five-year lease expiring in
2004. Monthly payments currently are approximately $6,188, which includes the
base rental amount and the tenant's share of the overall building complex
expenses and real estate taxes. Monthly rental will increase if such
operating expenses and real estate taxes increase. Rental payments under this
lease are guaranteed by the Company.
The Company has leased a 70,089 square foot facility in Eagan,
Minnesota for its wholly-owned subsidiary, ShoptropolisTV.com, Inc. The
facility is presently under construction with completion scheduled for April
2000. The facility will be ShoptropolisTV.com's headquarters and will house
administration offices, purchasing, warehousing, shipping and receiving, and
telephone call-centers, for the television and Internet home-shopping
operations. The lease terms is eight (8) years expiring March 2008. The
monthly rental installments will commence April 2000, and be approximately
$36,000, which includes base rental amount and building complex maintenance
expense and real estate taxes. The base annual rent increases by ten-percent
the second year and by four-percent in the fourth and seventh year. Monthly
rental installments will also increase if such operating expense and real
estate taxes increase. The Company has guaranteed the rental payments under
this lease.
The Company moved its administrative, production and broadcast
operations from Knoxville, Tennessee to Minnesota the fourth quarter of 1999.
The 17,800 square foot facility in Knoxville is still under lease by the
Company. The Knoxville facility is leased under a written five-year lease
that commenced October 1989 and expires October 2003. When the Company
entered into this lease, it planned to conduct permanent television broadcast
operations from Knoxville. The Company decided to relocate its home-shopping
network to Minnesota. Therefore, the Company no longer needs the Knoxville
facility. The Knoxville lease requires escalating lease payments from $6,303
at commencement to $11,435 per month the fifth and final year of the lease.
The owner of the Knoxville facility is a shareholder of the Company and has
authorized the Company to sublet the premises. At present, the Company has
sublet approximately 8,641 square feet (49%) of the facility. Terms of the
sublease expire October 2003, the expiration date of the Company's lease. The
sublease provides for an early termination at the end of the second year of
the sublease, October 2001. If subtenant exercises the option to terminate,
the Company shall be entitled to retain the security deposit of $11,907. The
sublease rental installments are escalating in accordance with the escalating
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Company's lease rental installments. The sublease payments to the Company
escalate from approximately $4,918 per month to $5,692 per month until the
expiration of the lease in 2003. The covenants, agreements, provisions, and
conditions of the Company's lease, to the extent that they relate to the
subleased premises and to the extent that they are not inconsistent with the
terms of the sublease, were made a part of and incorporated into the
sublease. The activity to sublet the remaining portion of the facility is
ongoing. In the event the remaining portion of the facilities in Knoxville
cannot be subleased on terms similar to those now binding the Company, the
Company would incur a loss for the resulting difference.
The Company's property and equipment are carried at cost.
Depreciation is computed over the estimated useful lives of the assets using
the straight-line method. When assets are retired or otherwise disposed of,
the cost and regulated accumulated depreciation are removed from the accounts
and any resulting gain or loss is recognized. The cost of maintenance and
repairs are expensed as incurred and significant renewals and betterments are
capitalized.
The Company considers its current facilities adequate for its
current needs and believes that suitable additional space will be available
as needed.
Item 3. LEGAL PROCEEDINGS
The Company is not a party to any pending legal or administrative
proceeding, and are not aware of any threatened litigation or administrative
proceeding being considered against the Company or its subsidiaries. The
Company's property is not the subject of a pending legal proceeding. In
addition, there is no material proceeding to which any director, officer or
affiliate of the issuer, any owner of record or beneficially of more than 5%
of any class of voting securities of the Company, or security holder is a
party adverse to the Company or has a material interest adverse to the
Company.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There was no matter submitted to the vote of security holders during
the fourth quarter of 1999.
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PART II
Item 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
A. Market, Holders and Dividends
The Company's Common Stock has been traded publicly and quoted
over-the-counter on the NASD Electronic Bulletin Board under the symbol
"ISAI" since May 11, 1998. The following table sets forth the high and low
closing bid prices for the Company's Common Stock as reported by the OTC
Bulletin Board. These bid quotations reflect inter-dealer prices, without
retail mark-up, mark-down or commission and may not represent actual
transactions. Prior to December 1999, there was only very limited trading
activity in the Company's common stock. As such, information provided
regarding periods prior to December 1999 is not an indication that an active
market existed for the Company's common stock during such periods. Further,
there can be no assurance that the current market for the Company's common
stock will be substained or grow in the future.
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
1998
First Quarter (no transactions) $1.50 $1.50
Second Quarter $2.50 $1.50
Third Quarter $3.00 $1.50
Fourth Quarter $3.25 $1.50
1999
First Quarter $4.25 $3.25
Second Quarter $3.25 $0.375
Third Quarter $0.375 $0.25
Fourth Quarter $2.13 $0.22
</TABLE>
As of February 29, 2000, there were approximately 117 beneficial
owners and approximately 283 registered holders of record of the Company's
Common Stock.
The Company has not declared or paid any cash dividends on its
Common Stock since its inception and does not anticipate declaring or paying
any such dividends on its Common Stock in the foreseeable future. To date,
the Company has incurred losses and presently expects to retain its future
anticipated earnings to finance development and expansion of its business.
Declaration of dividends is within the discretion of the Board of Directors
of the Company. There are no current restrictions limiting the Company's
ability to pay dividends.
B. Recent Sales of Unregistered Securities
The following information includes all securities sold by the Company since
its inception in October 1997:
A. Incident to the founding and organization of the Company in late 1997, the
founders of the Company (which included all current directors of the Company)
and certain persons associated with them received a total of 10,824,000
shares of common stock of the Company based on $.01 per share of value, a
total of $108,240, either for services rendered or settlement of accounts
payable involved with the organization of the Company; and they also received
5-year warrants to purchase a total of 2,884,000 common shares of the Company
exercisable at $1.00 per share. Exemption for this transaction is claimed
under Section 4(2) of the Securities Act of 1933 since the founding of the
Company was a strictly private transaction not involving a public offering
and all of such founders and their associates acquired the common stock for
long-term investment and all stock certificates were legended to prevent
further distribution thereof unless registered or satisfying an exemption
from registration.
B. From November 1997 to June 1998, the Company sold a total of 1,579,535
Units at a purchase price of $.6536 per Unit, a total amount of $1,032,376,
to a limited number of 16 investors (most of whom are accredited investors)
in a private placement, with each Unit consisting of one share of Common
Stock of the Company and a five-year warrant to purchase two shares of Common
Stock exercisable at $1.00 per share. Exemption for this transaction is
claimed under Section 4(2) of the Securities
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Act of 1933 since it was strictly a private placement whereby all investors
agreed to accept the Units for long-term investment and to have the
certificates therefor legended to prevent further distribution or resale of
the securities unless pursuant to registration or an appropriate exemption
therefrom. Two of these investors were Mr. Durand, the Chief Executive
Officer of the Company, who purchased $10,000 of the Units, and Mr. Brodkorb,
the Chief Financial Officer of the Company, who purchased $16,340 of the
Units.
C. In June 1998 the Company issued a total of 370,000 shares of its Common
Stock to four persons who contributed services to the Company based on $.25
per share. These issuances were as follows:
<TABLE>
<CAPTION>
Person Providing Services Total Value of Services Shares Issued
- ------------------------- ----------------------- -------------
<S> <C> <C>
Mid-America Venture Capital Fund, Inc. $62,500 250,000
Claude Jasper Yow $25,000 100,000
Roger Garmann $ 2,500 10,000
Darrell Bearson $ 2,500 10,000
</TABLE>
Messrs. Garmann and Bearson also received five-year warrants to purchase
10,000 shares of Common Stock apiece exercisable at $1.00 per share. These
were all isolated private transactions with exemptions from registration
claims under Section 4(2) of the Securities Act of 1933, and all stock
certificates were legended to prevent further distribution unless registered
or satisfying an appropriate exemption from registration.
D. In December 1998 the Company issued 268,000 shares of its Common Stock to
Richard Meyers Family Trust, an accredited investor, in a private sale at
$.75 per share, total consideration of $201,000. This was an isolated private
transaction and exemption from registration is claimed under Section 4(2) of
the Securities Act of 1933, with the stock certificate being legended to
prevent further disposition without registration or an appropriate exemption
therefrom.
E. In January 1999 the Company reduced the exercise price of its outstanding
warrants which were sold as part of the Unit private placement in 1998 to
$.50 per share from its original $1.00 per share until the end of February
1999. Incident thereto, in January-February, 1999 the Company issued a total
of 2,342,080 shares of its Common Stock to certain warrant holders exercising
their warrants at the reduced price of $.50 per share. Consideration received
by the Company for these warrant exercises consisted of $528,202 in cash and
$642,838 in gold bullion and coins. Exemption from registration is claimed
under Section 4(2) of the Securities Act of 1933 since these were private
transactions with existing shareholders not involved in a public offering,
and they accepted their common shares for long-term investment and the
certificates therefor were legended with a restrictive legend preventing
further distribution or resale unless registered or satisfying an appropriate
exemption from registration.
F. From September 1999 through February 2000, the Company received aggregate
proceeds of $1,336,640 from the sale and issuance of unsecured convertible
debentures. The debentures are being offered and sold to accredited investors
pursuant to exemption from registration provided by Section 4(2) of the
Securities Act of 1933 and Rule 506 of Regulation D promulgated thereunder.
Each investor is required to complete and execute a subscription agreement
containing representations regarding accredited status and investment intent.
In addition, the certificates bear a legend restricting the transfer of the
debentures and the underlying shares of common stock.
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENTS
The information herein contains certain forward looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities and Exchange Act of 1934, as amended, which
are intended to be covered by the safe harbors created thereby. Investors are
cautioned that all forward looking statements involve risks and
uncertainties, including, without limitation, the ability of the Company to
continue its business strategy which will require it to obtain significant
additional working capital, changes in costs of doing business and obtaining
merchandise products, changes in governmental regulations and labor and
employee benefits and costs, competition and pricing, and general
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<PAGE>
economic and market conditions. Such risks and uncertainties may cause the
Company's actual results, levels of activity, performance or achievements to
be materially different from those future results, levels of activity,
performance or achievements expressed or implied by such forward-looking
statements. Although the Company believes that the assumptions and
expectations reflected in these forward looking statements are reasonable,
any of the assumptions and expectations could prove inaccurate or not be
achieved, and accordingly there can be no assurance the forward looking
statements included in this Form 10-KSB will prove to be accurate. In view of
the significant uncertainties inherent in these forward looking statements,
their inclusion herein should not be regarded as any representation by the
Company or any other person that the objectives, plans, and projected
business results of the Company will be achieved.
Generally, such forward looking statements can be identified by
terminology such as "may," "anticipate," "expect," "will," "believes,"
"intends," "estimates," "plans," or other comparable terminology.
OVERVIEW
Through its two wholly-owned subsidiary Minnesota corporations,
ShoptropolisTV.com, Inc. (f/k/a Internationale Shopping Alliance Inc.)
("STV") and International Strategic Assets, Inc., ISA is engaged in two
distinct businesses: (i) the development of a multimedia home shopping
network primarily for the purpose of generating direct retail sales of varied
products from TV viewers and Internet shoppers, and (ii) direct sales via
outbound telemarketing of precious metals consisting mainly of gold and
silver coins and bars.
ISA was incorporated in Delaware in 1989 under a former name, and
was inactive operationally for some time prior to its May 1998
recapitalization through a merger with ShoptropolisTV.com, Inc. which is now
a wholly-owned subsidiary of ISA. ISA acquired its home shopping network
business through such merger, after which the former shareholders of this
subsidiary acquired 89% of the outstanding common stock of ISA through a
stock exchange. ISA issued 11,772,600 shares of its common stock in exchange
for all of the outstanding common stock of ShoptropolisTV.com, Inc.. This
merger was effected as a reverse merger for financial statement and
operational purposes, and accordingly, ISA regards its inception as being the
incorporation of ShoptropolisTV.com, Inc. on October 7, 1997.
ISA incorporated its precious metals subsidiary, International
Strategic Assets, Inc., in March 1999.
ISA's primary business strategy is its development of
ShoptropolisTV.com, a multimedia home shopping network for the purpose of
offering in-home shoppers a convenient electronic shopping experience through
broadcast television, cable, satellite or the Internet, and featuring a broad
diversity of high-quality, moderately priced, unique consumer products.
Besides its primary market of TV viewers and e-commerce Internet shoppers.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998.
SALES. Sales for the year ended December 31, 1999 were $3,543,516
and consisted primarily of sales of precious metals through the Company's
wholly-owned subsidiary, International Strategic Assets, Inc. Sales for the
year ended December 31, 1998 were $35,113, consisting solely of revenues from
the Company's test launch of its TV shopping network which commenced at the
end of 1998.
GROSS PROFIT. Cost of goods sold for the year ended December 31,
1999 were $3,237,548, which was mostly attributable to the wholesale cost of
purchasing precious metals, and resulted in a gross margin of $305,968 (8.63%).
Cost of goods sold were $16,155 for the year ended December 31,
1998, resulting in a gross margin of $18,958, which was limited to
approximately one month of the sales from the Company's TV network test
launch.
OPERATING EXPENSES. Operating expenses for the year ended December
31, 1999 were $2,583,285 compared to $526,196 for 1998. This increase was due
mainly to the increase in working capital needed for (i) the test launch of
the TV home shopping network operations, and (ii) expenses to commence
precious metals sales operations in the second quarter of 1999. The Company
anticipates that its operating expenses will increase significantly in future
periods due to the expenses associated with operating its home shopping
network.
15
<PAGE>
------------------------------------------------------
LOSSES. Net losses for the year ended December 31, 1999 were
$2,285,776, compared to $618,052 for the year ended December 31, 1998. The
increase in net losses in 1999 was due primarily to the considerable working
capital expenses required to conduct a test launch of the Company's TV home
shopping concept during the first half of 1999.
