UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2008.
OR
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE TRANSITION FROM _______ TO ________.
COMMISSION FILE NUMBER 000-33129
INTERNATIONAL CARD ESTABLISHMENT, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 95-4581903
_______________________________ ___________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
555 Airport Space Way, Suite A
Camarillo, CA 93010
________________________________________ __________
(Address of principal executive offices) (Zip code)
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Issuer's telephone number: (866) 423-2491
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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 / /
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] 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). Yes [ ] No [X]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court. Yes / / No / /
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 practicable date: As of May 9, 2008, there were
35,286,449 outstanding shares of the Registrant's Common Stock, $.0005 par
value.
2
TABLE OF CONTENTS
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements 4
Item 2. Management's Discussion and Analysis or Plan of Operation 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk 14
Item 4. Controls and Procedures 14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 1A. Risk Factors 15
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits 15
SIGNATURES 18
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3
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTERNATIONAL CARD ESTABLISHMENT, INC. AND SUBSIDARIES
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
March 31, 2008
4
INTERNATIONAL CARD ESTABLISHMENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
March 31, December 31,
2008 2007
____________ ____________
ASSETS
CURRENT ASSETS
Cash $ 73,006 $ 126,149
Accounts receivable, trade, net allowance of
$211,215 and $225,425 at March 31, 2008
and December 31, 2007, respectively 7,978 27,059
Inventory 77,633 109,628
Notes receivable, net of allowance of $50,000
at March 31, 2008 and December 31, 2007,
respectively 3,710 6,428
Other receivables 113,074 268,779
Prepaid expenses 16,668 -
____________ ____________
Total current assets 292,069 538,043
____________ ____________
FIXED ASSETS, net of accumulated depreciation of
$2,983,007 at March 31, 2008 and December 31,
2007, respectively - 6,320
INTANGIBLE ASSETS 1,762,163 1,820,300
GOODWILL 87,979 87,978
OTHER NON-CURRENT ASSETS 117,697 117,700
____________ ____________
Total assets $ 2,259,908 $ 2,570,341
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 94,929 $ 106,394
Accrued expenses 485,941 512,981
Notes payable 17,045 42,613
Notes payable, related parties 240,000 400,000
Line of credit, related parties 525,767 606,582
____________ ____________
Total liabilities 1,363,682 1,668,570
STOCKHOLDERS' EQUITY
Preferred stock: $.01 par value; authorized
10,000,000 shares; Issued and outstanding:
54,000 shares at March 31, 2008 and
December 31, 2007, respectively 540 540
Common stock: $0.0005 par value; authorized
100,000,000 shares; issued and outstanding:
35,286,449 at March 31, 2008 and December
31, 2007, respectively 17,643 17,643
Common stock subscription 100,064 100,064
Additional paid-in capital 19,544,354 19,544,354
Accumulated deficit (18,766,375) (18,760,830)
____________ ____________
Total stockholders' equity 896,226 901,771
____________ ____________
Total liabilities and stockholders' equity $ 2,259,908 $ 2,570,341
============ ============
See accompanying Notes to these Condensed Consolidated Financial Statements.
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5
INTERNATIONAL CARD ESTABLISHMENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
March 31, March 31,
2008 2007
_______________________________
Revenues:
Merchant services revenues $ 1,797,120 $ 2,264,997
Equipment sales 162,194 265,274
Less: sales returns and allowances (18,635) (16,274)
_______________________________
Net revenue 1,940,679 2,513,997
Cost of revenue:
Commissions 182,002 286,734
Cost of sales 1,015,162 1,283,744
Cost of sales - equipment 37,921 92,572
_______________________________
Cost of revenue 1,235,085 1,663,050
_______________________________
Gross profit 705,594 850,947
Operating, general, and administrative expenses:
General, administrative and selling expenses 689,008 724,008
Depreciation - 248,226
_______________________________
Total operating, general, and administrative 689,008 972,234
Expenses
Net operating income (loss) 16,586 (121,287)
Non-operating income (expense):
Interest income 51 1
Interest expense (22,182) (31,469)
Loss of lease settlement - (51,699)
_______________________________
Total non-operating income (expense) (22,131) (83,167)
_______________________________
Net loss $ (5,545) $ (204,454)
===============================
Loss per share, basic and diluted $ (0.00) $ (0.01)
===============================
Weighted average number of shares of common stock
outstanding - basic and diluted 35,286,449 33,951,698
===============================
See accompanying Notes to these Condensed Consolidated Financial Statements.
