UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
x
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934: For the quarterly period ended September 30, 2008
 
o
 
Commission File Number: 333-146182
International Surf Resorts, Inc.
(Exact name of registrant as specified in its charter)

Nevada
20-5978559
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)

1097 Country Coach Dr., Suite 705, Henderson, Nevada, 89002
(Address of principal executive offices)

(800) 315-0045
(Issuer’s Telephone Number)
   

Indicate by check mark whether the issuer (1) has 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. xYes  oNo
 
Large accelerated filer o
Accelerated filer   o
Non-accelerated filer   o      (Do not check if a smaller reporting company)
Smaller reporting company   x
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). xYes  oNo
 
 
APPLICABLE ONLY TO CORPORATE ISSUERS
 
State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practical date.  As of November 13, 2008, there were 3,769,800 shares of the issuer’s $.001 par value common stock issued and outstanding.
 
1
 
PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements


INTERNATIONAL SURF RESORTS, INC. AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2008 AND DECEMBER 31, 2007
 
 
ASSETS

   
September 30,
    
December 31,
  
   
2008
    
2007
  
   
(Unaudited)
        
             
Current assets
            
Cash
   $ 79,357     $ 109,846  
   Prepaid expenses
     462       -  
                 
Total current assets
     79,819       109,846  
                 
Property and equipment, net of
                
    accumulated depreciation
     816       -  
                 
Investment in real property
     61,335       61,335  
                 
Total assets
   $ 141,970     $ 171,181  
                 
 LIABILITIES AND STOCKHOLDERS’ EQUITY
             
Current liabilities
            
Accounts payable and accrued expenses
   $ 38,359     $ 24,051  
                 
Total current liabilities
     38,359       24,051  
                 
Minority interest in subsidiary
     (1,268 )     (700 )
                 
Stockholders’ equity
                
Common stock, $.001 par value; 100,000,000 shares authorized, 3,769,800
               
shares issued and outstanding as of September 30, 2008 and December 31, 2007
          3,770            3,770  
Additional paid-in capital
     206,980       205,630  
Deficit accumulated during the development stage
     (105,871 )     (61,570 )
                 
Total stockholders’ equity
     104,879       147,830  
                 
Total liabilities and stockholders’ equity
   $ 141,970     $ 171,181  
 
 
See accompanying notes to unaudited consolidated financial statements
 
2
 
INTERNATIONAL SURF RESORTS, INC. AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007 AND
FOR THE PERIOD FROM INCEPTION (DECEMBER 4, 2006)
THROUGH SEPTEMBER 30, 2008
(Unaudited)
 
 
                           
Inception
  
                           
(December 4,
  
   
Three Months Ended
September 30,
    
Nine Months Ended
September 30,
    
2006) to
September 30,
  
   
2008
    
2007
    
2008
    
2007
    
2008
  
                               
Net revenue
   $ -     $ -     $ -     $ -     $ -  
                                         
Operating expenses
                                        
Legal and professional fees
     8,078       26,140       36,164       29,725       85,912  
Dues and fees
     537       2,521       1,892       2,521       7,783  
Rent
     450       450       1,350       1,350       3,300  
Organization costs
     -       -       -       -       2,140  
General and administrative
     193       667       7,425       3,122       11,570  
                                         
Total operating expenses
     9,258       29,778       46,831       36,718       110,705  
                                         
Other income (expense), net
     392       649       1,963       1,146       3,566  
                                         
Net loss before minority interest
     (8,866 )     (29,129 )     (44,868 )     (35,572 )     (107,139 )
                                         
Minority interest in subsidiary
     102       14,149       567       15,544       1,268  
                                         
Net income (loss)
   $ (8,764 )   $ (14,980 )   $ (44,301 )   $ (20,028 )   $ (105,871 )
                                         
Net income (loss) per common share – basic and diluted
   $ -     $ -     $ (0.01 )   $ (0.01 )   $ (.03 )
                                         
Weighted average of common shares – basic and diluted
     3,769,800       3,769,800       3,769,800       3,313,229       3,551,110  
 