------------------------------
LIQUIDITY AND CAPITAL RESOURCES
ISA has obtained its capitalization primarily through the sale of
its equity securities to a limited group of private investors known to
management of ISA. Between the inception of ISA in 1997 through December 31,
1997, ISA 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,
ISA raised a total of $1,171,040 through the exercise of outstanding warrants
by existing shareholders, of which $528,202 was in cash and $642,838 was in
gold bullion and coins transferred to ISA. Such gold bullion and coins were
immediately liquid to ISA, and have since been converted to cash. From
September 1999 through February 2000, the Company raised $1,336,640 through
the sale of convertible unsecured debentures.
As of December 31, 1999, the Company had current assets of
approximately $193,218 consisting of $261,235 in cash, $5,575 in accounts
receivable for precious metals purchases by customers, and $291,711 in other
current assets. At the same time, the Company had $361,305 in current
liabilities consisting of $50,572 payable to a precious metals supplier,
$224,634 in accounts payable, $58,278 in accrued liabilities and $27,821 in
other current liabilities. Accordingly, the Company's current working capital
position is only approximately $193,216. The Company's long-term liabilities
consist of the outstanding principal amount of the debentures totaling
$986,000 and accrued rent and security deposits of $91,985.
The Company had no capital expenditures from its inception in
October 1997 to yearend 1997. During the year ended December 31, 1998, the
Company incurred capital expenditures totaling $434,614, primarily for data
processing hardware and software systems, telemarketing and computer
telephone equipment, and broadcast and studio equipment for the Company's
home shopping TV network including extensive satellite uplink transmission
equipment. During the year ended December 31, 1999, the Company incurred
capital expenditures of $78,844 primarily for equipment for its precious
metals sales and administrative offices in suburban Minneapolis/St. Paul.
The Company's current capital resources are not sufficient to
supports its planned development and operations. While management believes
that its current capital levels could support the precious metals business as
it is currently being conducted through International Strategic Assets, Inc.,
the Company will not be able to continue the development of its STV home
shopping network and related website or commerce operations thereof unless
the Company is able to raise substantial additional capital. Anticipated
capital expenditures for the development and ultimate operation of the STV
shopping network include equipment purchases and leases, leasehold
improvements, salaries and wages and general working capital. Currently, the
Company estimates that approximately $6,000,000 of additional capital is
necessary to commence and support the operation of the STV shopping network.
The Company is currently continuing an offering of debentures which
it began in September 1999. In addition, the Company is continuing to seek
additional sources of debt or equity financing. The actual amount and timing
of the Company's future capital requirements will depend on, among other
factors, the amount of additional proceeds raised from its current debenture
offering, the amount and timing of future revenues, and the costs associated
with the implementation of the Company's business plan. 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 sufficient
financing or to generate funds from operations sufficient to meet its
operating and development needs, the Company will be unable to implement its
current plans 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 independent auditors on the Company's
consolidated financial statements for the years ended December 31, 1999 and
1998 include an explanatory paragraph concerning the Company's ability to
continue as a going concern.
16
<PAGE>
The Company does not expect to need any material financing for
accounts receivable or carrying inventory. Precious metals are supplied to
the Company on a pledged basis through a loan payable from suppliers which is
paid at the time the customer pays the Company for the order. Regarding the
Company's planned electronic retailing via TV and e-commerce, the Company
believes that any accounts receivable will be minor in nature since the
Company will receive payments from customer credit card and check purchases
prior to having to pay the vendors who are supplying products. Most
merchandise inventory sold in the Company's multimedia home shopping
operations will be available from vendors on a consignment basis which will
not require the Company to pay vendors until the products are sold and paid
for by customers of the Company.
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, 1999 and 1998. See Note 5 of the audited financial statements included
in this Form 10-KSB.
IMPACT OF INFLATION
The Company believes that inflation has not had any effect on its
development or operations since its inception in 1997. Furthermore, the
Company does not believe inflation will have any material effect for the
foreseeable future. In any event, the Company believes it can offset any
future inflationary increases in the cost of goods and labor by increasing
its sales and thereby improving its operating efficiencies through economies
of scale. The Company is currently evaluating the possible divestiture of its
precious metals business through a sale of such business or by other
appropriate means.
Item 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements, supplemental schedule of ISA
Internationale Inc. and Report of Independent Accountants thereon are
included herein:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Reports.................................................................... 18
Consolidated Balance Sheets as of December 31, 1999 and 1998..................................... 20
Consolidated Statements of Operations for the years ended December 31, 1999 and 1998............. 21
Consolidated Statements of Shareholders' Equity for the years ended December 31, 1999 and 1998... 22
Consolidated Statements of Cash Flows for the years ended December 31, 1999 and 1998............. 23
Notes to Consolidated Financial Statements....................................................... 34
</TABLE>
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INDEPENDENT AUDITORS' REPORT
The Board of Directors
ISA Internationale Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheet of ISA
Internationale Inc. and Subsidiaries (the Company) as of December 31, 1999,
and the related consolidated statements of operations, stockholders' equity
(deficit), and cash flows for the year then ended. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of ISA Internationale
Inc. and Subsidiaries as of December 31, 1999, and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in note 2 to the
consolidated financial statements, the Company has suffered recurring losses
from operations and has a net capital deficiency that raise substantial doubt
about its ability to continue as a going concern. Management's plans in regard
to these matters are also described in note 2. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
Minneapolis, MN
March 22, 2000
18
<PAGE>
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying consolidated balance sheets of ISA
Internationale Inc. and Subsidiary as of December 31, 1998, and the related
consolidated statements of operations, stockholders' equity (as restated) and
cash flows for the year then ended. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the consolidated financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of ISA Internationale
Inc. and Subsidiary as of December 31, 1998, and the results of their operations
and their cash flows for the year then ended, in conformity with generally
accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in note 2 to the
financial statements, the Company incurred a loss of $618,052 in 1998 and at
December 31, 1998 had an accumulated deficit of $747,208. These conditions raise
substantial doubt about its ability to continue as a going concern. Management's
plans regarding those matters also are described in note 2. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Edina, Minnesota
April 9, 1999
19
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ISA INTERNATIONALE INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1999 and 1998
<TABLE>
<CAPTION>
ASSETS 1999 1998
----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 261,235 186,600
Accounts receivable 5,575 8,373
Prepaid expenses 5,711 --
Note receivable 286,000 --
----------- -----------
Total current assets 558,521 194,973
----------- -----------
Property and equipment 390,034 434,614
Less accumulated depreciation and amortization (71,502) (7,615)
----------- -----------
318,532 426,999
----------- -----------
Deposits 96,723 115,511
Deferred income taxes -- 4,000
----------- -----------
Total assets $ 973,776 741,483
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Bank overdraft $ 17,547 --
Accounts payable 275,206 38,482
Accrued liabilities 58,278 40,250
Accrued interest 10,274 --
Deferred income taxes -- 4,000
----------- -----------
Total current liabilities 361,305 82,732
Deferred rent 39,094 9,529
Deferred lease costs 37,983 --
Security deposits 14,908 --
Convertible debentures 986,000 --
----------- -----------
Total liabilities 1,439,290 92,261
----------- -----------
Stockholders' equity(deficit):
Preferred stock, undesignated,$.0001 par value, 5,000,000
shares authorized; none issued -- --
Common stock, $.0001 par value, Authorized, 30,000,000 shares;
issued and outstanding 14,382,215 and 12,040,135 (restated,
see note 3) shares in 1999 and 1998, respectively 1,438 1,204
Additional paid-in capital 2,566,032 1,395,226
Accumulated deficit (3,032,984) (747,208)
----------- -----------
Total stockholders' equity(deficit) (465,514) 649,222
----------- -----------
Commitments and contigencies (note 6)
Total liabilities and stockholders' equity(deficit) $ 973,776 741,483
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
20
<PAGE>
ISA INTERNATIONALE INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Net sales $ 3,543,516 35,113
Cost of goods sold 3,237,548 16,155
------------ ------------
Gross profit 305,968 18,958
Operating expenses:
Selling and marketing 704,614 48,649
Engineering and programming 640,355 182,313
Warehousing and shipping 72,088 47,646
General and administrative 940,934 302,819
Depreciation 79,721 7,615
Non-recurring charge (note 6) 145,573 --
------------ ------------
Operating loss (2,277,317) (570,084)
Other--income (expense):
Interest income 2,087 23,221
Interest expense (10,546) --
Other charges -- (71,189)
------------ ------------
Net loss $ (2,285,776) (618,052)
============ ============
Basic loss per common share $ (.16) (.05)
============ ============
Weighted average shares outstanding 14,187,042 12,009,359
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
21
<PAGE>
ISA INTERNATIONALE INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity (Deficit)
For the years ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
COMMON STOCK
------------------------------------
NUMBER PAR PAID-IN ACCUMULATED
OF SHARES VALUE SUBSCRIBED CAPITAL DEFICIT TOTAL
----------- ---------- ------------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 10,646,000 $ 106,460 7,900 412,360 (125,906) 400,814
Issuance of common stock 790,000 7,900 (7,900) -- -- --
Issuance of common stock and common stock warrants for cash 336,600 3,366 -- 216,634 -- 220,000
Recapitalization of Company upon merger with
Internationale Shopping Alliance Inc. restated (note 3) (249,900) (116,574) -- 121,173 -- 4,599
Issuance of common stock and common stock warrants for cash 898,935 90 -- 605,271 -- 605,361
Issuance of common stock and common stock warrants for services 370,000 37 -- 96,463 -- 96,500
Redemption of common stock and common stock warrants for cash (751,500) (75) -- (56,675) (3,250) (60,000)
Net loss -- -- -- -- (618,052) (618,052)
----------- ----------- ----------- ----------- ----------- --------
Balance, December 31, 1998 12,040,135 1,204 -- 1,395,226 (747,208) 649,222
Exercise of warrants 2,342,080 234 -- 1,170,806 -- 1,171,040
Net loss -- -- -- -- (2,285,776)(2,285,776)
----------- ----------- ----------- ----------- ----------- ----------
Balance, December 31, 1999 14,382,215 $ 1,438 -- 2,566,032 (3,032,984) (465,514)
=========== =========== =========== =========== =========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
22
<PAGE>
ISA INTERNATIONALE INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
----------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(2,285,776) (618,052)
Adjustments to reconcile net loss to net cash flows from
operating activities:
Common stock and warrants issued for services -- 96,500
Non-recurring charge 145,573 --
Depreciation and amortization 79,721 7,615
Changes in operating assets and liabilities:
Accounts receivable 2,798 (8,373)
Prepaids (5,711) --
Deposits 18,788 (115,511)
Accounts payable 236,724 38,232
Accrued liabilities 18,028 40,250
Security deposits 14,908 --
Accrued interest 10,274 --
Deferred rent 29,565 9,529
----------- -----------
Net cash used in operating activities (1,735,108) (549,810)
----------- -----------
Cash flows from investing activities:
Property and equipment purchases (78,844) (434,614)
----------- -----------
Net cash used in investing activities (78,844) (434,614)
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock and warrants,
net of offering costs 1,171,040 825,361
Sale of convertible debentures 700,000 --
Bank overdraft 17,547 --
Recapitalization of the Company upon merger with
Internationale Shopping Alliance, Inc. -- 4,599
Redemption of common stock -- (60,000)
----------- -----------
Net cash provided by financing activities 1,888,587 769,960
----------- -----------
Net increase (decrease) in cash and cash
equivalents 74,635 (214,464)
Cash and cash equivalents--beginning of year 186,600 401,064
----------- -----------
Cash and cash equivalents--end of year $ 261,235 186,600
=========== ===========
Non-cash investing and financing:
Issuance of promissory note receivable in exchange
for a convertible debenture $ 286,000 --
</TABLE>
See accompanying notes to consolidated financial statements.
23
<PAGE>
(1) NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
(a) NATURE OF BUSINESS
ISA Internationale Inc. (the Company) was incorporated on June 2,
1989, under the laws of the state of Delaware and became a
reporting publicly-held corporation on November 15, 1999. The
Company's strategy is to develop, produce, and broadcast home
shopping programming nationally and internationally via satellite,
cable, and the internet. During 1999, the Company commenced
operations as an outbound telemarketer of precious metals. The
Company is currently reviewing strategic alternatives for this
business segment.
On May 8, 1998, Internationale Shopping Alliance Incorporated
(Internationale), a Minnesota corporation, was merged with the
Company (ISA), a Delaware corporation, pursuant to a merger
agreement dated April 23, 1998. Upon consummation of the merger of
Internationale with ISA, Internationale became a wholly-owned
subsidiary of ISA (see note 3).
(b) BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All significant
intercompany transactions and accounts have been eliminated in
consolidation.
(c) USE OF ESTIMATES
The preparation of the financial statements in conformity with
generally accepted accounting principles 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.
(d) CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers
all highly liquid debt investments with an original maturity of
three months or less to be cash equivalents.
(e) DEBT ISSUANCE COSTS
Original issuance discounts associated with debt issuances are
recorded as an adjustment to interest expense over the term of the
debt, using the effective-interest method. Convertible debentures
are net of unamortized original issuance discounts.
24
<PAGE>
(f) PROPERTY AND EQUIPMENT
Property and equipment are carried at cost. Depreciation is
computed over the estimated useful lives, generally 3 to 7 years.
The cost of maintenance and repairs are expensed as incurred, and
significant renewals and betterments are capitalized.
(g) LONG-LIVED ASSETS
The Company reviews its long-lived assets and certain identifiable
intangibles for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used
is measured by a comparison of the carrying amount of an asset to
future net cash flows expected to be generated by the asset. If
such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount
of the assets exceeds the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or
fair value less costs to sell.
(h) REVENUE RECOGNITION
Revenues from product sales are recognized upon shipment. Revenues
for precious metals sales are recognized on a trade-date basis.
(i) ADVERTISING COSTS
Advertising costs are expensed as incurred. Advertising expenses
were $32,420 and $3,980 for fiscal 1999 and 1998, respectively.
(j) 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 1999 and 1998, all potentially issuable
shares have been excluded from the calculation of loss per share,
as their effect is anti-dilutive.