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6
INTERNATIONAL CARD ESTABLISHMENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For The Three Months Ended March 31,
2008 2007
____________________________________
Cash flows from operating activities:
Net loss from continuing operations $ (5,545) $ (204,454)
Depreciation - 248,226
Loss on lease settlement - 51,699
Non cash advances from line of credit,
related party 68,989 (31,071)
Write-off of cancelled merchant accounts 82,600 82,250
Allowance for doubtful accounts, trade
and notes receivables (14,210) 6,567
Compensation for stock awards - 7,633
Write-off of software consulting origi-
nally capitalized as fixed asset 6,320 -
Adjustments to reconcile net loss to
net cash used in operating activities:
Changes in assets and liabilities
Decrease in accounts receivable 33,291 21,671
Decrease/(increase) in inventory 31,995 (6,654)
Decrease in other receivables 155,705 150,627
(Increase) in prepaid expenses (16,667) -
Decrease in deposits - (560)
(Decrease) in accounts payable (11,465) (18,311)
(Decrease) in accrued expenses (27,039) (303,603)
____________________________________
Net cash provided by operating
activities 303,974 4,020
____________________________________
Cash flows from investing activities:
Acquisitions, net of reduction of
merchant accounts (24,463) (45,440)
Purchase of property and equipment - (4,765)
Payments received toward notes receivable 2,718 -
____________________________________
Net cash (used in) investing
activities (21,745) (50,205)
____________________________________
Cash flows from financing activities:
Payments on notes payable (25,568) (26,858)
Payment on line of credit, related party (335,948) (145,000)
Proceeds from line of credit, related
party 186,144 270,610
Payments on related party notes payable (160,000) (120,000)
____________________________________
Net cash (used in) financing activities (335,372) (21,248)
____________________________________
Net decrease in cash (53,143) (67,433)
Cash, beginning of period 126,149 157,528
____________________________________
Cash, end of period $ 73,006 $ 90,095
====================================
See accompanying Notes to these Condensed Consolidated Financial Statements.
7
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INTERNATIONAL CARD ESTABLISHMENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
(UNAUDITED)
For The Three Months Ended March 31,
2008 2007
____________________________________
SUPPLEMENT DISCLOSURE OF CASH
FLOW INFORMATION
Cash paid for interest $ 15,379 $ -
Cash paid for income taxes $ - $ -
NON-CASH TRANSACTIONS
Capital lease $ - $ 71,300
Compensation for stock awards $ - $ 7,633
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8
INTERNATIONAL CARD ESTABLISHMENT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLDIATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION AND ORGANIZATION AND SIGNIFICANT ACCOUNTING
POLICIES
BASIS OF PRESENTATION AND ORGANIZATION
The accompanying Condensed Consolidated Financial Statements of International
Card Establishment, Inc. (the "Company") should be read in conjunction with the
Company's Annual Report on Form 10-KSB/A for the year ended December 31, 2007.
Significant accounting policies disclosed therein have not changed except as
noted below.
As used in these Notes to the Consolidated Financial Statements, the terms the
"Company", "we", "us", "our" and similar terms refer to International Card
Establishment, Inc. and, unless the context indicates otherwise, its
consolidated subsidiaries. The Companies subsidiaries include NEOS Merchant
Solutions ("NEOS"), a Nevada corporation, which provides smart card loyalty
programs in an integrated vertical system for its customers, as well as other
electronic payment services (merchant services); International Card
Establishment ("ICE"), which provides electronic payment services (merchant
services); and INetEvents, Inc. ("INET"), a Delaware Corporation, which has been
dormant since 2005.