 
See accompanying notes to unaudited consolidated financial statements
 
3
 
INTERNATIONAL SURF RESORTS, INC. AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE PERIOD FROM INCEPTION (DECEMBER 4, 2006)
THROUGH SEPTEMBER 30, 2008
(Unaudited)
 
 
               
Deficit
      
               
Accumulated
      
   
Common Stock
     Additional    
During
   Total  
   
Number of Shares
    
 
Amount
    
 Paid-In
Capital
    
 Development
Stage
  
Stockholders’ Equity
  
                               
Balance, December 4, 2006
     -     $ -     $ -     $ -     $ -  
                                         
Issuance of common stock,                                        
December 5, 2006
     3,000,000       3,000       12,000       -       15,000  
                                         
Additional paid-in capital in exchange for                                        
facilities provided by related party
     -       -       150       -       150  
                                         
Net loss
     -       -       -       (2,847 )     (2,847 )
                                         
Balance, December 31, 2006
     3,000,000       3,000       12,150       (2,847 )     12,303  
                                         
Notes payable conversion, May 3, 2007
     240,000       240       59,760       -       60,000  
                                         
Issuance of common stock, June 30, 2007
     529,800       530       131,920       -       132,450  
                                         
Additional paid-in capital in exchange for                                        
facilities provided by related party
     -       -       1,800       -       1,800  
 
 
See accompanying notes to unaudited consolidated financial statements
 
4
 
INTERNATIONAL SURF RESORTS, INC. AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE PERIOD FROM INCEPTION (DECEMBER 4, 2006)
THROUGH SEPTEMBER 30, 2008
(Unaudited)

 
               
Deficit
      
               
Accumulated
      
   
Common Stock
     Additional    
During
  Total  
   
Number of Shares
    
 
Amount
    
Paid-In
Capital
    
Development
Stage
  
Stockholders’ Equity
  
                               
Net loss
     -       -       -       (58,723 )     (58,723 )
                                         
Balance, December 31, 2007
     3,769,800       3,770       205,630       (61,570 )     147,830  
                                         
Additional paid-in capital in exchange for                                        
facilities provided by related party
     -       -       1,350       -       1,350  
                                         
Net loss
     -       -       -       (44,301 )     (44,301 )
                                         
Balance, September 30, 2008
     3,769,800     $ 3,770     $ 206,980     $ (105,871 )   $ 104,879  
 
 
See accompanying notes to unaudited consolidated financial statements
 
5
 
INTERNATIONAL SURF RESORTS, INC. AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007 AND
FOR THE PERIOD FROM INCEPTION (DECEMBER 4, 2006)
THROUGH SEPTEMBER 30, 2008
(Unaudited)

 
               
Inception
  
   
Nine Months Ended
September 30,
    
(December 4,
  
   
2006) to September 30,
  
   
2008
    
2007
    
2008
  
                   
Cash flows from operating activities
                  
Net loss
   $ (44,301 )   $ (20,028 )   $ (105,871 )
Adjustments to reconcile net loss to net cash provided by (used in) operating activities
                        
           Additional paid-in capital in exchange for facilities provided by related party
     1,350       1,350        3,300  
   Depreciation
     196       -       196  
Changes in operating assets and liabilities
                        
Increase in prepaid expenses
     (462 )     -       (462 )
Increase in accounts payable and accrued expenses
      14,308       17,410        38,359  
                         
Net cash used in operating activities
     (28,909 )     (1,268 )     (64,478 )
                         
Cash flows from investing activities
                        
Purchase of fixed assets
     (1,012 )     -       (1,012 )
Investment in real property
     -       (3,835 )     (61,335 )
    Minority investment in subsidiary
     (568 )     (15,544 )     (1,268 )
                         
Net cash used in investing activities
     (1,580 )     (19,379 )     (63,615 )
                         
Cash flows from financing activities
                        
    Proceeds from issuance of common stock
     -       132,450       147,450  
    Net proceeds/(payments) from stockholder loans
     -       (30,000 )     60,000  
                         