25
<PAGE>
(k) INCOME TAXES
The Company has adopted the asset and liability method of
accounting for income taxes. Deferred tax assets and liabilities
are recognized for the expected future tax consequences of
temporary differences between the financial statement carrying
amount and tax basis of assets and liabilities. The Company
provides for deferred taxes at the enacted tax rate that is
expected to apply when the temporary differences reverse.
(l) STOCK-BASED COMPENSATION
The Company has adopted the intrinsic-value method for determining
the amount of compensation to be recorded for employee stock
grants and the fair value method for determining the amount of
compensation to be recorded for non-employee grants. Pro forma
disclosures of net income (loss) and earnings (loss) per share are
presented as if the fair value-based method had been applied in
measuring compensation cost for employee stock grants (note 7).
(m) SEGMENTS OF AN ENTERPRISE
The Company operates in two segments: (1) the development of a
multimedia home shopping network and (2) direct sales via outbound
telemarketing of precious metals.
26
<PAGE>
(n) NEW ACCOUNTING PRONOUNCEMENTS
During 1998, the Financial Accounting Standards Board (FASB)
issued SFAS No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND
HEDGING ACTIVITIES, which establishes new standards for
recognizing all derivatives as either assets or liabilities and
measuring those instruments at fair value. SFAS No. 137,
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES--DEFERRAL OF THE EFFECTIVE DATE Of FASB STATEMENT NO.
133, changed the effective date to fiscal years beginning after
June 15, 2000. The Company will be required to adopt the new
standard beginning with the first quarter of fiscal 2001. The
impact of adoption on the Company's financial statements has not
yet been determined.
In December 1999, the Securities and Exchange Commission issued
Staff Accounting Bulletin No. 101 which provides the staff's views
in applying generally accepted accounting principles to selected
revenue recognition issues. The Company will be required to adopt
the new standard, beginning with the second quarter of 2000. The
impact of adoption on the Company's financial statements has not
yet been determined.
(o) RECLASSIFICATIONS
Certain amounts in the 1998 financial statements have been
reclassified to conform to the 1999 basis of presentation.
(2) LIQUIDITY AND GOING CONCERN MATTERS
The Company has incurred losses since its inception and, as a result, has
an accumulated deficit of $3,032,984 at December 31, 1999. Losses for
1999 and 1998 aggregated $2,285,776 and $418,052, respectively. The
Company's ability to continue as a going concern depends upon successfully
obtaining sufficient financing to maintain adequate liquidity and provide
for capital expansion until such time as operations produce positive cash
flow. The accompanying consolidated financial statements have been
prepared on a going concern basis which assumes continuity of operations
and realization of assets and liabilities in the ordinary course of
business. The consolidated financial statements do not include any
adjustments that might result if the Company was forced to discontinue
its operations.
As described in note 12, the Company issued additional convertible
debentures subsequent to year end. As of March 10, 2000, the Company had
issued an additional $350,000 of convertible debentures. While the
Company plans to seek additional financing under this program, there can
be no assurance that such financing will be consummated.
The Company plans to obtain additional equity financing through the sale
of additional convertible debentures and the issuance of additional shares
of common stock. There can be no assurance that such financing will be
consummated.
(3) RECAPITALIZATION
On May 8, 1998, Internationale Shopping Alliance, Inc. (Internationale)
was merged with ISA Internationale Inc. (ISA), pursuant to a merger
agreement dated April 23, 1998. Upon consummation of the merger of
Internationale with ISA, Internationale became a wholly-owned subsidiary
of ISA. ISA remains the continuing legal entity and registrant for
Securities and Exchange Commission reporting purposes.
27
<PAGE>
Under terms of the merger agreement, the stockholders of Internationale
exchanged all of the issued and outstanding shares and warrants for
11,772,600 shares of common stock of ISA, and 4,781,200 warrants to
purchase common stock at $1.00 per share for a period of five years.
Immediately after consummation of the agreement, the former stockholders
of Internationale owned 89% of the outstanding shares of ISA's common
stock. Accordingly, for financial statement purposes, the transaction has
been accounted for as if Internationale had acquired ISA. The
consolidated financial statements present operations of Internationale
from inception and include ISA's operations only from the date of
acquisition.
For accounting and financial reporting purposes, the merger was treated
as a recapitalization of ISA. Since ISA had no business operations other
than the search for a suitable target business, ISA's assets were
recorded in the balance sheet at book value. At the time of the merger,
ISA had $8,599 of net assets, principally cash, which was recorded as
equity. Additional transaction costs totaling $4,000 represent legal fees
related to the merger. These charges constitute transaction fees and,
accordingly, have been recorded as a charge and an offsetting credit to
additional paid-in capital.
In January, 1999, the Company redeemed and cancelled 1,650,000 shares
held by three of the founding shareholders. No consideration was paid to
the founding shareholders for the redemption. This transaction was the
final settlement of the recapitalization of the Company upon merger with
Internationale Shopping Alliance, Inc. affected May 8, 1998. Prior year
information throughout these financial statements is restated for the
share redemption and cancellation, to present all data as if these shares
were redeemed and cancelled on May 8, 1998.
(4) PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
1999 1998
------------ -----------
<S> <C> <C>
Broadcast equipment $ 221,493 322,304
Furniture and fixtures 49,121 39,125
Computer and telephone equipment 96,420 50,185
Leasehold improvements 23,000 23,000
------------ -----------
$ 390,034 434,614
============ ===========
</TABLE>
(5) INCOME TAXES
The Company has incurred significant net operating losses. The Company has
not reflected any benefit of such net operating loss carryforwards in the
accompanying consolidated financial statements.
The income tax expense benefit differed from the amount computed by applying
the U.S. federal income tax rate of 34% to income before income taxes as a
result of the following:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Computed "expected" tax benefit 34.0% 34.0%
State income tax, net of federal benefit 3.8% 6.1%
Change in valuation allowance (37.8%) (40.1%)
-------- --------
--% --%
======== ========
</TABLE>
28
<PAGE>
The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets as of December 31 is presented below:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward 1,520,000 661,000
Start up costs 25,000 33,000
Other 12,000 (3,000)
--------- ---------
Total gross deferred tax assets 1,557,000 691,000
Valuation allowance (1,557,000) (691,000)
--------- ---------
Net deferred tax assets $ -- --
========= =========
</TABLE>
In assessing the realization of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred
tax assets will not be realized. The ultimate realization of deferred tax
assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible.
Based on the level of historical taxable income and projections of future
taxable income over the periods in which the deferred tax assets are
deductible, management does not believe that it is more likely than not the
Company will realize the benefits of these deductible differences.
Accordingly, the Company has provided a valuation allowance against the gross
deferred tax assets as of December 31, 1999 and 1998.
As of December 31, 1999, the Company has reported Net operating loss
carryforwards of approximately 3,960,000. The federal net operating loss
carryforwards begin to expire in the year 2011.
Federal tax laws impose significant restrictions on the utilization of net
operating loss carryforwards in the event of a change in ownership of the
Company which constitutes an "ownership change," as defined by the Internal
Revenue Code, Section 382. The Company's net operating loss carryforward may
be subject to the above limitations.
29
<PAGE>
(6) LEASES
The Company leases office and production facilities in Knoxville,
Tennessee under an operating lease agreement with an entity owned by a
shareholder, which expires in September 2003, and calls for escalating
rent payments from $6,303 to $11,435 per month over the term of the
agreement. The lease provides for a five-year renewal term at the option
of the Company with rent increases of five percent per year.
During 1999, the Company entered into leases for its corporate
headquarters, call center, distribution center, and trading business
offices in Minneapolis, Minnesota. This leases expire from 4 to 8 years
from the date of signing. In connection with the distribution center
lease, the Company provided the lessor a warrant to acquire 100,000 shares
of common stock. This warrant vests upon grant (which will occur at
commencement of the lease) and for accounting purposes the fair market
value of the warrant, which aggregates $159,000 at March 22, 2000, will
be recorded as additional lease expense over the term of the 8 year lease
on a straight-line basis.
Total future minimum lease payments are as follows:
<TABLE>
<CAPTION>
Minimum Less sub-lease Net Minimum
payments income payments
---------------------------------------------------
<S> <C> <C> <C>
2000 $ 547,417 (59,095) 488,322
2001 678,707 (62,742) 615,965
2002 693,914 (65,874) 628,040
2003 680,962 (51,228) 629,734
2004 476,725 476,725
Thereafter 1,579,075 1,579,075
---------------------------------------------------
$ 4,656,800 (238,939) 4,417,861
===================================================
</TABLE>
Rent expense was $180,397 and $28,439 for the years ended December 31,
1999 and 1998, respectively.
In December 1999, the Company approved a plan to abandon the Knoxville,
Tennessee facility. In connection with this plan, the Company has
subleased a portion of this facility and is currently seeking to sublease
the remainder of this facility. The Company accrued $37,983 in estimated
future lease payments and property and equipment and impairment charges
of $145,573 at December 31, 1999.
(7) EQUITY
(a) PREFERRED STOCK
The preferred stock may be issued from time to time in one or more
series. Each series is to be distinctly designated. All shares of
any series of the preferred stock shall be alike in all rights,
except for different dates. Each series will identify the rights
to preference in liquidations, voting rights, dividend and other
powers, qualifications, or restrictions.
30
<PAGE>
(b) WARRANTS
Between October 1997 and June 1998, the Company issued warrants
that are exercisable over 5 years, to purchase 6,513,070 shares of
common stock at $1.00 per share. These warrants were issued as
part of common stock transactions. In December 1998, 553,000
warrants were canceled as part of a common stock redemption.
In February 1999, the Company agreed to change the price
warrant-holders could exercise warrants to purchase common stock,
for a temporary period from $1.00 per share to $.50 per share. In
connection with this offer, 2,342,080 warrants to purchase common
stock were exercised for $528,202 in cash and $642,838 in gold
bullion and coins.
In connection with an operating lease entered into in 1999, the
Company will issue a warrant to acquire 100,000 shares of common
stock at $1.00 per share.
The per share weighted average fair values of stock warrants
granted were $.26 in 1998. No warrants were granted in 1999. The
fair value of options at the date of grant was estimated using the
Black Scholes option pricing model. The following weighted average
assumptions were used in the calculation:
<TABLE>
<CAPTION>
----------------------------------------- ------------------ ----------------------
Assumptions 1999 1998
----------------------------------------- ------------------ ----------------------
<S> <C> <C>
Expected dividend yield 0% 0%
----------------------------------------- ------------------ ----------------------
Expected volatility 61% 61%
----------------------------------------- ------------------ ----------------------
Risk-free interest rates 6% 6%
----------------------------------------- ------------------ ----------------------
Expected life (in years) 5 5
----------------------------------------- ------------------ ----------------------
</TABLE>
The Company applies APB Opinion No. 25 in accounting for the
compensation costs of employee stock warrants in the financial
statements. No warrants were issued to employees in 1999 and 1998.
Therefore pro forma net loss is the same as reported net loss.
The following table contains information about stock warrants:
<TABLE>
<CAPTION>
----------------------------------------- ------------------ ---------------------
Shares Warrant Price
----------------------------------------- ------------------ ---------------------
<S> <C> <C>
Outstanding at December 31, 1997 4,160,800 1.00
----------------------------------------- ------------------ ---------------------
Granted 2,405,070 1.00
----------------------------------------- ------------------ ---------------------
Exercised - 1.00
----------------------------------------- ------------------ ---------------------
Expired or cancelled 553,000 1.00
----------------------------------------- ------------------ ---------------------
Outstanding at December 31, 1998 5,960,070 1.00
----------------------------------------- ------------------ ---------------------
Granted 0 1.00
----------------------------------------- ------------------ ---------------------
Exercised 2,342,080 1.00
----------------------------------------- ------------------ ---------------------
Expired or cancelled - 1.00
----------------------------------------- ------------------ ---------------------
Outstanding at December 31, 1999 3,617,990 1.00
----------------------------------------- ------------------ ---------------------
Warrants exercisable at: - 1.00
----------------------------------------- ------------------ ---------------------
December 31, 1998 5,960,070 1.00
----------------------------------------- ------------------ ---------------------
December 31, 1999 3,617,990 1.00
----------------------------------------- ------------------ ---------------------
----------------------------------------- ------------------ ---------------------
</TABLE>
31
<PAGE>
(c) OPTIONS
In January 2000, the Company issued 1,000,000 options to certain
employees at 85% of the fair market value at the date of grant. An
additional 65,000 options were granted to certain employees at the
fair market value at the date of grant. All of the above options vested
upon grant and expire 5 years from the grant date.
(8) LOSS PER SHARE
The computations for basic and diluted earnings (loss) per share
from continuing operations are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1999 1998
(restated
see note 3)
-------------- ------------
<S> <C> <C>
(LOSS) FROM CONTINUING OPERATIONS $ (2,285,776) (618,052)
============== ============
AVERAGE SHARES OF COMMON STOCK OUTSTANDING:
BASIC 14,187,042 12,009,359
EFFECT OF STOCK OPTIONS -- --
-------------- -------------
DILUTED 14,187,042 12,009,359
============== =============
EARNINGS (LOSS) PER SHARE FROM CONTINUING OPERATIONS:
BASIC $ (.16) (.05)
DILUTED (.16) (.05)
============== =============
</TABLE>
32
<PAGE>
(9) CONVERTIBLE DEBENTURES
In November 1999, the Company commenced the sale of convertible debentures
in a private placement. The debentures are convertible into common stock
at $1.50 per share and bear interest at 12%. As of December 31, 1999, the
Company raised $968,000 related to this private placement. The Company
sold $800,000 of these debentures, for $100,000 in cash and $286,000 in
gold bullion, its fair market value on the transaction date. The $414,000
discount related to this transaction will recorded as an increase in
interest expense over the term of the debenture. The $286,000 receivable
related to the gold bullion is included in note receivable at December
31, 1999.