The condensed consolidated financial statements include the accounts of the
Company and its subsidiaries. All significant intercompany transactions and
accounts have been eliminated in consolidation.
RECLASSIFICATION
Certain reclassifications, which have no effect on net income (loss), have been
made in the prior period financial statements to conform to the current
presentation.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 2008, the Financial Accounting Standards Board ("FASB") issued FASB
Statement No 161, "Disclosures about Derivative Instruments and Hedging
Activities", an amendment of SFAS No. 133 ("SFAS 161"). SFAS 161 applies to all
derivative instruments and nonderivative instruments that are designated and
qualify as hedging instruments pursuant to paragraphs 37 and 42 of SFAS 133 and
related hedged items accounted for under SFAS 133. SFAS 161 requires entities to
provide greater transparency through additional disclosures about how and why an
entity uses derivative instruments, how derivative instruments and related
hedged items are accounted for under SFAS 133 and its related interpretations,
and how derivative instruments and related hedged items affect an entity's
financial position, results of operations, and cash flows. SFAS 161 is effective
as of the beginning of an entity's first fiscal year that begins after November
15, 2008. We do not expect that the adoption of SFAS 161 will have a material
impact on our financial condition or results of operations.
NOTE 2. STOCKHOLDERS' EQUITY AND STOCK OPTIONS
The authorized common stock of the Company consists of 100,000,000 shares of
common stock with par value of $0.0005 and 10,000,000 shares of preferred stock
with a par value of $0.01.
We did not issue or authorize for issuance any shares or stock options in the
first quarter of 2008.
As of March 31, 2008, we have instructed our SEC counsel to finalize all
necessary paperwork for the issuance of shares comprising the remaining $100,064
in our common stock subscription.
We had 185,000 non-vested stock options at March 31, 2008 valued at $14,180.
NOTE 3. OTHER RECEIVABLES
At March 31, 2008 and December 31, 2007, other receivables consisted of the
following:
March 31, 2008 December 31, 2007
____________________________________
Merchant residuals receivable $ 109,665 $ 265,235
Other receivables 3,409 3,544
____________________________________
Total $ 113,074 $ 268,779
====================================
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Other receivables consist primarily of residuals due from commissions earned
from merchant account transactions. These receivables decreased approximately
$164,170 because of the reduction of merchant accounts. Tighter credit policies
have reduced the number of new accounts that we acquire; thereby, increasing the
quality of earnings by taking the most conservative forecast of the
collectability of residuals.
9
NOTE 4. NOTE RECEIVABLE
In April 2007, we issued a note receivable for $50,000 to an independent third
party. This note bears no interest and is convertible to a maximum of 10% of the
third party's outstanding common stock in the event of default. Repayment was
expected to begin in October of 2007; however, in September, we have fully
reserved the entire balance of this note. As of March 31, 2008, we are
attempting to collect on the note; however, debtor has ignored all attempts to
collect the on the note. The debtor, nevertheless, acknowledges the debt on
their December 31, 2007 10-KSB. We are currently reviewing all available options
at our disposal to collect the debt.
NOTE 5. FAIR VALUE ACCOUNTING
In September 2006, the FASB issued FASB Statement No. 157, "Fair Value
Measurements" ("SFAS 157"). SFAS 157 defines fair value, establishes a framework
for measuring fair value in generally accepted accounting principles, and
expands disclosures about fair value measurements. The provisions of SFAS 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 SFAS
157-2"). FSP SFAS 157-2 delayed the effective date of SFAS 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 SFAS 157-2 are effective for the
Company's fiscal year beginning January 1, 2009.
SFAS 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 FAS 157 are described below:
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 following table sets forth the Company's financial assets and liabilities
measured at fair value by level within the fair value hierarchy. As required by
SFAS 157, assets and liabilities are classified in their entirety based on the
lowest level of input that is significant to the fair value measurement.