Net cash provided by financing activities
     -       102,450       207,450  
                         
Net (decrease) increase in cash
     (30,489 )     81,803       79,357  
                         
Cash, beginning of period
     109,846       46,097       -  
                         
Cash, end of period
   $ 79,357     $ 127,900     $ 79,357  
 
 
See accompanying notes to unaudited consolidated financial statements
 
 
6
 
INTERNATIONAL SURF RESORTS, INC. AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007 AND
FOR THE PERIOD FROM INCEPTION (DECEMBER 4, 2006)
THROUGH SEPTEMBER 30, 2008
(Unaudited)
 
 
           
Inception
  
           
(December 4,
  
 
Nine Months Ended
September 30,
  
2006) to
  
 
September 30,
 
 
2008
  
2007
  
2008
  
                   
Supplemental disclosure of cash flow information
                  
                   
Income taxes paid
   $ -     $ -     $ -  
                         
Interest paid
   $ -     $ -     $ -  
                         
Conversion of notes payable into common stock
   $ -     $ 60,000     $ 60,000  
 
 
See accompanying notes to unaudited consolidated financial statements
 
7
 
INTERNATIONAL SURF RESORTS, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2008 AND 2007
(Unaudited)
 
 
1.
NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Nature of Operations

International Surf Resorts, Inc. (the Company) is currently a development stage company under the provisions of Statement of Financial Accounting Standards (SFAS) No. 7 “Accounting and Reporting by Development Stage Enterprises”, and was incorporated under the laws of the State of Nevada on December 4, 2006.  From inception (December 4, 2006) through September 30, 2008, the Company has produced no revenues and will continue to report as a development stage company until significant revenues are produced.

The Company is an Internet based provider of international surf resorts, camps, and guided surf tours. The Company also intends to operate a surf camp in San Juanico, Baja California Sur, Mexico on 2.5 acres of land that it owns there.

On February 19, 2007, the Company formed ISR de Mexico, a Mexican corporation, for the purpose of acquiring real estate in Mexico.  At September 30, 2008, the Company owned 55% of ISR de Mexico.  The remaining 45% interest is owned by related parties.

Basis of Presentation

The unaudited financial statements included herein have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article of Regulation S-X.  They do not include all information and notes required by generally accepted accounting principles for complete financial statements. However, except as disclosed herein, there has been no material changes in the information disclosed in the notes to the financial statements included in the Company’s annual report on Form 10-KSB of International Surf Resorts, Inc. for the year ended December 31, 2007. In the opinion of management, all adjustments (including normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine months ended September 30, 2008, are not necessarily indicative of the results that may be expected for any other interim period or the entire year. For further information, these unaudited financial statements and the related notes should be read in conjunction with the Company’s audited financial statements for the year ended December 31, 2007, included in the Company’s annual report on Form 10-KSB.
 
8
 
INTERNATIONAL SURF RESORTS, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2008 AND 2007
(Unaudited)


1.
NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Principles of Consolidation

The consolidated financial statements include the accounts of International Surf Resorts, Inc. and its 55% owned subsidiary, ISR de Mexico.  All inter-company accounts and transactions have been eliminated in consolidation and minority interests were accounted for in the consolidated statements of operations and the balance sheets.

Minority Interest

The Company’s percentage of controlling interest requires that operations be included in the consolidated financial statements. The percentage of equity interest that is not owned by the Company is shown as “Minority interest in subsidiary” in the consolidated balance sheets and consolidated statements of operations.
 
Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reported periods.  Actual results could materially differ from those estimates.

Fair Value of Financial Instruments

Pursuant to SFAS No. 107, “Disclosures About Fair Value of Financial Instruments”, the Company is required to estimate the fair value of all financial instruments included on its balance sheet.  The carrying value of cash, prepaid expenses, accounts payable and accrued expenses approximate their fair value due to the short period to maturity of these instruments.
 
9
 
INTERNATIONAL SURF RESORTS, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2008 AND 2007
(Unaudited)

 
1.
NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are calculated using the straight-line method and with useful lives used in computing depreciation ranging from 3 to 5 years.  When property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any gain or loss is included in operations. Expenditures for maintenance and repairs are charged to operations as incurred; additions, renewals and betterments are capitalized.