(10) OTHER CHARGES
In 1998, the Company incurred other charges of $71,189, of which $62,500
represented common stock issued for services. These charges represent
costs associated with a withdrawn private placement offering in which no
proceeds were raised.
(11) BUSINESS SEGMENTS
The Company has two reportable business segments: Strategic Assets and
ShoptropolisTV.com.
International Strategic Assets, Inc. provides direct sales via outbound
telemarketing of precious metals.
ShoptropolisTV.com is engaged in the development of a multimedia home
shopping network.
The Company does not allocate interest expense, income taxes or certain
corporate expenses to its business segments. Inter-segment revenues were
immaterial for the years ended December 31, 1999 and 1998. The following
tables set forth information by business segment:
<TABLE>
<CAPTION>
NET OPERATING UNUSUAL OPERATING
SALES COSTS ITEMS LOSS
------------ ----------- ------------ --------------
<S> <C> <C> <C> <C>
1999:
Strategic Assets $ 3,452,538 (4,024,046) 0 (571,508)
ShoptropolisTV.com 90,978 (1,651,214) (145,573) (1,705,809)
Corporate expenses 0 0 0 0
------------ ----------- ------------ --------------
Total $ 3,543,516 (5,675,260) (145,573) (2,277,317)
============ =========== ============ ==============
1998:
Strategic Assets $ 0 0 0 0
ShoptropolisTV.com 35,113 (605,197) 0 (570,084)
Corporate expenses 0 0 0 0
------------ ----------- ------------ --------------
Total $ 35,113 (605,197) 0 (570,084)
============ =========== ============ ==============
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
1999 1998
------------------------------------------------ ------------------------------------------
DEPRECIATION DEPRECIATION
CAPITAL AND CAPITAL AND
EXPENDITURES AMORTIZATION ASSETS EXPENDITURES AMORTIZATION ASSETS
--------------- ------------- ------------- -------------- -------------- -------
<S> <C> <C> <C> <C> <C> <C>
Strategic Assets $ 42,191 3,008 39,589 0 0 0
shoptropolisTV.com 36,652 76,713 938,187 434,614 7,615 741,483
Corporate
--------------- ------------- ------------- -------------- -------------- -------
Total $ 78,843 79,721 977,776 434,614 7,615 741,483
=============== ============= ============= ============== ============== =======
</TABLE>
Corporate assets include deferred income tax assets.
(12) SUBSEQUENT EVENTS
The Company issued additional convertible debentures subsequent to year
end. As of March 10, 2000, the Company had issued an additional $350,000
of convertible debentures. While the Company plans to seek additional
financing under this program, there can be no assurance that such
financing will be consummated.
34
<PAGE>
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Pursuant to a Board of Directors Resolution, the Company decided to
change its auditors from the firm of Stirtz Bernards Boyden Surdel & Larter
to KPMG LLP. In connection with the audits of the periods ended
December 31, 1997 and 1998, and the subsequent interim period, up to the date
of dismissal, there were no disagreements between the Company and Stirtz
Bernards Boyden Surdel & Larter regarding any matter of accounting principles
or practice, financial statement disclosure, or auditing scope or procedure,
which disagreements if not resolved to their satisfaction would have caused
them to make reference in connection with their opinion to the subject matter
of the disagreement, and the firm has not advised the registrant of any
reportable events. The accountant's report on the financial statements for
the previous calendar years did not contain an adverse opinion or a
disclaimer of opinion, nor was it qualified or modified as to audit scope or
accounting principles. The report did include an explanatory paragraph which
noted that losses from operations together with other factors raised
substantial doubt about its ability to continue as a going concern during the
ensuing year. Management's plans in regard to these matters were described in
Note 2 of the report.
35
<PAGE>
PART III
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Set forth below are the names of the directors and executive
officers of the Company as of February 29, 2000, their ages, the year first
elected as an executive officer and/or director of the Company and employment
for the past five years.
<TABLE>
<CAPTION>
DIRECTOR
NAME POSITIONS WITH THE COMPANY AGE SINCE
- -------------------------- ------------------------------------------ --- ----------------
<S> <C> <C> <C>
Gerald J. Durand President, Chief Executive Officer and 48 October 1997
Director
Bernard L. Brodkorb Treasurer, Chief Financial Officer and 58 October 1997
Director
Jeffrey T. Abrams Director and President of 43 November 1999
ShoptropolisTV.com, Inc.
Ronald G. Wolfbauer Director and Managing Director of 37 October 1997
International Strategic Assets, Inc.
OTHER EXECUTIVE OFFICERS OFFICER SINCE
- ------------------------ -------------
O. Alex Adamovich Vice President Logistics 50 January 2000
John Bradley Vice President IT 48 November 1999
</TABLE>
DIRECTORS
GERALD J. DURAND has been the President, Chief Executive Officer and
a director of the Company since its inception in October 1997. Until he
commenced fulltime employment with the Company in early 1999, he was the
General Sales Manager of Investment Rarities Inc., a suburban Minneapolis
direct retail seller of precious metals investments, where he was in charge
of over 70 sales representatives offering products nationwide. Mr. Durand has
over 20 years experience in executive officer or marketing management
positions with various companies involved in direct sales, including
considerable involvement in the TV home shopping industry.
BERNARD L. BRODKORB has been the Treasurer, Chief Financial Officer
and a director of the Company since its inception in October 1997. Mr.
Brodkorb has been an independent practicing Certified Public Accountant (CPA)
within the State of Minnesota for many years, and he has extensive experience
in financial and accounting matters relating to both private and public
companies, including auditing, financial consulting and advising on corporate
taxation. He is a member of the Minnesota Society of Certified Public
Accountants and the American Institute of Certified Public Accountants.
JEFFREY T. ABRAMS is the President of ShoptropolisTV.com, Inc. and a
director of the Company. Mr. Abrams joined the Company in August 1999 as the
Executive Vice President and Chief Operating Officer. Mr. Abrams was a Senior
Vice President with Best Buy Co. from 1986 to 1996. From April 1996 to
December 1996, Mr. Abrams was and Executive Vice President for Smith &
Alster, Inc. in Fort Lauderdale, Florida. From 1997 until August 1999, Mr.
Abrams developed and co-founded Autofun, Inc. a new retail concept for
automobile accessories. Mr. Abrams has 25 years of experience in retail,
marketing, sales, rack jobbing, e-commerce, distribution and manufacturing.
RONALD G. WOLFBAUER has been a director of the Company since October
1997. Mr. Wolfbauer also has been the Managing Director of International
Strategic Assets, Inc., the Company's wholly-owned subsidiary engaged in
precious metals sales, since its inception in April 1999, where he is in
charge of all sales personnel and general corporate operations.
36
<PAGE>
Prior to commencing full time employment with the Company's precious metals
subsidiary, Mr. Wolfbauer was a Monetary Specialist with Investment Rarities,
Inc., a large precious metals firm conducting direct retail sales throughout
the USA.
OTHER EXECUTIVE OFFICERS
O. ALEX ADAMOVICH has been the Vice President Logistics of the Company
since January 2000. From April 1998 to January 2000, Mr. Adamovich worked for
Universal International and from February 1996 to April 1998, he was employed
by GT Interactive. He also managed and designed the software
distribution facility for Best Buy Company from 1990 to 1996. Prior to
joining Best Buy, Mr. Adamovich led the warehouse operations for the
Musicland Group.
JOHN BRADLEY has been the Vice President IT of the Company since
November 1999. Mr Bradley served in various information system positions with
The Value Group from April 1998 to November 1999, AutoNation from April 1997
to April 1998, and Best Buy Company from June 1995 to April 1997.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors, executive officers, and
any persons holding more than 10% of the outstanding common stock of the
Company to file reports with the Securities and Exchange Commission
concerning their initial ownership of common stock and any subsequent changes
in that ownership. Following the effective date of the Company's Form 10-SB
in November 1999, the Company's officers, directors and 10% shareholders
failed to file Initial Statements of Beneficial Ownership on Form 3. In
addition, Jeffrey Abrams and John Bradley, executive officers of STV, failed
to file reports on Form 4 to reflect the receipt of option grants for 500,000
shares and 100,000 shares, respectively. The Company is currently assisting
its officers and director with the preparation and filing of the required
reports.
Item 10. EXECUTIVE COMPENSATION
The following table provides summary information for the fiscal year
ended December 31, 1999 regarding all compensation paid to the Company's
Chief Executive Officer and one other director whose compensation was more
than $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION AWARDS
ANNUAL COMPENSATION SECURITIES UNDERLYING ALL OTHER ANNUAL
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS/SARS($) COMPENSATION($)
- --------------------------- ---- --------- -------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Gerald J. Durand 1999 $92,500 -0- -0- -0-
President and Chief 1998 $28,000 -0- -0- -0-
Executive Officer 1997 -0- -0- -0- -0-
Ronald G. Wolfbauer 1999 $115,262 -0- -0- -0-
Managing Director 1998 -0- -0- -0- -0-
International Strategic 1997 -0- -0- -0- -0-
Assets, Inc.
</TABLE>
DIRECTOR COMPENSATION
The Company's directors are not compensated for their services as
directors of the Company. In late 1997, the three directors of the Company at
the time (Mr. Durand, Mr. Brodkorb and Mr. Wolfbauer) were granted warrants
to purchase a total of 1,859,000 shares of common stock of the Company at an
exercise price of $1.00 per share over a five-year term, with Mr.
37
<PAGE>
Durand receiving warrants to purchase 1,000,000 of the shares, Mr. Brodkorb
receiving warrants to purchase 400,000 of these shares, and Mr. Wolfbauer
receiving warrants to purchase 459,000 of these shares.
STOCK OPTIONS
In January 2000, the Company granted non-qualified stock options to
certain of its officers, employees and consultants. In total, the Company
granted options to purchase an aggregate of 1,000,000 shares of common stock
at an exercise price of $1.17 per share and options to purchase 65,000 shares
of common stock at an exercise of $1.37 per share. Each of the stock options
was fully vested on the date of grant and has a term of five years commencing
on the grant date.
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of February 29, 2000, certain
information regarding the beneficial ownership of shares of common stock of
the Company by (i) each person or entity who is known by the Company to own
more than 5% of the Company's common stock, (ii) each director of the
Company, (iii) and all directors and executive officers of the Company as a
group.
A. Security Ownership of Certain Beneficial Owners
<TABLE>
<CAPTION>
NUMBER OF COMMON STOCK PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED OUTSTANDING
- ------------------------------------ ------------------ -----------
<S> <C> <C>
Barbara McLean(1) 2,552,333 17.4%
2208 North Wilmar Drive, Quincy, IL 62301
Michael G.W. Birch(2) 1,625,000 11.0%
1601 East Highway 13, Suite 100, Burnsville, MN 55337
</TABLE>
B. Security Ownership of Management
<TABLE>
<CAPTION>
NUMBER OF COMMON STOCK PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED OUTSTANDING
- ------------------------------------ ------------------ -----------
<S> <C> <C>
Gerald J. Durand(3) 5,205,900 33.8%
1601 East Highway 13, Suite 100, Burnsville, MN 55337
Bernard L. Brodkorb(4) 1,700,000 11.5%
1601 East Highway 13, Suite 100, Burnsville, MN 55337
Ronald G. Wolfbauer(5) 918,000 6.2%
1601 East Highway 13, Suite 100, Burnsville, MN 55337
Jeffrey T. Abrams(6) 500,000 3.4%
1601 East Highway 13, Suite 100, Burnsville, MN 55337
All directors and executive officers as a group 8,323,900 49.5%
(4 persons, including those named above)
</TABLE>
(1) Includes 257,333 shares which may be acquired upon conversion of
convertible debentures.
(2) Includes warrants to purchase 400,000 shares exercisable at $1.00 per share.
(3) Includes warrants to purchase 1,030,600 shares exercisable at $1.00 per
share.
(4) Includes warrants to purchase 450,000 shares exercisable at $1.00 per
share.
(5) Includes warrants to purchase 459,000 shares exercisable at $1.00 per
share.
(6) Includes options to purchase 500,000 shares exercisable at $1.17 per
share.
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
38
<PAGE>
The promoters of the Company are Gerald J. Durand, Bernard L.
Brodkorb, Ronald G. Wolfbauer and Michael G.W. Birch, otherwise collectively
known as the founders of the Company. Incident to the founding and
organization of the Company in October 1997, the promoters of the Company
received the following shares of common stock and related warrants incident
to services rendered by them regarding the founding and organization of the
Company. The services were valued on the basis of $.0001 per share. All of
these warrants have five-year terms and can be exercised anytime during such
term at a purchase price of $1.00 per share.
39
<PAGE>
<TABLE>
<CAPTION>
COMMON SHARES EXERCISABLE BY
NAME OF FOUNDER COMMON SHARES ISSUE WARRANT
- --------------- ------------------- -------
<S> <C> <C>
Gerald J. Durand 6,000,000 1,030,600
Bernard L. Brodkorb 1,750,000 400,000
Ronald G. Wolfbauer 459,000 459,000
Michael G.W. Birch 1,750,000 400,000
</TABLE>
In January 1999, the Company redeemed a total of 1,650,000 shares
of its common stock from Mr. Durand, Mr. Brodkorb and Mr. Birch as follows.
Such shares were returned to the Company and contributed to the capital
stock account of the Company for no consideration.
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES REDEEMED
---- -------------------------
<S> <C>
Gerald J. Durand 600,000
Bernard L. Brodkorb 525,000
Michael G.W. Birch 525,000
</TABLE>
In February 1999, Barbara McLean exercised warrants to purchase
1,530,000 shares of common stock of the Company for $.50 per share, or total
consideration of $765,000. Ms. McLean exercised these warrants in connection
with an offer by the Company to all warrantholders to reduce the exercise
price from $1.00 to $.50 for a temporary period. In total, warrants to
purchase 2,342,080 shares of common stock were exercised for $528,202 in cash
and $642,838 in gold bullion and coins.
Item 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) LISTING OF EXHIBITS
The Exhibits required to be a part of this Report are listed in the
Index to Exhibits on page 42.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended December
31, 1999. On February 16, 2000, the Company filed a report on Form 8-K to
report the change in its auditors to KPMG LLP.