FAIR VALUE AT MARCH 31, 2008
_________________________________________________
TOTAL LEVEL 1 LEVEL 2 LEVEL 3
_________________________________________________
Assets:
Intangibles $1,762,163 $ - $1,762,163 $ -
_________________________________________________
$1,762,163 $ - $1,762,163 $ -
=================================================
Liabilities:
None
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The Company's intangibles are classified within Level 2 of the fair value
hierarchy because they are valued through management census on an interim basis
and through the assistance of a hired consultant, testing for impairment, on an
annual basis.
We had no Level 1 or Level 3 assets or liabilities as of March 31, 2008.
In February 2007, the FASB issued FASB Statement No. 159, "The Fair Value Option
for Financial Assets and Financial Liabilities" ("SFAS 159"). SFAS 159 permits
entities to choose to measure many financial instruments and certain other items
at fair value, with the objective of improving financial reporting by mitigating
volatility in reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge accounting
provisions. The provisions of SFAS 159 were adopted January 1, 2008. The Company
did not elect the Fair Value Option for any of its financial assets or
liabilities, and therefore, the adoption of SFAS 159 had no impact on the
Company's consolidated financial position, results of operations or cash flows.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our consolidated financial
statements and related notes included elsewhere in this report. References in
this section to "International Card Establishment, Inc.," the "Company," "we,"
"us," and "our" refer to International Card Establishment, Inc. and our direct
and indirect subsidiaries on a consolidated basis unless the context indicates
otherwise.
This interim report contains forward looking statements relating to our
Company's future economic performance, plans and objectives of management for
future operations, projections of revenue mix and other financial items that are
based on the beliefs of, as well as assumptions made by and information
currently known to, our management. The words "expects, intends, believes,
anticipates, may, could, should" and similar expressions and variations thereof
are intended to identify forward-looking statements. The cautionary statements
set forth in this section are intended to emphasize that actual results may
differ materially from those contained in any forward looking statement.
Our Management, Discussion and Analysis ("MD&A") is provided as a supplement to
our financial statements to help provide an understanding of our financial
condition, changes in financial condition and results of operations. The MD&A
section is organized as follows:
o EXECUTIVE SUMMARY, OVERVIEW AND DEVELOPMENT OF OUR BUSINESS. These sections
provide a general description of the Company's business, as well as recent
developments that we believe are important in understanding our results of
operations as well as anticipating future trends in our operations.
o CRITICAL ACCOUNTING POLICIES. This section provides an analysis of the
significant estimates and judgments that affect the reported amounts of
assets, liabilities, revenues, expenses, and the related disclosure of
contingent assets and liabilities.
o RESULTS OF OPERATIONS. This section provides an analysis of our results of
operations for the three months ended March 31, 2008 compared to the three
months ended March 31, 2007. A brief description of certain aspects,
transactions and events is provided, including related-party transactions
that impact the comparability of the results being analyzed.
o LIQUIDITY AND CAPITAL RESOURCES. This section provides an analysis of our
financial condition and cash flows as of March 31, 2008 and December 31,
2007.
EXECUTIVE SUMMARY
Our strategy is to grow profitably by increasing our penetration of the
expanding small merchant marketplace for payment and Gift & Loyalty card based
products. We find these merchants through our Independent Sales Organization
("ISO") and agent channels of distribution and intend to make additional
acquisitions on an opportunistic basis in this fragmented segment of the
industry.
OVERVIEW
We are a rapidly growing provider of credit and debit card-based payment
processing services and Gift & Loyalty products to small merchants. As of March
31, 2008, we provided our services to numerous ISOs and thousands of merchants
located across the United States. Our payment processing services enable our
merchants to process traditional card-present, or swipe transactions, as well as
card-not-present transactions. A traditional card-present transaction occurs
whenever a cardholder physically presents a credit or debit card to a merchant
at the point-of-sale. Card-not-present transactions occur whenever the customer
does not physically present a payment card at the point-of-sale and may occur
over the Internet or by mail, fax or telephone.
