COCP

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended September 30, 2010, for International Surf Resorts, Inc. (ISRI), a Nevada corporation. The registrant is classified as a development stage company and a smaller reporting company. ISRI operates as an internet-based provider of international surf resorts and camps, with a primary asset being 2.5 acres of land in San Juanico, Baja California Sur, Mexico, held through a 55% owned subsidiary (ISR de Mexico). The company has generated no revenue since its inception in December 2006.

Key Financial Metrics

Note: The filing text contains a discrepancy in the MD&A section regarding nine-month operating expenses ($41,713) versus the Statement of Operations ($40,713). The table above reflects the audited financial statement figures.

Material Changes vs. Prior Period

• Operating Expenses: Expenses for the three months ended September 30, 2010, increased to $16,278 from $6,929 in the same period in 2009. This 135% increase was primarily driven by a rise in legal and professional fees from $3,715 to $14,784, attributed to services for a post-effective amendment to the registration statement.
• Net Loss: The net loss attributable to ISRI for the three months ended September 30, 2010, was $16,124, compared to $6,131 in the prior year period.
• Liquidity: Cash balances decreased from $43,055 at December 31, 2009, to $24,508 at September 30, 2010, due to operating losses and investing activities.
• Liabilities: Accounts payable and accrued expenses increased from $58,014 to $75,934, reflecting unpaid operational costs.

Outlook, Risks, and Management Commentary

• Going Concern: The company has incurred a cumulative net loss of $195,663 since inception. Management states that additional debt or equity financing is required to fund development activities, with no assurance that such financing will be available.
• Strategic Plan: Management intends to assess the feasibility of building "surf casas" (vacation rentals) or subdividing the Mexican property for sale. A pilot program in Bali involves a purchased wood house ($5,200) and leased land to test resort operations.
• Capital Needs: The company estimates a need for approximately $5,000 to complete website development. Significant additional capital is required to market services and develop the Mexican property. Management anticipates continued net losses for the foreseeable future.
• Risks: Key risks include the inability to raise capital, failure to generate revenue, and the general uncertainties associated with development stage entities. The company has no off-balance sheet arrangements.

Investor Verification Checklist

• Capital Adequacy: Verify if the current cash balance of $24,508 is sufficient to cover the estimated $5,000 website cost and ongoing legal/accounting fees for the next 12 months without new financing.
• Related Party Transactions: Confirm the valuation of the "facilities provided by related party" recorded as additional paid-in capital ($1,350 for the nine months ended Sep 30, 2010).
• Property Feasibility: Assess the status of the feasibility study for the San Juanico, Mexico property and the potential for subdivision or development, as this is the company's primary asset ($61,335).
• Legal Costs: Review the specific nature of the legal fees ($14,784 in Q3) related to the registration statement amendment to ensure they are one-time costs rather than recurring.
• Subsidiary Control: Verify the 55% ownership structure of ISR de Mexico and the implications of the noncontrolling interest on future cash flows.