Income Taxes

The Company accounts for income taxes under SFAS 109, “Accounting for Income Taxes”.  Under the asset and liability method of SFAS 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.  Under SFAS 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period the enactment occurs.  A valuation allowance is provided for certain deferred tax assets if it is more likely than not that the Company will not realize tax assets through future operations.

Basic and Diluted Income (Loss) Per Share

In accordance with SFAS No. 128, “Earnings Per Share”, basic income (loss) per common share is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding.  Diluted income (loss) per common share is computed similar to basic income per common share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive.  As of September 30, 2008 and 2007, the Company did not have any equity or debt instruments outstanding that could be converted into common stock.
 
10
 
INTERNATIONAL SURF RESORTS, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2008 AND 2007
(Unaudited)

 
1.
NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Recent Accounting Pronouncements
In December 2007, the FASB issued SFAS No. 141(R), Business Combinations (SFAS No. 141(R)), which replaces SFAS No. 141, Business Combinations, requires an acquirer to recognize the assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree at the acquisition date, measured at their fair values as of that date, with limited exceptions. This Statement also requires the acquirer in a business combination achieved in stages to recognize the identifiable assets and liabilities, as well as the non-controlling interest in the acquiree, at the full amounts of their fair values.
 
SFAS No. 141(R) makes various other amendments to authoritative literature intended to provide additional guidance or to confirm the guidance in that literature to that provided in this Statement. This Statement applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. We do not expect this will have a significant impact on our financial statements.
 
In December 2007, FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements (SFAS No. 160), which amends Accounting Research Bulletin No. 51, Consolidated Financial Statements, to improve the relevance, comparability, and transparency of the financial information that a reporting entity provides in its consolidated financial statements. SFAS No. 160 establishes accounting and reporting standards that require the ownership interests in subsidiaries not held by the parent to be clearly identified, labeled and presented in the consolidated statement of financial position within equity, but separate from the parent’s equity. This statement also requires the amount of consolidated net income attributable to the parent and to the non-controlling interest to be clearly identified and presented on the face of the consolidated statement of income. Changes in a parent’s ownership interest while the parent retains its controlling financial interest must be accounted for consistently, and when a subsidiary is deconsolidated, any retained non-controlling equity investment in the former subsidiary must be initially measured at fair value. The gain or loss on the deconsolidation of the subsidiary is measured using the fair value of any non-controlling equity investment. The Statement also requires entities to provide sufficient disclosures that clearly identify and distinguish between the interests of the parent and the interests of the non-controlling owners. This Statement applies prospectively to all entities that prepare consolidated financial statements and applies prospectively for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. We do not expect this will have a significant impact on our financial statements.
 
11
 
INTERNATIONAL SURF RESORTS, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2008 AND 2007
(Unaudited)
 
 
1.
NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 
Recent Accounting Pronouncements (Continued)

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities—Including an amendment of FASB Statement No. 115 (SFAS No. 159), which is effective for fiscal years beginning after November 15, 2007. SFAS No. 159 permits the Company to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS No. 159 is expected to expand the use of fair value measurement, which is consistent with the FASB’s long-term measurement objectives for accounting for financial instruments. SFAS No. 159 is effective for fiscal year 2008 but early adoption is permitted. We are currently evaluating the impact, if any, that the adoption of SFAS No. 159 will have on our financial statements.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS No. 157). SFAS No. 157 defines fair value, establishes a framework for measuring fair value and enhances disclosures about fair value measures required under other accounting pronouncements, but does not change existing guidance as to whether or not an instrument is carried at fair value. The provisions of SFAS No. 157 were adopted January 1, 2008.

In February 2008, the FASB staff issued Staff Position No. 157-2 “Effective Date of FASB Statement No. 157” (FSP FAS 157-2). FSP FAS 157-2 delayed the effective date of FAS 157 for nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). The provisions of FSP FAS 157-2 are effective for the Company’s fiscal year beginning January 1, 2009.

SFAS No. 157 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under SFAS No. 157 are described below:
 
12
 
INTERNATIONAL SURF RESORTS, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2008 AND 2007
(Unaudited)
 
 
NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Recent Accounting Pronouncements (Continued)
 
 
Level 1
Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
 
 
Level 2
Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability;
 
 
Level 3
Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).
 