DEVELOPMENT OF OUR BUSINESS
International Card Establishment, Inc. (the "Company") (formerly Summit World
Ventures, Inc.) was incorporated on December 18, 1986 under the laws of the
State of Delaware to engage in any lawful corporate activity, including, but not
limited to, selected mergers and acquisitions. Prior to July 28, 2000, we were
in the developmental stage and could be defined as a "shell" company, whose sole
purpose was to locate and consummate a merger or acquisition with a private
entity, and we did not have any operations. On July 18, 2003, we acquired
iNetEvents, Inc., a Nevada corporation and commenced operations. iNetEvents,
Inc., a Nevada corporation, was incorporated on February 3, 1999 and provided
Internet support and supply software for real time event/convention information
management.
On January 16, 2003, we entered into a Plan and Agreement of Reorganization with
International Card Establishment, Inc., a Nevada corporation and its
shareholders. International Card Establishment, Inc., a Nevada corporation, was
incorporated on July 26, 2002. As part of the acquisition, a reorganization in
the form of a reverse merger, International Card Establishment, Inc. became our
wholly-owned subsidiary, and there was a change of our control. Following the
International Card Establishment, Inc. acquisition we changed our corporate name
from iNetEvents, Inc. to International Card Establishment, Inc. and reverse
split our outstanding shares of common stock on a one for two share basis.
Effective September 8, 2004, we entered into a Plan and Agreement of
Reorganization with NEOS Merchant Solutions, Inc., a Nevada corporation and its
shareholders. Effective September 8, 2004, NEOS Merchant Solutions, Inc. became
our wholly owned subsidiary.
11
International Card Establishment, Inc. (the "Company"), a Nevada corporation, is
a provider of diversified products and services to the electronic transaction
processing industry, offering merchant accounts for the acceptance and
processing of credit and debit cards, as well as a proprietary "smart card"
based gift and loyalty program. The Company's Merchant Card Services division
establishes "merchant accounts" for businesses that enable those businesses to
accept credit cards, debit cards, and other forms of electronic payments from
their customers; supplies the necessary card readers and other point-of-sale
transaction systems; facilitates processing for the accounts; and, provides
e-commerce solutions. Through its NEOS Subsidiary the Company also markets a
proprietary "Smart Card"-based system that enables merchants to economically
offer store-branded gift and loyalty cards - one of the fastest growing product
categories in the industry.
As used in these Notes to the Consolidated Financial Statements, the terms the
"Company", "we", "us", "our" and similar terms refer to International Card
Establishment, Inc. and, unless the context indicates otherwise its consolidated
subsidiaries. The Companies subsidiaries include NEOS Merchant Services
("NEOS"), a Nevada corporation, which provides smart card loyalty programs in an
integrated vertical system for its customers, as well as other electronic
payment services (merchant services); International Card Establishment ("ICE"),
which provides electronic payment services (merchant services); and INetEvents,
Inc. ("INET"), a Nevada corporation, which has been dormant since 2005.
CRITICAL ACCOUNTING POLICIES
The methods, estimates and judgments we use in applying our accounting policies
have a significant impact on the results we report in our financial statements,
which we discuss under the heading "Results of Operations" following this
section of our MD&A. Some of our accounting policies require us to make
difficult and subjective judgments, often as a result of the need to make
estimates of matters that are inherently uncertain. Our most critical accounting
estimates include the assessment of recoverability of long-lived assets and
intangible assets, which impacts operating expenses when we impair assets or
accelerate their amortization or depreciation.
We believe the following critical accounting policies reflect our more
significant estimates and assumptions used in the preparation of our
consolidated financial statements:
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Company estimates its accounts receivable risks and provides allowances for
doubtful accounts accordingly. The Company believes that its credit risk for
accounts receivable is limited because of its large number of customers and the
relatively small account balances for most of its customers. Also, the Company's
customers are dispersed across different business and geographic areas. The
Company evaluates the adequacy of the allowance for doubtful accounts on a
periodic basis. The evaluation includes historical loss experience, length of
time receivables are past due, adverse situations that may affect a customer's
ability to repay and prevailing economic conditions. The Company makes
adjustments to its allowance if the evaluation of allowance requirements differs
from the actual aggregate reserve. This evaluation is inherently subjective and
estimates may be revised as more information becomes available.