40
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
ISA INTERNATIONALE INC
By: /s/Bernard L. Brodkorb
-------------------------------------------
Bernard L. Brodkorb
Chief Financial Officer and Treasurer
Date: March 29, 2000
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/Gerald J. Durand President, Chief Executive Officer March 29, 2000
- ---------------------------
Gerald J. Durand and Director
(Principal Executive Officer)
/s/Bernard L. Brodkorb, Jr. Chief Financial Officer, Treasurer March 29, 2000
- ---------------------------
Bernard L. Brodkorb, Jr. and Director
(Chief Accounting Officer)
/s/Ronald G. Wolfbauer Director March 29, 2000
- ---------------------------
Ronald G. Wolfbauer
/s/Jeffrey T. Abrams Director March 29, 2000
- ---------------------------
Jeffrey T. Abrams
</TABLE>
41
<PAGE>
ISA INTERNATIONALE INC.
FORM 10-KSB
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Item No. Description
- -------- -----------
<S> <C>
3.1 Articles of Incorporation of the Company (incorporated by
reference to Exhibit 2(i) to the Company's registration statement
on Form 10-SB (File No. 0-27373)).
3.2 By-laws of the Company (incorporated by reference to Exhibit
2(ii) to the Company's registration statement on Form 10-SB
(File No.
0-27373)).
4.1 Form of Common Stock Certificate (incorporated by reference to
Exhibit 3 to the Company's Registration Statement on Form 10-SB
(File No. 0-27373)).
10.1 Agreement and Plan of Business Combination dated April 11, 1998
between ISA Internationale Inc. (formerly known as 1-800 Consumer
International Inc.), a Delaware corporation and Internationale
Shopping Alliance, Inc., a Minnesota corporation (now a
wholly-owned subsidiary of ISA Internationale Inc. (incorporated
by reference to Exhibit 6(i) to the Company's registration
statement on Form 10-SB (File No. 0-27373)).
10.2 Contract Agreement between ISA Internationale Inc. and Bee Sweet
Enterprises dated March 26, 1999 (incorporated by reference to
Exhibit 6(iii) to the Company's registration statement on Form
10-SB (File No. 0-27373)).
10.3 Commercial lease agreement between ISA Internationale Inc. and
Claude Yow (incorporated by reference to Exhibit 6(ii) to the
Company's registration statement on Form 10-SB (File No. 0-27373)).
10.4 Lease Agreement between Internationale Shopping Alliance, Inc. and
Duke-Weeks Realty Limited Partnership dated December 23, 1999 (filed
herewith electronically).
10.5 Unconditional Guaranty of Lease and Credit Enhancement Agreement
by ISA Internationale Inc. dated December 30, 1999 (filed herewith
electronically).
16.1 Letter on change in certifying accountant (incorporated by
referenced to the Company's Report on Form 8-K dated February 2,
2000).
21.1 Subsidiaries of the registrant (filed herewith electronically).
42
<PAGE>
27.1 Financial Data Schedule (filed herewith electronically).
</TABLE>
27
<PAGE>
LEASE AGREEMENT
THIS LEASE (the "Lease") is executed this 23 day of December 1999, by
and between DUKE-WEEKS REALTY LIMITED PARTNERSHIP, an Indiana limited
partnership ("Landlord"), and INTERNATIONALE SHOPPING ALLIANCE, Inc.
(doing business as SHOPTROPOLISTV.COM), a Minnesota corporation ("Tenant").
WITNESSETH:
ARTICLE 1 - LEASE OF PREMISES
SECTION 1.1. BASIC LEASE PROVISIONS AND DEFINITIONS.
A. Leased Premises (shown outlined on EXHIBIT A attached hereto): Apollo
Industrial Center II; 940 Apollo Rd., Eagan, Minnesota 55121; (the
"Building");
B. Rentable Area: 70,089 square feet;
Landlord shall use commercially reasonable standards, consistently
applied, in determining the Rentable Area and the rentable area of the
Building. Landlord's determination of Rentable Area shall conclusively
be deemed correct for all purposes hereunder.
C. Tenant's Proportionate Share: 100%
D. Minimum Annual Rent:
<TABLE>
<S> <C>
Years 1 $397,458.00 per year
Years 2 - 3 $436,428.00 per year
Years 4 - 6 $453,948.00 per year
Years 7 - 8 $471,480.00 per year
</TABLE>
E. Monthly Rental Installments:
<TABLE>
<S> <C>
Months 1 - 6 $ 32,039.00 per month
Months 7 - 12 $ 34,204.00 per month
Months 13 - 36 $ 36,369.00 per month
Months 37 - 72 $ 37,829.00 per month
Months 73 - 96 $ 39,290.00 per month
</TABLE>
F. Landlord's Share of Expenses: N/A
G. Lease Term: Eight (8) years
H. Target Commencement Date: March 1, 2000.
<PAGE>
I. Security Deposit: $10,000.00
J. Guarantor: ISA Internationale Inc., a Delaware corporation
K. Broker: Duke-Weeks Realty Limited Partnership representing Landlord
L. Permitted Use: Operation and administration of a home shopping network
and related purposes
M. Addresses for notices:
Landlord: Duke-Weeks Realty Limited Partnership
1550 Utica Avenue South
Suite 120
Minneapolis, MN 55416
Tenant ShoptropolisTV.com, Inc.
Prior to 1750 Yankee Doodle Road, Suite 202
Commencement Date: Eagan, MN 55121
Tenant ShoptropolisTV.com, Inc.
After ______________________________
Commencement Date: Eagan, MN ___________
Address for rental and other payments:
Duke-Weeks Realty Limited Partnership
NW 7210
P.O. Box 1450
Minneapolis, MN 55485-7210
SECTION 1.2. LEASED PREMISES. Landlord hereby leases to Tenant and Tenant leases
from Landlord, under the terms and conditions herein, the Leased Premises.
ARTICLE 2 - TERM AND POSSESSION
SECTION 2.1. TERM. The term of this Lease ("Lease Term") shall be for the
period of time and shall commence on (i) the Target Commencement Date described
in the Basic Lease Provisions; (ii) such later date upon which the tenant
improvements described in Section 2.2 hereof are substantially completed, except
for minor punchlist items, provided, however, that such date shall not be
extended as a result of any Tenant caused delays or delays attributable to
Tenant requested change orders; or (iii) upon such earlier date as Tenant begins
conduct of its business in all or substantially all of the Leased Premises (the
"Commencement Date"). Upon delivery of possession of the Leased Premises to
Tenant, Tenant shall execute a letter of understanding acknowledging (i) the
Commencement Date of this Lease, and (ii) that Tenant has accepted the Leased
Premises. If Tenant takes possession of and occupies the Leased Premises, Tenant
shall
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<PAGE>
be deemed to have accepted the Leased Premises and that the condition of the
Leased Premises and the Building was at the time satisfactory and in
conformity with the provisions of this Lease in all respects, subject to
punchlist items which are identified in a joint inspection of the Leased
Premises by both Landlord and Tenant and subject to latent defects which
Tenant notifies Landlord of in writing within one (1) year of the
Commencement Date.
SECTION 2.2. CONSTRUCTION OF TENANT IMPROVEMENTS. Tenant acknowledges
that, except as specifically provided in this Lease, Landlord has made no
representation or warranty of any kind except to construct in a good and
workmanlike manner the improvements as per Tenant's plans and specifications
which shall be mutually agreed upon by both Landlord and Tenant and attached
hereto as EXHIBIT B. Landlord hereby agrees to contribute an amount not to
exceed Six Hundred Forty Thousand Dollars ($640,000.00) ("Landlord's Allowance")
towards the cost of the tenant finish improvements. Any and all costs for tenant
finish improvements which exceed Landlord's Allowance shall be amortized over
the Lease Term at twelve percent (12%) interest per annum and paid by Tenant in
equal monthly installments as additional rent, at the same time and in the same
manner as Tenant's Monthly Rental Installments. Tenant shall have eighteen (18)
months from the Commencement Date to utilize Landlord's Allowance towards tenant
finish improvement costs. Any unused portion of Landlord's Allowance shall be
forfeited upon expiration of the eighteenth (18th) month of the Lease Term.
Landlord and Tenant agree that all work on the initial and any subsequent tenant
finish improvements shall be performed by Duke Construction Limited Partnership
or a subsidiary or affiliate of Landlord which shall receive a construction
management fee as Landlord's construction manager or general contractor.
SECTION 2.3. SURRENDER OF THE PREMISES. Upon the expiration or earlier
termination of this Lease, Tenant shall immediately surrender the Leased
Premises to Landlord in broom-clean condition and in good condition and repair.
Tenant shall also remove its personal property, trade fixtures and any of
Tenant's alterations designated by Landlord at the time of installation,
promptly repair any damage caused by such removal, and restore the Leased
Premises to the condition existing upon the Commencement Date, reasonable wear
and tear excepted. If Tenant fails to do so, Landlord may restore the Leased
Premises to such condition at Tenant's expense, Landlord may cause all of said
property to be removed at Tenant's expense, and Tenant hereby agrees to pay all
the costs and expenses thereby reasonably incurred. All Tenant property which is
not removed at the time of expiration or earlier termination of this Lease and
within ten (10) days following Landlord's written demand therefor shall be
conclusively deemed to have been abandoned by Tenant, and Landlord shall be
entitled to dispose of such property at Tenant's cost without thereby incurring
any liability to Tenant. The provisions of this section shall survive the
expiration or other termination of this Lease.
SECTION 2.4. HOLDING OVER. If Tenant retains possession of the Leased
Premises after the expiration or earlier termination of this Lease, Tenant shall
become a tenant from month to month at one hundred fifty percent (150%) of the
Monthly Rental Installment in effect at the end of the Lease Term, and otherwise
upon the terms, covenants and conditions herein specified, so far as applicable.
Acceptance by Landlord of rent in such event shall not result in a renewal of
this Lease, and Tenant shall vacate and surrender the Leased Premises to
Landlord upon Tenant being given thirty (30) days' prior written notice from
Landlord to vacate whether or not said
-3-
<PAGE>
notice is given on the rent paying date. This Section 2.4 shall in no way
constitute a consent by Landlord to any holding over by Tenant upon the
expiration or earlier termination of this Lease, nor limit Landlord's
remedies in such event.
ARTICLE 3 - RENT
SECTION 3.1. BASE RENT. Tenant shall pay to Landlord the Minimum Annual
Rent in the Monthly Rental Installments, in advance, without deduction or
offset, beginning on the Commencement Date and on or before the first day of
each and every calendar month thereafter during the Lease Term. The Monthly
Rental Installment for partial calendar months shall be prorated.
SECTION 3.2. ADDITIONAL RENT. In addition to the Minimum Annual Rent,
Tenant shall pay to Landlord for each calendar year during the Lease Term as
"Additional Rent," Tenant's Proportionate Share of all costs and expenses
incurred by Landlord during the Lease Term for Real Estate Taxes and Operating
Expenses for the Building and common areas (collectively "Common Area Charges").
"Operating Expenses" shall mean all of Landlord's expenses for
operation, repair, replacement and maintenance to keep the Building and common
areas in good order, condition and repair (including all additional direct costs
and expenses of operation and maintenance of the Building which Landlord
reasonably determines it would have paid or incurred during such year if the
Building had been fully occupied), including, but not limited to, service and
other charges incurred in the operation and maintenance of the electrical
systems, heating, ventilation and air conditioning systems and sprinkler and
plumbing systems; management or administrative fees; utilities; stormwater
discharge fees; license, permit, inspection and other fees; fees and assessments
imposed by any covenants or owners' association; security services; insurance
premiums and deductibles; and maintenance, repair and replacement of the
driveways, parking areas (including snow removal), exterior lighting, landscaped
areas, walkways, curbs, drainage strips, sewer lines, exterior walls,
foundation, structural frame, roof and gutters. The cost of any capital
improvement shall be amortized over the useful life of such improvement (as
reasonably determined by Landlord), and only the amortized portion shall be
included in Operating Expenses.
"Real Estate Taxes" shall include any form of real estate tax or
assessment or service payments in lieu thereof, and any license fee, commercial
rental tax, improvement bond or other similar charge or tax (other than
inheritance, personal income or estate taxes) imposed upon the Building or
common areas (or against Landlord's business of leasing the Building) by any
authority having the power to so charge or tax, together with the reasonable
actual costs and expenses of contesting the validity or amount of Real Estate
Taxes or, if such contesting work is performed by Landlord's in-house counsel,
which may be calculated as if such contesting work had been performed on a
contingent fee basis (provided, however, that said fees are reasonably
comparable to the fees charged for similar services by others not affiliated
with Landlord, but in no event shall fees exceed thirty-three percent (33%) of
the good faith estimated tax savings). Additionally, Tenant shall pay, prior to
delinquency, all taxes assessed against and levied upon
-4-
<PAGE>
trade fixtures, furnishings, equipment and all personal property of Tenant
contained in the Leased Premises.
SECTION 3.3. PAYMENT OF ADDITIONAL RENT. Landlord shall estimate the
total amount of Additional Rent to be paid by Tenant during each calendar year
of the Lease Term, pro-rated for any partial years. Commencing on the
Commencement Date, Tenant shall pay to Landlord each month, at the same time the
Monthly Rental Installment is due, an amount equal to one-twelfth (1/12) of the
estimated Additional Rent for such year. Within a reasonable time after the end
of each calendar year, Landlord shall submit to Tenant a statement of the actual
amount of such Additional Rent and within thirty (30) days after receipt of such
statement, Tenant shall pay any deficiency between the actual amount owed and
the estimates paid during such calendar year. In the event of overpayment,
Landlord shall credit the amount of such overpayment toward the next
installments of Minimum Rent.
SECTION 3.4. LATE CHARGES. Tenant acknowledges that Landlord shall
incur certain additional unanticipated administrative and legal costs and
expenses if Tenant fails to timely pay any payment required hereunder.