The Company had no financial assets and liabilities measured at fair value by level within the fair value hierarchy as of September 30, 2008.

2.             GOING CONCERN

As shown in the accompanying financial statements, the Company has incurred a net operating loss of $105,871 from inception (December 4, 2006) through September 30, 2008.

The Company is subject to those risks associated with development stage companies.  The Company has sustained losses since inception and additional debt or equity financing may be required by the Company to fund its development activities and to support operations.  However, there is no assurance that the Company will be able to obtain additional financing.  Furthermore, there is no assurance that rapid technological changes, changing customer needs and evolving industry standards will enable the Company to introduce new products on a continual and timely basis so that profitable operations can be attained.
 
3.             CONCENTRATION OF CREDIT RISK
 
The Company maintains its cash deposits in two bank accounts which at times have exceeded federally insured limits.  The Company has not experienced any losses with respect to its cash balances.
 
4.
PROPERTY AND EQUIPMENT

Property and equipment at September 30, 2008, and December 31, 2007, consists of the following:
 
13
 
INTERNATIONAL SURF RESORTS, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2008 AND 2007
(Unaudited)
 
 
4.
PROPERTY AND EQUIPMENT (Continued)

 
September 30,
  
December 31,
  
 
2008
  
2007
  
                 
Computer equipment
   $ 1,012     $ -  
                 
      1,012          
                 
Less: accumulated depreciation
     (196)       - -  
                 
Total property and equipment
   $ 816     $ -  
 
Depreciation expense for the three and nine months ended September 30, 2008 amounted to $84 and $196, respectively.

5.             INVESTMENT IN REAL PROPERTY

In December 2006, the Company acquired real property in Mexico for $57,500 to develop and potentially operate as a surf camp.  During the year ended December 31, 2007, the Company incurred additional costs of $3,835 related to the transfer of the property to the Company’s 55% owned subsidiary, ISR de Mexico.

6.
NOTES PAYABLE - STOCKHOLDERS

On December 5, 2006, the Company entered into a promissory note agreement with a shareholder to obtain a loan for $70,000. Under the terms of the promissory note agreement, the principal together with interest at 8% per annum, was to be repaid in one lump sum on March 5, 2007, but could be prepaid without any penalty. On March 21, 2007, under the terms of the promissory note agreement, the shareholder elected to convert $20,000 of the note payable balance into 80,000 shares of the Company’s common stock at a conversion rate of $0.25 per share.  In addition, the shareholder agreed to forgive accrued interest on the note totaling $1,626.  The remaining note payable balance of $50,000 was repaid to the shareholder on April 4, 2007.
 
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INTERNATIONAL SURF RESORTS, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2008 AND 2007
(Unaudited)
 
 
6.
NOTES PAYABLE – STOCKHOLDERS (Continued)

On December 13, 2006, the Company entered into a promissory note agreement with a shareholder to obtain a loan for $20,000.  Under the terms of the promissory note agreement, the principal, together with interest at 8% per annum, was to be repaid in one lump sum on March 13, 2007, but could be prepaid without any penalty.  On March 21, 2007, under the terms of the promissory note agreement, the shareholder elected to convert the $20,000 note payable balance into 80,000 shares of the Company’s common stock at a conversion rate of $0.25 per share.  In addition, the shareholder agreed to forgive accrued interest on the note totaling $430.

On December 13, 2006, the Company entered into a promissory note agreement with the Company’s president and shareholder to obtain a loan for $20,000.  Under the terms of the promissory note agreement, the principal, together with interest at 8% per annum, was to be repaid in one lump sum on March 13, 2007, but could be prepaid without any penalty. On March 21, 2007, under the terms of the promissory note agreement, the shareholder elected to convert the $20,000 note payable balance into 80,000 shares of the Company’s common stock at a conversion rate of $0.25 per share.  In addition, the shareholder agreed to forgive accrued interest on the note totaling $256.