REVENUE AND COST RECOGNITION
Substantially all of our revenues are generated from fees charged to merchants
for card-based payment processing services. We typically charge these merchants
a bundled rate, primarily based upon the merchant's monthly charge volume and
risk profile. Our fees principally consist of discount fees, which are a
percentage of the dollar amount of each credit or debit transaction. We charge
all merchants higher discount rates for card-not-present transactions than for
card-present transactions in order to compensate ourselves for the higher risk
of underwriting these transactions. We derive the balance of our revenues from a
variety of fixed transaction or service fees, including fees for monthly minimum
charge volume requirements, statement fees, annual fees and fees for other
miscellaneous services, such as handling chargebacks. We recognize discounts and
other fees related to payment transactions at the time the merchants'
transactions are processed. We recognize revenues derived from service fees at
the time the service is performed. Related interchange and assessment costs are
also recognized at that time.
We follow the requirements of EITF 99-19, "Reporting Revenue Gross as a
Principal Versus Net as an Agent", in determining our revenue reporting.
Generally, where we have merchant portability, credit risk and ultimate
responsibility for the merchant, revenues are reported at the time of sale on a
gross basis equal to the full amount of the discount charged to the merchant.
This amount includes interchange paid to card issuing banks and assessments paid
to credit card associations pursuant to which such parties receive payments
based primarily on processing volume for particular groups of merchants.
Interchange fees are set by Visa and MasterCard and are based on transaction
processing volume and are recognized at the time transactions are processed.
GOODWILL AND INTANGIBLES
Since 2005, we capitalize intangible assets such as the purchase of merchant and
gift loyalty accounts from portfolio acquisitions (i.e. the right to receive
future cash flows related to transactions of these applicable merchants) and
amortize accounts at the time of attrition. The provisions of FASB Statement No.
142, "Goodwill and Other Intangible Assets" ("SFAS 142"), require the completion
of an annual impairment test with any impairment recognized in current earnings.
12
FAIR VALUE ACCOUNTING
In September 2006, the FASB issued FASB Statement No. 157, "Fair Value
Measurements" ("SFAS 157"). SFAS 157 defines fair value, establishes a framework
for measuring fair value in generally accepted accounting principles, and
expands disclosures about fair value measurements. The provisions of FAS 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 SFAS
157-2"). FSP SFAS 157-2 delayed the effective date of SFAS 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 SFAS 157-2 are effective for the
Company's fiscal year beginning January 1, 2009.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2008 COMPARED TO THE
THREE MONTHS ENDED MARCH 31, 2007
Results of operations consist of the following:
MARCH 31, 2008 MARCH 31, 2007 $ CHANGE % CHANGE
Net Revenues $ 1,940,679 $ 2,513,997 $(573,318) (23%)
Cost of Revenues 1,235,085 1,663,050 (427,965) (26%)
_____________________________________________________________
Gross Profit 705,594 850,947 (145,353) (17%)
Operating, General and
Administrative Costs 689,008 972,234 (283,226) (29%)
_____________________________________________________________
Net Operating Income (Loss) $ 16,586 $ (121,287) $ 137,873 (114%)
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Net revenues decreased by $573,318 from $2,513,997 for the three months ended
March 31, 2007 to $1,940,679 for the three months ended March 31, 2008 because
of the decrease in residuals due to attrition of both merchant and gift
portfolios and reduced sales due to tighter controls on merchant processing.
The costs associated with the merchant account services decreased by
approximately 26% or $427,965 primarily due to the decrease in residuals paid
out due to attrition of both merchant and gift portfolios, a $184,000 reduction
in costs associated with First Data Resources ("FDR") residuals due to attrition
of the merchant credit card portfolio and reduced inventory costs due to reduced
sales.
General and administrative costs decreased by approximately $335,000 from
$1,023,933 for the three months ended March 31, 2007 to $689,008 for the three
months ended March 31, 2008 the due primarily to the reduction of bad debt,
decrease in amortization and elimination of depreciation, since our assets are
fully depreciated.