Therefore, in addition to the other remedies available to Landlord hereunder, if
any payment required to be paid by Tenant to Landlord hereunder shall become
overdue, such unpaid amount shall bear interest from the due date thereof to the
date of payment at the prime rate (as reported in the Wall Street Journal) of
interest ("Prime Rate") plus six percent (6%) per annum. Notwithstanding the
foregoing sentence, Landlord shall provide Tenant with a written courtesy notice
of such default and Tenant shall have an additional five (5) days to cure such
default before Landlord imposes such late charge; provided, however, that
Landlord shall not be required to give such courtesy notice more than one (1)
time with respect to any particular default, nor more than two (2) times in any
consecutive twelve (12) month period with respect to any payment defaults in the
aggregate.
ARTICLE 4 - SECURITY DEPOSIT
Tenant shall deposit with Landlord on or before February 1, 2000, the Security
Deposit as security for the performance by Tenant of all of Tenant's obligations
contained in this Lease. In the event of a default by Tenant Landlord may apply
all or any part of the Security Deposit to cure all or any part of such default;
and Tenant agrees to promptly, upon demand, deposit such additional sum with
Landlord as may be required to maintain the full amount of the Security Deposit.
All sums held by Landlord pursuant to this section shall be without interest. At
the end of the Lease Term, provided that there is then no uncured default,
Landlord shall return the Security Deposit to Tenant.
ARTICLE 5 - USE
SECTION 5.1. USE OF LEASED PREMISES. The Leased Premises are to be used by
Tenant solely for the Permitted Use and for no other purposes without the prior
written consent of Landlord.
SECTION 5.2. COVENANTS OF TENANT REGARDING USE. Tenant shall (i) use
and maintain the Leased Premises and conduct its business thereon in a safe,
careful, reputable and lawful manner,
-5-
<PAGE>
(ii) comply with all laws, rules, regulations, orders, ordinances, directions
and requirements of any governmental authority or agency, now in force or
which may hereafter be in force, including without limitation those which
shall impose upon Landlord or Tenant any duty with respect to or triggered by
a change in the use or occupation of, or any improvement or alteration to,
the Leased Premises, and (iii) comply with and obey all reasonable directions
of the Landlord, including any rules and regulations that may be adopted by
Landlord from time to time. Tenant shall not do or permit anything to be done
in or about the Leased Premises or common areas which constitutes a nuisance
or which interferes with the rights of other tenants or injures or annoys
them. Landlord shall not be responsible to Tenant for the nonperformance by
any other tenant or occupant of the Building of its lease or of any rules and
regulations. Tenant shall not overload the floors of the Leased Premises. All
damage to the floor, structure or foundation of the Building due to improper
positioning or storage of items or materials shall be repaired by Landlord at
the sole expense of Tenant, who shall reimburse Landlord immediately therefor
upon demand. Tenant shall not use the Leased Premises, or allow the Leased
Premises to be used, for any purpose or in any manner which would invalidate
any policy of insurance now or hereafter carried on the Building or increase
the rate of premiums payable on any such insurance policy unless Tenant
reimburses Landlord as Additional Rent for any increase in premiums charged.
SECTION 5.3. LANDLORD'S RIGHTS REGARDING USE. In addition to the rights
specified elsewhere in this Lease, Landlord shall have the following rights
regarding the use of the Leased Premises or the common areas, each of which may
be exercised without notice or liability to Tenant and which shall have no
material adverse affect on the use or access to the Leased Premises by Tenant
(a) Landlord may install such signs, advertisements, notices or tenant
identification information as it shall deem necessary or proper; (b) Landlord
shall have the right at any time to control, change or otherwise alter the
common areas as it shall deem necessary or proper; and (c) Landlord or
Landlord's agent shall be permitted to inspect or examine the Leased Premises at
any reasonable time upon reasonable notice (except in an emergency when no
notice shall be required), and Landlord shall have the right to make any repairs
to the Leased Premises which are necessary for its preservation; provided,
however, that any repairs made by Landlord shall be at Tenant's expense, except
as provided in Section 7.1 hereof. Landlord shall incur no liability to Tenant
for such entry, nor shall such entry constitute an eviction of Tenant or a
termination of this Lease, or entitle Tenant to any abatement of rent therefor.
ARTICLE 6 - UTILITIES AND SERVICES
Tenant shall obtain in its own name and pay directly to the appropriate supplier
the cost of all utilities and services serving the Leased Premises. However, if
any services or utilities are jointly metered with other property, Landlord
shall make a reasonable determination of Tenant's proportionate share of the
cost of such utilities and services (at rates that would have been payable if
such utilities and services had been directly billed by the utilities or
services provided to Tenant) and Tenant shall pay such share to Landlord within
fifteen (15) days after receipt of Landlord's written statement. Landlord shall
not be liable in damages or otherwise for any failure or interruption of any
utility or other building service and no such failure or interruption shall
entitle Tenant to terminate this Lease or withhold sums due hereunder. In the
event of utility "deregulation," Landlord may choose the service provider.
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ARTICLE 7 - MAINTENANCE AND REPAIRS
SECTION 7.1 LANDLORD'S RESPONSIBILITY. During the term of this Lease, Landlord
shall maintain in good condition and repair, and replace as necessary, the
electrical systems, heating and air conditioning systems, sprinkler and plumbing
systems, roof, exterior walls, foundation and structural frame of the Building
and the parking and landscaped areas, the costs of which shall be included in
Operating Expenses; provided, however, that to the extent any of the foregoing
items require repair because of the negligence, misuse, or default of Tenant,
its employees, agents, customers or invitees, Landlord shall make such repairs
solely at Tenant's expense.
SECTION 7.2. ALTERATIONS. Tenant shall not permit alterations in or to
the Leased Premises unless and until the plans have been approved by Landlord in
writing. As a condition of such approval, Landlord may require Tenant to remove
the alterations and restore the Leased Premises upon termination of this Lease;
otherwise, all such alterations shall at Landlord's option become a part of the
realty and the property of Landlord, and shall not be removed by Tenant. Tenant
shall ensure that all alterations shall be made in accordance with all
applicable laws, regulations and building codes, in a good and workmanlike
manner and of quality equal to or better than the original construction of the
Building. No person shall be entitled to any lien derived through or under
Tenant for any labor or material furnished to the Leased Premises at the request
of Tenant, and nothing in this Lease shall be construed to constitute a consent
by Landlord to the creation of any lien. If any lien is filed against the Leased
Premises for work claimed to have been done for or material claimed to have been
furnished to Tenant, Tenant shall cause such lien to be discharged of record
within thirty (30) days after filing. Tenant shall indemnify Landlord from all
costs, losses, expenses and attorneys' fees in connection with any construction
or alteration and any related lien.
ARTICLE 8 - CASUALTY
SECTION 8.1. CASUALTY. In the event of total or partial destruction of the
Building or the Leased Premises by fire or other casualty, Landlord agrees to
promptly restore and repair same; provided, however, Landlord's obligation
hereunder shall be limited to the reconstruction of such of the tenant finish
improvements as were originally made by Landlord, if any. Rent shall
proportionately abate during the time that the Leased Premises or part thereof
are unusable because of any such damage. Notwithstanding the foregoing, if the
Leased Premises are (i) so destroyed that they cannot be or are not repaired or
rebuilt within one hundred eighty (180) days from the casualty date; or (ii)
destroyed by a casualty which is not covered by the insurance required hereunder
or, if covered, such insurance proceeds are not released by any mortgagee
entitled thereto or are insufficient to rebuild the Building and the Leased
Premises; then, in case of a clause (i) casualty, either Landlord or Tenant may,
or, in the case of a clause (ii) casualty, then Landlord may, upon thirty (30)
days' written notice to the other party, terminate this Lease with respect to
matters thereafter accruing.
SECTION 8.2. ALL RISK COVERAGE INSURANCE. During the Lease Term,
Landlord shall maintain all risk coverage insurance on the Building, but shall
not protect Tenant's property on the Leased Premises; and, notwithstanding the
provisions of Section 9.1, Landlord shall not be
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liable for any damage to Tenant's property, regardless of cause, including
the negligence of Landlord and its employees, agents and invitees. Tenant
hereby expressly waives any right of recovery against Landlord for damage to
any property of Tenant located in or about the Leased Premises, however
caused, including the negligence of Landlord and its employees, agents and
invitees. Notwithstanding the provisions of Section 9.1 below, Landlord
hereby expressly waives any rights of recovery against Tenant for damage to
the Leased Premises or the Building which is required by this Lease to be
insured against under Landlord's all risk coverage insurance. All insurance
policies maintained by Landlord or Tenant as provided in this Lease shall
contain an agreement by the insurer waiving the insurer's right of
subrogation against the other party to this Lease.
ARTICLE 9 - LIABILITY INSURANCE
SECTION 9.1. TENANT'S RESPONSIBILITY. Landlord shall not be liable to Tenant or
to any other person for (i) damage to property or injury or death to persons due
to the condition of the Leased Premises, the Building or the common areas, or
(ii) the occurrence of any accident in or about the Leased Premises or the
common areas, or (iii) any act or neglect of Tenant or any other tenant or
occupant of the Building or of any other person, except to the extent such
damage, injury or death is directly the result of Landlord's negligence or
willful misconduct; and Tenant hereby releases Landlord from any and all
liability for the same. Tenant shall be liable for, and shall indemnify and
defend Landlord from, any and all liability for (i) any act or neglect of Tenant
and any person coming on the Leased Premises or common areas by the license of
Tenant, express or implied, (ii) any damage to the Leased Premises, and (iii)
any loss of or damage or injury to any person (including death resulting
therefrom) or property occurring in, on or about the Leased Premises, regardless
of cause, except for any loss or damage covered by the all risk coverage
insurance required to be obtained by Landlord pursuant to Section 8.2 and except
and to the extent for that caused directly by Landlord's negligence or willful
misconduct. This provision shall survive the expiration or earlier termination
of this Lease.
SECTION 9.2. TENANT'S INSURANCE. Tenant shall carry general public
liability and property damage insurance, issued by one or more insurance
companies acceptable to Landlord, with the following minimum coverages:
A. Worker's Compensation: minimum statutory amount.
B. Commercial General Liability Insurance, including blanket, contractual
liability, broad form property damage, personal injury, completed operations,
products liability, and fire damage: Not less than $3,000,000 Combined Single
Limit for both bodily injury and property damage.
C. All Risk Coverage, Vandalism and Malicious Mischief, and Sprinkler Leakage
insurance, if applicable, for the full cost of replacement of Tenant's property.
D. Business interruption insurance.
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The insurance policies shall protect Tenant and Landlord as their interests may
appear, naming Landlord and Landlord's managing agent and mortgagee as
additional insureds, and shall provide that they may not be canceled on less
than thirty (30) days' prior written notice to Landlord. Tenant shall furnish
Landlord with Certificates of Insurance evidencing all required coverages on or
before the Commencement Date. If Tenant fails to carry such insurance and
furnish Landlord with such Certificates of Insurance after a request to do so,
Landlord may obtain such insurance and collect the cost thereof from Tenant.
ARTICLE 10 - EMINENT DOMAIN
If all or any substantial part of the Building or common areas shall be acquired
by the exercise of eminent domain, Landlord may terminate this Lease by giving
written notice to Tenant on or before the date that actual possession thereof is
so taken. If all or any part of the Leased Premises shall be acquired by the
exercise of eminent domain so that the Leased Premises shall become unusable by
Tenant for the Permitted Use in Tenant's reasonable business judgment, Tenant
may terminate this Lease as of the date that actual possession thereof is so
taken by giving written notice to Landlord. All damages awarded shall belong to
Landlord; provided, however, that Tenant may claim dislocation damages if such
amount is not subtracted from Landlord's award.
ARTICLE 11 - ASSIGNMENT AND SUBLEASE
Tenant shall not assign this Lease or sublet the Leased Premises in whole or in
part without Landlord's prior written consent, which consent shall not be
unreasonably withheld, delayed or denied (provided that it shall not be
unreasonable for Landlord to withhold or deny its consent with respect to any
proposed assignment or subletting to a third party that is already a tenant in
the Building or in another building owned by Landlord in the vicinity). In the
event of any assignment or subletting, Tenant shall remain primarily liable
hereunder, and any extension, expansion, rights of first offer, rights of first
refusal or other options granted to Tenant under this Lease shall be rendered
void and of no further force or effect. The acceptance of rent from any other
person shall not be deemed to be a waiver of any of the provisions of this Lease
or to be a consent to the assignment of this Lease or the subletting of the
Leased Premises. Without in any way limiting Landlord's right to refuse to
consent to any assignment or subletting of this Lease, Landlord reserves the
right to refuse to give such consent if in Landlord's reasonable opinion, (i)
the Leased Premises are or may be in any way adversely affected; (ii) the
business reputation of the proposed assignee or subtenant is unacceptable; or
(iii) the combined financial worth of the proposed assignee or subtenant and
Tenant is insufficient to meet the obligations hereunder. Landlord further
expressly reserves the right to refuse to give its consent to any subletting if
(i) the proposed subtenant or assignee is an existing tenant of Landlord's and
the proposed rent is to be less than the then current rent for similar premises
of Landlord's in the vicinity or (ii) the proposed subtenant or assignee is not
an existing tenant of Landlord's and the proposed rent is to be less than
seventy percent (70%) of the then current rent for similar premises of
Landlord's in the vicinity. Tenant agrees to reimburse Landlord for reasonable
accounting and attorneys' fees incurred in conjunction with the processing and
documentation of any such requested
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assignment, subletting or any other hypothecation of this Lease or Tenant's
interest in and to the Leased Premises.
ARTICLE 12 - TRANSFERS BY LANDLORD
SECTION 12.1. SALE OF THE BUILDING. Landlord shall have the right to sell the
Building at any time during the Lease Term, subject only to the rights of Tenant
hereunder; and such sale shall operate to release Landlord from liability
hereunder accruing after the date of such conveyance.