7.             ACCRUED EXPENSES

Accrued Wages and Compensated Absences

The Company currently does not have any employees.  The majority of development costs and services have been provided to the Company by the founders and outside, third-party vendors.  As such, there is no accrual for wages or compensated absences as of September 30, 2008.
 
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INTERNATIONAL SURF RESORTS, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2008 AND 2007
(Unaudited)
 
 
8.             COMMON STOCK

The Company is authorized to issue up to 50,000,000 shares of $0.001 par value common stock and 5,000,000 shares of $0.001 par value preferred stock.  Each share of common stock shall entitle the holder to one vote, in person or by proxy, on any matter on which action of the stockholders of this corporation is sought.  The holders of shares of preferred stock shall have no right to vote such shares, with certain exceptions as determined by the Board of Directors of this corporation or as otherwise provided by the Nevada General Corporation Law, as amended from time to time.

On December 5, 2006, the Company issued 3,000,000 shares of its common stock to its founders at $.005 per share for a total of $15,000.

On May 3, 2007, the Company issued 240,000 shares of its common stock for the conversion of notes payable in the amount of $60,000.

In June 2007, the Company performed a private placement and issued 529,800 shares of its common stock at $0.25 per share for a total of $132,450.

In September 2007, the Company submitted its Registration Statement on Form SB-2 for the registration of 489,800 shares of its outstanding common stock.  On October 4, 2007, the Company’s registration statement was declared effective by the Securities and Exchange Commission.

9.             PROVISION FOR INCOME TAXES

As of September 30, 2008, the Company reported an estimated federal net operating loss carryforward of approximately $103,000 which can be used to offset future federal income tax.  The federal net operating loss carryforward expires in 2028.  Deferred tax assets resulting from the net operating losses are reduced by a valuation allowance, when, in the opinion of management, utilization is not reasonably assured.

As of September 30, 2008, the Company had the following deferred tax assets that related to its net operating losses. A 100% valuation allowance has been established, as management believes it more likely than not that the deferred tax assets will not be realized:
 
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INTERNATIONAL SURF RESORTS, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2008 AND 2007
(Unaudited)
 

9.             PROVISION FOR INCOME TAXES (Continued)

Federal loss carryforward (@ 25%)
   $ 25,750  
Less: valuation allowance
     (25,750 )
         
Net deferred tax asset
   $ -  

The Company’s valuation allowance increased by approximately $16,000 for nine months ended September 30, 2008.

10.           RELATED PARTY TRANSACTIONS

From the Company’s inception (December 4, 2006) through September 30, 2008, the Company utilized office space of a director of the Company at no charge.  The Company treated the usage of the office space as additional paid-in capital and charged the estimated fair value rent of $150 per month to operations.  The Company recorded total rent expense of $450 for each of the three months ended September 30, 2008 and 2007. The Company recorded total rent expense of $1,350 for each of the nine months ended September 30, 2008 and 2007.
 
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Item 2.  Plan of Operation

This following information specifies certain forward-looking statements of management of the company. Forward-looking statements are statements that estimate the happening of future events and are not based on historical fact. Forward-looking statements may be identified by the use of forward-looking terminology, such as “may”, “shall”, “could”, “expect”, “estimate”, “anticipate”, “predict”, “probable”, “possible”, “should”, “continue”, or similar terms, variations of those terms or the negative of those terms. The forward-looking statements specified in the following information have been compiled by our management on the basis of assumptions made by management and considered by management to be reasonable. Our future operating results, however, are impossible to predict and no representation, guaranty, or warranty is to be inferred from those forward-looking statements.

The assumptions used for purposes of the forward-looking statements specified in the following information represent estimates of future events and are subject to uncertainty as to possible changes in economic, legislative, industry, and other circumstances. As a result, the identification and interpretation of data and other information and their use in developing and selecting assumptions from and among reasonable alternatives require the exercise of judgment. To the extent that the assumed events do not occur, the outcome may vary substantially from anticipated or projected results, and, accordingly, no opinion is expressed on the achievability of those forward-looking statements. We cannot guaranty that any of the assumptions relating to the forward-looking statements specified in the following information are accurate, and we assume no obligation to update any such forward-looking statements.