LIQUIDITY AND CAPITAL RESOURCES
We are currently seeking to expand our merchant services offerings in bankcard
and gift and loyalty. In addition, we are investigating additional business
opportunities and potential acquisitions; accordingly we will require additional
capital to complete the expansion and to undertake any additional business
opportunities.
MARCH 31, 2008 MARCH 31, 2007 $ CHANGE % CHANGE
Cash $ 73,006 $126,149 $(53,143) (42%)
Accounts Payable and Accrued
Expenses $580,870 $619,375 $(38,505) (6%)
Accounts Receivable, net $ 7,978 $ 27,059 $(19,081) (71%)
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We have financed our operations during the year primarily through sales, the
collection of accounts receivable, the use of our line of credit, and the use of
cash on hand. As of March 31, 2008, we had total current liabilities of
$1,363,682 compared to $1,668,570 as of December 31, 2007. The decrease in
current liabilities is primarily due to a decrease in Accrued Expenses and
paying down Accounts Payable.
Cash decreased 42% from $126,149 at December 31, 2007 to $73,006 at March 31,
2008 due to the paying down of accounts payable and debt.
As of March 31, 2008, our accounts receivable, net decreased to $7,978 compared
to $27,059 at December 31, 2007. The relating allowance for doubtful accounts
decreased from $225,425 at December 31, 2007 to $211,215 as of March 31, 2008
because of continued aggressive collection of old debt.
We had no equity issuances in the first quarter of 2008.
13
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
N/A.
ITEM 4T. CONTROLS AND PROCEDURES.
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Our management is responsible for establishing and maintaining a system
of disclosure controls and procedures (as defined in Rule 13a-15(e)) under the
Exchange Act) that is designed to ensure that information required to be
disclosed by the Company in the reports that we file or submit under the
Exchange Act is recorded, processed, summarized and reported, within the time
specified in the Commission's rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed by an issuer in the reports
that it files or submits under the Exchange Act is accumulated and communicated
to the issuer's management, including its principal executive officer or
officers and principal financial officer or officers, or persons performing
similar functions, as appropriate to allow timely decisions regarding required
disclosure.
Pursuant to Rule 13a-15(b) under the Exchange Act, the Company carried
out an evaluation with the participation of the Company's management, including
William Lopshire, the Company's Chief Executive Officer ("CEO") and Candace
Mills, the Company's Chief Financial Officer ("CFO"), of the effectiveness of
the Company's disclosure controls and procedures (as defined under Rule
13a-15(e) under the Exchange Act) as of the three months ended March 31, 2008.
Based upon that evaluation, the Company's CEO and CFO concluded that the
Company's disclosure controls and procedures are effective to ensure that
information required to be disclosed by the Company in the reports that the
Company files or submits under the Exchange Act, is recorded, processed,
summarized and reported, within the time periods specified in the SEC's rules
and forms, and that such information is accumulated and communicated to the
Company's management, including the Company's CEO and CFO, as appropriate, to
allow timely decisions regarding required disclosure.
CHANGES IN INTERNAL CONTROLS
Our management, with the participation our Chief Executive Officer and
Chief Financial Officer, performed an evaluation as to whether any change in our
internal controls over financial reporting occurred during the 2008 Quarter
ended March 31, 2008. Based on that evaluation, our Chief Executive Officer and
our Chief Financial Officer concluded that no change occurred in the Company's
internal controls over financial reporting during the 2008 Quarter ended March
31, 2008 that has materially affected, or is reasonably likely to materially
affect, the Company's internal controls over financial reporting.
14
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 1A. RISK FACTORS
N/A.
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 A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
(1) Committees and financial reviews.
The board of directors has not established an audit committee. In addition, we
do not have any other compensation or executive or similar committees. We will
not, in all likelihood, establish an audit committee until such time as we
increase our revenues, of which there can be no assurance. We recognize that an
audit committee, when established, will play a critical role in our financial
reporting system by overseeing and monitoring management's and the independent
auditor's participation in the financial reporting process.