SECTION 12.2. SUBORDINATION AND ESTOPPEL CERTIFICATE. Landlord shall
have the right to subordinate this Lease to any mortgage presently existing or
hereafter placed upon the Building by so declaring in such mortgage. Within ten
(10) days following receipt of a written request from Landlord, Tenant shall
execute and deliver to Landlord, without cost, any reasonable instrument which
Landlord deems necessary or desirable to confirm the subordination of this Lease
and an estoppel certificate in such form as Landlord may reasonably request
certifying (i) that this Lease is in full force and effect and unmodified or
stating the nature of any modification, (ii) the date to which rent has been
paid, (iii) that there are not, to Tenant's knowledge, any uncured defaults or
specifying such defaults if any are claimed, and (iv) any other matters or state
of facts reasonably required respecting the Lease. Such estoppel may be relied
upon by Landlord and by any purchaser or mortgagee of the Building.
Notwithstanding the foregoing, if the mortgagee shall take title to the Leased
Premises through foreclosure or deed in lieu of foreclosure, Tenant shall be
allowed to continue in possession of the Leased Premises as provided for in this
Lease so long as Tenant shall not be in Default.
ARTICLE 13 - DEFAULT AND REMEDY
SECTION 13.1 DEFAULT. The occurrence of any of the following shall be a
"Default":
(a) Tenant fails to pay any Monthly Rental Installment or Additional
Rent within five (5) days after the same is due, or Tenant fails to pay any
other amounts due Landlord from Tenant within ten (10) days after the same is
due.
(b) Tenant fails to perform or observe any other term, condition,
covenant or obligation required under this Lease for a period of thirty (30)
days after notice thereof from Landlord; provided, however, that if the nature
of Tenant's default is such that more than thirty days are reasonably required
to cure, then such default shall be deemed to have cured if Tenant commences
such performance within said thirty-day period and thereafter diligently
completes the required action within a reasonable time.
(c) Tenant shall assign or sublet all or a portion of the Leased
Premises in contravention of the provisions of Article 11 of this Lease.
(d) All or substantially all of Tenant's assets in the Leased Premises
or Tenant's interest in this Lease are attached or levied under execution (and
Tenant does not discharge the same within sixty (60) days thereafter); a
petition in bankruptcy, insolvency or for reorganization
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or arrangement is filed by or against Tenant (and Tenant fails to secure a
stay or discharge thereof within sixty (60) days thereafter); Tenant is
insolvent and unable to pay its debts as they become due; Tenant makes a
general assignment for the benefit of creditors; Tenant takes the benefit of
any insolvency action or law; the appointment of a receiver or trustee in
bankruptcy for Tenant or its assets if such receivership has not been vacated
or set aside within thirty (30) days thereafter; or, dissolution or other
termination of Tenant's corporate charter if Tenant is a corporation.
SECTION 13.2. REMEDIES. Upon the occurrence of any Default, Landlord
shall have the following rights and remedies, in addition to those allowed by
law or in equity, any one or more of which may be exercised without further
notice to Tenant:
(a) Landlord may apply the Security Deposit or re-enter the Leased
Premises and cure any default of Tenant, and Tenant shall reimburse Landlord as
additional rent for any costs and expenses which Landlord thereby incurs; and
Landlord shall not be liable to Tenant for any loss or damage which Tenant may
sustain by reason of Landlord's action.
(b) Landlord may terminate this Lease or, without terminating this
Lease, terminate Tenant's right to possession of the Leased Premises as of the
date of such Default, and thereafter (i) neither Tenant nor any person claiming
under or through Tenant shall be entitled to possession of the Leased Premises,
and Tenant shall immediately surrender the Leased Premises to Landlord; and (ii)
Landlord may re-enter the Leased Premises and dispossess Tenant and any other
occupants of the Leased Premises by any means and may remove their effects,
without prejudice to any other remedy which Landlord may have. Upon the
termination of this Lease, Landlord may declare the present value (discounted at
the Prime Rate) of all rent which would have been due under this Lease for the
balance of the Lease Term, less the present value of the net amount of such rent
and other charges for the remainder of the Lease Term which Landlord determines
could reasonably be recovered by Landlord from reletting the Leased Premises
under then current and reasonably anticipated market conditions, together with
all loss or damage which Landlord may sustain by reason of Tenant's default
("Default Damages"), which shall include without limitation reasonable expenses
of preparing the Leased Premises for re-letting, demolition, repairs, tenant
finish improvements, brokers' commissions and attorneys' fees, it being
expressly understood and agreed that the liabilities and remedies specified in
this subsection (b) shall survive the termination of this Lease.
(c) Landlord may, without terminating this Lease, re-enter the Leased
Premises and re-let all or any part thereof for a term different from that which
would otherwise have constituted the balance of the Lease Term and for rent and
on terms and conditions different from those contained herein, whereupon Tenant
shall be immediately obligated to pay Landlord as liquidated damages the present
value (discounted at the Prime Rate) of the difference between the rent provided
for herein and that provided for in any lease covering a subsequent re-letting
of the Leased Premises, for the period which would otherwise have constituted
the balance of the Lease Term, together with all of Landlord's Default Damages.
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(d) Landlord may sue for injunctive relief or to recover damages for
any loss resulting from the Default.
SECTION 13.3. LANDLORD'S DEFAULT AND TENANT'S REMEDIES. Landlord shall
be in default if it fails to perform any term, condition, covenant or obligation
required under this Lease for a period of thirty (30) days after written notice
thereof from Tenant to Landlord; provided, however, that if the term, condition,
covenant or obligation to be performed by Landlord is such that it cannot
reasonably be performed within thirty days, such default shall be deemed to have
been cured if Landlord commences such performance within said thirty-day period
and thereafter diligently undertakes to complete the same. Upon the occurrence
of any such default, Tenant may sue for injunctive relief or to recover damages
for any loss directly resulting from the breach, but Tenant shall not be
entitled to terminate this Lease or withhold, offset or abate any sums due
hereunder except pursuant to an order from a court of competent jurisdiction.
SECTION 13.4. LIMITATION OF LANDLORD'S LIABILITY. If Landlord shall
fail to perform any term, condition, covenant or obligation required to be
performed by it under this Lease and if Tenant shall, as a consequence thereof,
recover a money judgment against Landlord, Tenant agrees that it shall look
solely to Landlord's right, title and interest in and to the Building for the
collection of such judgement; and Tenant further agrees that no other assets of
Landlord shall be subject to levy, execution or other process for the
satisfaction of Tenant's judgment.
SECTION 13.5. NONWAIVER OF DEFAULTS. Neither party's failure or delay
in exercising any of its rights or remedies or other provisions of this Lease
shall constitute a waiver thereof or affect its right thereafter to exercise or
enforce such right or remedy or other provision. No waiver of any default shall
be deemed to be a waiver of any other default. Landlord's receipt of less than
the full rent due shall not be construed to be other than a payment on account
of rent then due, nor shall any statement on Tenant's check or any letter
accompanying Tenant's check be deemed an accord and satisfaction. No act or
omission by Landlord or its employees or agents during the Lease Term shall be
deemed an acceptance of a surrender of the Leased Premises, and no agreement to
accept such a surrender shall be valid unless in writing and signed by Landlord.
SECTION 13.6. ATTORNEYS' FEES. If either party defaults in the
performance or observance of any of the terms, conditions, covenants or
obligations contained in this Lease and the non-defaulting party obtains a
judgment against the defaulting party, then the defaulting party agrees to
reimburse the non-defaulting party for reasonable attorneys' fees incurred in
connection therewith.
ARTICLE 14 - LANDLORD'S RIGHT TO RELOCATE TENANT
[Intentionally Omitted.]
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ARTICLE 15 - TENANT'S RESPONSIBILITY REGARDING
ENVIRONMENTAL LAWS AND HAZARDOUS SUBSTANCES
SECTION 15.1 DEFINITIONS.
(a) "Environmental Laws" - All present or future federal, state and
municipal laws, ordinances, rules and regulations applicable to the
environmental and ecological condition of the Leased Premises, the rules and
regulations of the Federal Environmental Protection Agency or any other federal,
state or municipal agency or governmental board or entity having jurisdiction
over the Leased Premises.
(b) "Hazardous Substances" - Those substances included within the
definitions of "hazardous substances," "hazardous materials," "toxic
substances," "solid waste" or "infectious waste" under Environmental Laws.
SECTION 15.2. COMPLIANCE. Tenant, at its sole cost and expense, shall
promptly comply with the Environmental Laws including any notice from any source
issued pursuant to the Environmental Laws or issued by any insurance company
which shall impose any duty upon Tenant with respect to the use, occupancy,
maintenance or alteration of the Leased Premises whether such notice shall be
served upon Landlord or Tenant.
SECTION 15.3. RESTRICTIONS ON TENANT. Tenant shall operate its business
and maintain the Leased Premises in compliance with all Environmental Laws.
Tenant shall not cause or permit the use, generation, release, manufacture,
refining, production, processing, storage or disposal of any Hazardous
Substances on, under or about the Leased Premises, or the transportation to or
from the Leased Premises of any Hazardous Substances, except as necessary and
appropriate for its Permitted Use in which case the use, storage or disposal of
such Hazardous Substances shall be performed in compliance with the
Environmental Laws and the standards prevailing in the industry.
SECTION 15.4. NOTICES, AFFIDAVITS, ETC. Tenant shall immediately notify
Landlord of (i) any violation by Tenant, its employees, agents, representatives,
customers, invitees or contractors of the Environmental Laws on, under or about
the Leased Premises or (ii) the presence or suspected presence of any Hazardous
Substances on, under or about the Leased Premises and shall immediately deliver
to Landlord any notice received by Tenant relating to (i) and (ii) above from
any source. Tenant shall execute affidavits, representations and the like within
five (5) days of Landlord's request therefor concerning Tenant's best knowledge
and belief regarding the presence of any Hazardous Substances on, under or about
the Leased Premises.
SECTION 15.5. LANDLORD'S RIGHTS. Landlord and its agents shall have the
right, but not the duty, upon advance notice (except in the case of emergency
when no notice shall be required) to inspect the Leased Premises and conduct
tests thereon to determine whether or the extent to which there has been a
violation of Environmental Laws by Tenant or whether there are Hazardous
Substances on, under or about the Leased Premises. In exercising its rights
herein, Landlord shall use reasonable efforts to minimize interference with
Tenant's business but such
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entry shall not constitute an eviction of Tenant, in whole or in part, and
Landlord shall not be liable for any interference, loss, or damage to
Tenant's property or business caused thereby.
SECTION 15.6. TENANT'S INDEMNIFICATION. Tenant shall indemnify Landlord
and Landlord's managing agent from any and all claims, losses, liabilities,
costs, expenses and damages, including attorneys' fees, costs of testing and
remediation costs, incurred by Landlord in connection with any breach by Tenant
of its obligations under this Article 15. The covenants and obligations under
this Article 15 shall survive the expiration or earlier termination of this
Lease.
SECTION 15.7. LANDLORD'S REPRESENTATION. Notwithstanding anything
contained in this Article 15 to the contrary, Tenant shall not have any
liability to Landlord under this Article 15 resulting from any conditions
existing, or events occurring, or any Hazardous Substances existing or
generated, at, in, on, under or in connection with the Leased Premises prior to
the Commencement Date of this Lease except to the extent Tenant exacerbates the
same.
ARTICLE 16 - MISCELLANEOUS
SECTION 16.1. BENEFIT OF LANDLORD AND TENANT. This Lease shall inure to the
benefit of and be binding upon Landlord and Tenant and their respective
successors and assigns.
SECTION 16.2. GOVERNING LAW. This Lease shall be governed in accordance
with the laws of the State where the Building is located.
SECTION 16.3. GUARANTY. In consideration of Landlord's leasing the
Leased Premises to Tenant, Tenant shall provide Landlord with a Guaranty of
Lease executed by the guarantor(s) described in the Basic Lease Provisions, if
any.
SECTION 16.4. FORCE MAJEURE. Landlord and Tenant (except with respect
to the payment of any monetary obligation) shall be excused for the period of
any delay in the performance of any obligation hereunder when such delay is
occasioned by causes beyond its control, including but not limited to work
stoppages, boycotts, slowdowns or strikes; shortages of materials, equipment,
labor or energy; unusual weather conditions; or acts or omissions of
governmental or political bodies.
SECTION 16.5. EXAMINATION OF LEASE. Submission of this instrument for
examination or signature to Tenant does not constitute a reservation of or
option for Lease, and it is not effective as a Lease or otherwise until
execution by and delivery to both Landlord and Tenant.
SECTION 16.6. INDEMNIFICATION FOR LEASING COMMISSIONS. The parties
hereby represent and warrant that the only real estate brokers involved in the
negotiation and execution of this Lease are the Brokers. Each party shall
indemnify the other from any and all liability for the breach of this
representation and warranty on its part and shall pay any compensation to any
other broker or person who may be entitled thereto.
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SECTION 16.7. NOTICES. Any notice required or permitted to be given
under this Lease or by law shall be deemed to have been given if it is written
and delivered in person or by overnight courier or mailed by certified mail,
postage prepaid, to the party who is to receive such notice at the address
specified in Article 1. If delivered in person, notice shall be deemed given as
of the delivery date. If sent by overnight courier, notice shall be deemed given
as of the first business day after sending. If mailed, the notice shall be
deemed to have been given on the date which is three business days after
mailing. Either party may change its address by giving written notice thereof to
the other party.
SECTION 16.8. PARTIAL INVALIDITY; COMPLETE AGREEMENT. If any provision
of this Lease shall be held to be invalid, void or unenforceable, the remaining
provisions shall remain in full force and effect. This Lease represents the
entire agreement between Landlord and Tenant covering everything agreed upon or
understood in this transaction. There are no oral promises, conditions,
representations, understandings, interpretations or terms of any kind as
conditions or inducements to the execution hereof or in effect between the
parties. No change or addition shall be made to this Lease except by a written
agreement executed by Landlord and Tenant.