Critical Accounting Policies and Estimates. Our Management’s Discussion and Analysis of Financial Condition and Results of Operations section discusses our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments, including those related to revenue recognition, accrued expenses, financing operations, and contingencies and litigation. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The most significant accounting estimates inherent in the preparation of our financial statements include estimates as to the appropriate carrying value of certain assets and liabilities which are not readily apparent from other sources.

These accounting policies are described at relevant sections in this discussion and analysis and in the notes to the financial statements included in our Quarterly Report on Form 10-Q for the period ended September 30, 2008.

Liquidity and Capital Resources. We had cash of $79,357 and prepaid expenses of $462 as of September 30, 2008.   Our total current assets were $79,819.  As of September 30, 2008, our investment in real property was $61,335.  That, along with $816 in property and equipment, net of accumulated depreciation, equaled our total assets of $141,970.  We expect that we will incur expense related to our president traveling to the property located in San Juanico, Baja California, Mexico, as well as professional fees to determine feasibility of potential uses of that property.  As of September 30, 2008, our total liabilities were $38,359, all of which was represented by accounts payable.  We also had $1,268 representing a minority interest in a subsidiary.

During 2009, we anticipate that we will continue to incur significant accounting costs associated with the audit and review of our financial statements. We also expect that the legal and accounting costs of being a public company will continue to impact our liquidity and we may need to obtain funds to pay those expenses. We had no long term liabilities, commitments or contingencies.
 
The economic crisis in the United States and the resulting economic uncertainty and market instability may make it harder for us to raise capital when we need it and have made it difficult for us to assess the impact of the crisis on our operations or liquidity.  If we are unable to raise cash, we may be required ot cease our operations.  Other than as discussed in this quarterly report, we know of no other trends, events or uncertainties that have or are reasonably likely to have a material impact on our short-term or long-term liquidity.
 
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In September 2007, we filed a Registration Statement on Form SB-2 for the registration of 489,800 shares of our outstanding common stock.  On October 4, 2007, our registration statement was declared effective by the Securities and Exchange Commission.  The purpose of the SB-2 was to register shares of common stock held by our existing shareholders.
 
For the three months ended September 30, 2008 as compared to the three months ended September 30, 2007.

Results of Operations.

Revenues.  We had no revenue for the three months ended September 30, 2008 as compared to the three months ended September 30, 2007, during which we also had no revenue.

Operating Expenses and Net Loss. Our total operating expenses for the three months ended September 30, 2008 was $9,258.  This was comprised of legal and professional fees of $8,078, rent of $450 and general and administrative expenses of $193, and dues and fees of $537.  With other income of $392, our net loss before minority interest in our subsidiary was $8,866, and after $102 in the minority interest in our subsidiary, our net loss was $8,764.   This is in comparison to the three months ended September 30, 2007, during which we had total operating expenses of $29,778, comprised of rent of $450, legal and professional fees of $26,140, general and administrative expenses of $667, and dues and fees of $2,521.  Therefore, for the three months ended September 30, 2007, after other income of $649, our net loss was $29,129.  Also, after $14,149 for minority interest in subsidiary, our net loss was $14,980 for that period.

For the nine months ended September 30, 2008 as compared to the nine months ended September 30, 2007.

Results of Operations.

Revenues.  We had no revenue for the nine months ended September 30, 2008 as compared to the nine months ended September 30, 2007.

Operating Expenses and Net Loss. Our total operating expenses for the nine months ended September 30, 2008 was $46,831.  This was comprised of legal and professional fees of $36,164, rent of $1,350, general and administrative expenses of $7,425, and dues and fees of $1,892.  With other income of $1, 963, our net loss before minority interest in our subsidiary was $44,868, and after $567 in the minority interest in our subsidiary, our net loss was $44,301.   This is in comparison to the nine months ended September 30, 2007, during which we had total operating expenses of $36,718, comprised of rent of $1,350, legal and professional fees of $29,725, and general and administrative expenses of $3,122.  Therefore, for the nine months ended September 30, 2007, after other income of $1,146, our net loss was $35,572.  Also, after $15,544 for minority interest in subsidiary, our net loss was $20,028 for that period.