SECTION 16.9. FINANCIAL STATEMENTS. During the Lease Term and any
extensions thereof, Tenant shall provide to Landlord on an annual basis, within
ninety (90) days following the end of Tenant's fiscal year, a copy of Tenant's
most recent financial statements (certified and audited if the Minimum Annual
Rent hereunder exceeds $100,000.00) prepared as of the end of Tenant's fiscal
year. Such financial statements shall be signed by Tenant who shall attest to
the truth and accuracy of the information set forth in such statements. All
financial statements provided by Tenant to Landlord hereunder shall be prepared
in conformity with generally accepted accounting principles, consistently
applied.
SECTION 16.10. REPRESENTATIONS AND WARRANTIES. The undersigned
represent and warrant that (i) such party is duly organized, validly existing
and in good standing (if applicable) in accordance with the laws of the state
under which it was organized; and (ii) the individual executing and delivering
this Lease has been properly authorized to do so, and such execution and
delivery shall bind such party.
SECTION 16.11. SIGNS. Tenant may, at its own expense, erect a sign
concerning the business of Tenant which shall be in keeping with the decor and
other signs on the Building. All signage (including the signage described in the
preceding sentence) in or about the Leased Premises shall be first approved by
Landlord, which approval shall not be unreasonably withheld, conditioned or
delayed, and shall be in compliance with the applicable codes and any recorded
restrictions applicable to the Building. Tenant agrees to maintain any sign in
good state of repair, and upon expiration of the Lease Term, Tenant agrees to
promptly remove such signs and repair any resulting damage to the Leased
Premises or the Building.
SECTION 16.12. CREDIT ENHANCEMENT. In addition to the Security Deposit
specified in Section 1(I) hereof and consistent with the provisions of that
certain Guaranty of Lease granted by Guarantor and executed simultaneously
herewith, Tenant shall provide Landlord with credit enhancement as follows:
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(a) Upon execution of this Lease, Tenant shall provide to Landlord an
irrevocable, unconditional Letter of Credit in the form attached hereto as
EXHIBIT C. The Letter of Credit shall be in the amount of Eighty Thousand
Dollars ($80,000.00) ("Initial Letter of Credit") and shall constitute
additional security for the full and faithful performance by Tenant of all the
terms, conditions and covenants contained in the Lease on the part of the Tenant
to be performed, including but not limited to the payment of rent.
(b) No later than February 1, 2000, Tenant shall provide to Landlord an
additional Irrevocable Letter of Credit, also in the form attached hereto as
EXHIBIT C. The second Letter of Credit shall be in the amount of Eighty Thousand
Dollars ($80,000.00) ("Second Letter of Credit") and shall also constitute
additional security for the full and faithful performance by Tenant of all the
terms, conditions and covenants contained in the Lease on the part of the Tenant
to be performed, including but not limited to the payment of rent. The Initial
Letter of Credit and the Second Letter of Credit shall be collectively referred
to as the "Letters."
(c) Landlord shall have the right to draw upon the Letters in the event
of a Tenant default beyond the expiration of any notice, grace or cure period
provided for under this Lease.
(d) Landlord shall be entitled to retain the Letters only in accordance
with the provisions of the Guaranty of Lease (a copy of which is attached hereto
as EXHIBIT D).
IN WITNESS WHEREOF, the parties hereto have executed this Lease as of
the day and year first above written.
LANDLORD:
DUKE-WEEKS REALTY LIMITED PARTNERSHIP,
an Indiana limited partnership
By: Duke-Weeks Realty Corporation,
its general partner
By:____________________________
Robert H. Johnson
Senior Vice President
Minneapolis Industrial
TENANT:
INTERNATIONALE SHOPPING ALLIANCE,
INC., a Minnesota corporation
By_____________________________
-16-
<PAGE>
Printed:_________________
Title:___________________
-17-
<PAGE>
STATE OF____________________)
) ss.
COUNTY OF___________________)
Before me, a Notary Public in and for said County and State, personally
appeared ___________________, by me known and by me known to be the
______________ of INTERNATIONALE SHOPPING ALLIANCE, INC., a Minnesota
corporation, who acknowledged the execution of the above and foregoing Lease
Agreement for and on behalf of said corporation.
WITNESS my hand and Notarial Seal this ___ day of _____________, 1999.
Notary Public______________________
(Printed Signature)________________
My Commission Expires: ____________
My County of Residence: ___________
-18-
<PAGE>
UNCONDITIONAL GUARANTY OF LEASE
AND CREDIT ENHANCEMENT AGREEMENT
This Unconditional Guaranty of Lease and Credit Enhancement Agreement
is entered into as of the 30th day of December, 1999, by the undersigned, ISA
INTERNATIONALE, INC., a Delaware corporation, ("Guarantor").
RECITALS
WHEREAS, Internationale Shopping Alliance, Inc. (doing business as
ShoptropolisTV.com), a Minnesota corporation ("Tenant") desires to enter into a
certain Lease with Duke-Weeks Realty Limited Partnership, an Indiana limited
partnership ("Landlord"), for certain space described therein and more commonly
known as Apollo Industrial Center II, 940 Apollo Road, Eagan, Minnesota 55121
(the "Lease"); and
WHEREAS, Landlord is willing to enter into the Lease only if it
receives a credit enhancement and guaranty of obligations thereunder from the
undersigned upon the terms and conditions set forth below; and
WHEREAS, in order to induce Landlord to enter into the Lease, Guarantor
is willing and agrees to enter into this Unconditional Guaranty of Lease and
Credit Enhancement upon the following terms and conditions; and
WHEREAS, Guarantor is a shareholder of Tenant and will be benefited by
the Lease;
NOW, THEREFORE, in consideration of the foregoing recitals and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Guarantor agrees as follows:
1. Guarantor hereby becomes surety for and unconditionally guarantees
(i) the prompt payment of all rents, additional rents and other sums to be paid
by Tenant under the terms of the Lease; and (ii) the performance by Tenant of
the covenants, conditions and terms of the Lease (such payment and performance
to be referred to collectively as "Obligations"). In the event Tenant defaults
in the performance of the Obligations during the term of the Lease, Guarantor
hereby promises and agrees to pay to Landlord all rents and any arrearages
thereof and any other amounts that may be or become due and to fully satisfy all
conditions and covenants of the Lease to be kept and performed by Tenant.
2. Upon execution of the Lease, Tenant shall provide to Landlord an
irrevocable, unconditional letter of credit in accordance with the provisions of
Section 16.12 of the Lease. No later than February 1, 2000, Tenant shall provide
to Landlord an additional irrevocable, unconditional letter of credit, also in
accordance with the provisions of Section 16.12 of the Lease.
<PAGE>
Landlord shall have the right to draw upon the Letters only upon the
occurrence of a default by Tenant under the terms of the Lease or otherwise as
specifically provided herein.
On or before the Commencement Date of the Lease, Guarantor shall
provide Landlord with warrants for one hundred thousand (100,000) shares of
Guarantor at an exercise price of One Dollar ($1.00) per share so long as the
then-current trading price is not less than One Dollar ($1.00) per share. If the
then-current share trading price on the Commencement Date is less than $1.00 per
share, Guarantor shall provide Landlord with the number of warrants equal to One
Hundred Thousand Dollars ($100,000.00) divided by the then-current share trading
price.
Provided that (i) Guarantor remains a publicly traded stock company
whose shares are traded on a recognized national exchange or the NASDAQ system,
and (ii) Guarantor's stock reaches the price of Four Dollars ($4.00) per share
and maintains a price of at least Four Dollars ($4.00) per share for a period of
at least two (2) consecutive months, and (iii) the warrants held by Landlord may
be executed without restriction and the shares obtained thereby may be
immediately sold in the public market without restriction under federal or state
laws or otherwise, then Landlord shall release the Letters to the Tenant and
shall rely solely on the shares obtained pursuant to its exercise of the stock
warrants for the credit enhancement provided hereunder but the guaranty
otherwise provided under this agreement shall remain in full force and effect.
For the purposes of this Agreement, warrants providing for a cashless exercise
shall be acceptable, so long as the conditions set forth in clauses (i) through
(iii) above are satisfied; provided, however, that if the Landlord exercises the
warrants in any manner other than a cashless exercise, the Landlord shall be
deemed to have made a cashless exercise for purposes of determining if and when
the condition set forth in clause (iii) above is satisfied. For the purposes of
this Agreement, a cashless exercise shall mean the method by which a
warrant-holder may convert warrant(s) (without payment of a cash exercise price)
into a number of shares equal to (a) the number of warrants exercised, less (b)
a number of shares having an aggregate fair market value equal to the aggregate
exercise price for the number of warrants exercised. Landlord shall be entitled
to exercise its right to purchase Guarantor's stock at an exercise price of
$1.00 per share pursuant to the warrants. Guarantor warrants that it shall not
do any act or fail to do any act which would in accordance with any applicable
laws, rules, regulations or orders of any government entity including but not
limited to the Securities and Exchange commission, result in regulatory
restrictions being imposed upon Landlord's ability to exercise the warrants or
freely trade the shares acquired thereby which regulatory restrictions cannot be
or are not removed or rendered inapplicable to Landlord's ability to exercise
the warrants or freely trade the share acquired thereby. In the event Guarantor
breaches its warranty hereunder, Landlord shall be entitled to retain the
Letters of Credit provided to it by Tenant. Such right shall survive the
expiration or earlier termination of the Lease and in no circumstances shall
Landlord be required to return such warrants or make any payment to Guarantor
from the proceeds of Landlord's transactions with the warrants or the shares
acquired thereby.
3. As conditions of liability pursuant to this Guaranty, Guarantor
hereby unconditionally waives (a) any notice of default by Tenant in the payment
of rent or any other amount or any other term, covenant or condition of the
Lease; (b) any requirement that Landlord exercise or exhaust its rights and
remedies against Tenant or against any person, firm or
2
<PAGE>
corporation prior to enforcing its rights against Guarantor, and (c) any and
all rights of reimbursement, indemnity, subrogation or otherwise which, upon
payment under this Guaranty, Guarantor may have against Tenant.
4. Landlord may, without notice to Guarantor, and Guarantor hereby
consents thereto, (a) modify or otherwise change or alter the terms and
conditions of the Lease; and (b) waive any of its rights under the Lease or
forbear to take steps to enforce the payment of rent or any other term or
condition of the Lease against Tenant.
5. Guarantor hereby agrees, upon the requests of Landlord, to execute,
acknowledge and deliver to Landlord a statement in writing certifying, if this
be the fact, that this Guaranty of the referenced Lease is unmodified, in full
force and effect, and there are no defenses or offsets thereto; certifying that
the referenced Lease is unmodified, in full force and effect, and there are no
defenses or offsets to such Lease (or if modified, that the Lease is in full
force and effect as modified and that this Guaranty extends to and fully covers
such Lease, as modified); and certifying the dates to which Minimum Annual Rent,
Annual Rental Adjustment, if any, and any other additional rentals have been
paid.
6. In the event Tenant fails during the term of this Lease to pay any
rent, additional rent or other payments when due or fails to comply with any
other term, covenant or condition of the Lease Landlord shall be entitled to
exercise its rights under Section 1 of this guaranty or to draw upon the Letters
or exercise its rights pursuant to the warrants as provided in Section 2 hereof,
as if such payments covenant constituted the direct and primary obligations of
Guarantor, and such obligations of Guarantor shall be due with attorneys' fees
and all costs of litigation and without relief from valuation or appraisement
laws.
7. The rights and obligations created by this Guaranty shall inure to
the benefit of and be binding upon the successors, assigns and legal
representatives of Guarantor and Landlord.
8. Anything herein or in the Lease to the contrary notwithstanding,
Guarantor hereby acknowledges and agrees that any security deposit or other
credit in favor of the Tenant may be applied to cure any Tenant default or
offset any damages incurred by Landlord under the Lease, as Landlord determines
in its sole and absolute discretion, and Landlord shall not be obligated to
apply any such deposit or credit to any such default or damages before bringing
any action or pursuing any remedy available to Landlord against Guarantor.
Guarantor further acknowledges that its liability under this Guaranty shall not
be affected in any manner by such deposit or credit, or Landlord's application
thereof.
3
<PAGE>
IN WITNESS WHEREOF, Guarantor has executed this Unconditional Guaranty
of Lease as of the date set forth above.
"GUARANTOR"
ISA INTERNATIONAL, INC.,a
Delaware corporation
By:_______________________
Printed: Gerald J. Durand
Title: President
Address:
Federal Identification
No.: 41-1925647
STATE OF MINNESOTA )
) SS.
COUNTY OF DAKOTA )
Before me, a Notary Public in and for said County and State, personally
appeared Gerald J. Durand, by me known and by me known to be the President of
ISA Internationale, Inc., a Delaware corporation, who acknowledged the execution
of the above and foregoing "Unconditional Guaranty of Lease" on behalf of said
corporation.
WITNESS my hand and Notarial Seal this 30th day of December, 1999.
- ---------------------------
Notary Public
- ---------------------------
(Printed)
My Count of Residence_________________
My Commission Expires_________________
4
<PAGE>
Exhibit 21.1
SUBSIDIARIES
ShoptropolisTV.com, Inc. (f/k/a International Shopping Alliance Incorporated)
Incorporated under the laws of the State of Minnesota
International Strategic Assets, Inc.
Incorporated under the laws of the State of Minnesota
28
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS FOUND ON
PAGES 3 AND 4 OF THE COMPANY'S AUDITED FINANCIAL STATEMENTS AS CONTAINED IN THE
COMPANY'S FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1999, AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 261,235
<SECURITIES> 0
<RECEIVABLES> 291,575
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 558,521
<PP&E> 390,034
<DEPRECIATION> 71,502
<TOTAL-ASSETS> 973,776
<CURRENT-LIABILITIES> 361,305
<BONDS> 986,000
0
0
<COMMON> 1,438
<OTHER-SE> (466,952)
<TOTAL-LIABILITY-AND-EQUITY> 973,776
<SALES> 3,543,516
<TOTAL-REVENUES> 3,543,516
<CGS> 3,237,548
<TOTAL-COSTS> 5,820,833
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,546
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,285,776)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,285,776)
<EPS-BASIC> (.16)
<EPS-DILUTED> (.16)
</TABLE>