Our Plan of Operation for the Next Twelve Months.  To effectuate our business plan during the next twelve months, we must determine the feasibility of building surf casas, or vacation rentals, for our property located in San Juanico, Baja California, Mexico.  We are currently assessing the feasibility of building surf casas and also the feasibility of sub-dividing our parcel into smaller parcels and selling them as we believe that we can sell the smaller lots at a significant gain on our cost. We also may build on the subdivided lots and offer the surf casas for sale as a finished product. In order to properly determine the feasibility of those projects, our president Eduardo Biancardi intends to travel to the property and has explored living in San Juanico for a period of time. We also intend to look for opportunities to work with other companies that will assist us in our development of the property. In addition, during the next twelve months, we must continue to develop our website and begin to attract customers to our privately-guided surf adventures.

During the next three to six months, our primary objective is to complete our assessment of the opportunities for the property located in San Juanico, Baja California, Mexico, and complete development of our website. During the next six to twelve months, we hope to raise additional funds so that we can expand our product offerings and begin generating revenues. We believe that we will need to spend approximately $5,000 to complete the development of website. In order to market and promote our services and develop our property in San Juanico, Baja California, Mexico, we will need to raise additional capital. Our failure to market and promote our services will hinder our ability to increase the size of our operations and generate revenues. If we are not able to generate additional revenues that cover our estimated operating costs, our business may ultimately fail.
 
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We had cash of $79,357 as of September 30, 2008. In the opinion of management, available funds will satisfy our working capital requirements for the next twelve months. Our forecast for the period for which our financial resources will be adequate to support our operations involves risks and uncertainties and actual results could fail as a result of a number of factors.  In the event that we experience a shortfall in our capital, we intend to pursue capital through public or private financing as well as borrowings and other sources, such as our officers, director and principal shareholders. We cannot guaranty that additional funding will be available on favorable terms, if at all.

To date, we have experienced significant difficulties in raising additional capital.  We believe our inability to raise significant additional capital through debt or equity financings is due to various factors, including, but not limited to, a tightening in the equity and credit markets. As a result of those difficulties, we have explored entering into joint ventures with companies that can assist us in the development of our property in San Juanico, Baja California, Mexico. As of the date of this report, we have not identified any potential joint venture candidates. We cannot guaranty that we will enter into any joint venture with any third party.

We are not currently conducting any research and development activities other than the development of our website which we expect the total cost to be approximately $5,000. We do not anticipate that we will purchase or sell any significant equipment. In the event that we generate significant revenues and expand our operations, then we may need to hire additional employees or independent contractors as well as purchase or lease additional equipment.

Because we have limited operations and assets, we may be considered a shell company as defined in Rule 12b-2 of the Securities Exchange Act of 1934. Accordingly, we have checked the box on the cover page of this report that specifies we are a shell company.

Off-Balance Sheet Arrangements. We have no off-balance sheet arrangements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk
 
Not applicable.
 
Item 4. Controls and Procedures

Evaluation of disclosure controls and procedures. We maintain controls and procedures designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. Based upon their evaluation of those controls and procedures performed as of September 30, 2008, the date of this report, our chief executive officer and the principal financial officer concluded that our disclosure controls and procedures were effective.

Item 4(T). Controls and Procedures.

Changes in internal controls. There were no changes in our internal control over financial reporting that occurred during the fiscal quarter covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


PART II — OTHER INFORMATION

Item 1. Legal Proceedings.

None.
 
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Item 1A. Risk Factors.

Not applicable.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3.  Defaults Upon Senior Securities

None.

Item 4.  Submission of Matters to Vote of Security Holders

None.

Item 5.  Other Information

None.

Item 6.  Exhibits
 
31. Rule 13a-14(a)/15d-14(a) Certifications.
 
32. Section 1350 Certifications.
 
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SIGNATURES

In accordance with the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
International Surf Resorts, Inc.,
a Nevada corporation
  
       
November 13, 2008 
By:
/s/ Eduardo Biancardi  
   
Eduardo Biancardi
Principal Executive Officer, Principal Financial Officer
President, Secretary, Treasurer, Director
  
 
 
 
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