Until such time as an audit committee has been established, the board of
directors will undertake those tasks normally associated with an audit committee
to include, but not by way of limitation, the (i) review and discussion of the
audited financial statements with management, and (ii) discussions with the
independent auditors with respect to the matters required to be discussed by the
Statement On Auditing Standards No. 61, "Communications with Audit Committees",
as may be modified or supplemented.
ITEM 6. EXHIBITS.
(a) The following exhibits are filed with this report.
3.1 Amended and Restated Certificate of Incorporation of
International Card Establishment, Inc. (incorporated by
reference to the Registrant's Schedule 14C Definitive
Information Statement filed with the Commission on
October 1, 2003).
4.1 Certificate of Designation and Rights of Series A Convertible
Preferred Stock of ICRD dated as of September 16, 2004 (incorporated
by reference to our Form 8-K filed on December 10, 2004).
4.2 Amendment to the Certificate of Designation and Rights of Series A
Convertible Preferred Stock of ICRD dated as of December 6, 2004
(incorporated by reference to our Form 8-K filed on December 10,
2004).
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15
MATERIAL CONTRACTS
10.1 Subscription Agreement dated as of May 28, 2004 by and among ICRD
and the investors identified on the signature pages thereto
(incorporated by reference to our Form 8-K filed on June 10, 2004)
10.2 Registration Rights Agreement dated as of May 28, 2004
by and among ICRD and certain initial investors
identified on the signature pages thereto. (incorporated
by reference to our Form 8-K filed on June 10, 2004)
10.3 Form of Class A common stock Purchase Warrant dated as of May 28,
2004 (incorporated by reference to our Form 8-K filed on June 10,
2004)
10.4 Form of Class B common stock Purchase Warrant dated as of May 28,
2004 (incorporated by reference to our Form 8-K filed on June 10,
2004)
10.5 Form of Placement Agent common stock Purchase Warrant dated as of
May 28, 2004 (incorporated by reference to our Form 8-K filed on
June 10, 2004)
10.6 Form of Finder common stock Purchase Warrant dated as of May 28,
2004 (incorporated by reference to our Form 8-K filed on June 10,
2004)
10.7 Escrow Agreement dated as of May 28, 2004 (incorporated by reference
to our Form 8-K filed on June 10, 2004)
10.8 International Card Establishment, Inc. 2003 Stock Option
Plan (incorporated by reference to the Registrant's Schedule 14C
Definitive Information Statement filed with the Commission on
October 1, 2003).
10.9 Subscription Agreement dated as of September 13, 2004 by and among
ICRD and the investors identified on the signature pages thereto
(incorporated by reference to our Form 8-K filed on September 16,
2004).
10.10 Registration Rights Agreement dated as of September 13, 2004 by and
among ICRD and the investors identified on the signature pages
thereto (incorporated by reference to our Form 8-K filed on
September 16, 2004).
10.11 Form of Warrant dated as of September 13, 2004 issued to the
investors identified therein (incorporated by reference to our Form
8-K filed on September 16, 2004).
10.12 Subscription Agreement dated as of December 6, 2004 by and among
ICRD and the investors identified on the signature pages thereto
(incorporated by reference to our Form 8-K filed on December 10,
2004).
10.13 Amendment to the Registration Rights Agreement dated as of December
6, 2004 by and among ICRD and the investors identified on the
signature pages thereto (incorporated by reference to our Form 8-K
filed on December 10, 2004).
10.14 Form of Warrant dated as of December 6, 2004 issued to the investors
identified therein (incorporated by reference to our Form 8-K filed
on December 10, 2004).
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16
31.1 Certification by Chief Executive Officer pursuant to Sarbanes Oxley
Section 302.
31.2 Certification by Chief Financial Officer pursuant to Sarbanes Oxley
Section 302.
32.1 Certification by Chief Executive Officer pursuant to 18 U.S. C.
Section 1350.
32.2 Certification by Chief Financial Officer pursuant to 18 U.S. C.
Section 1350.
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17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 13, 2008
INTERNATIONAL CARD ESTABLISHMENT, INC.
By: /s/ WILLIAM LOPSHIRE
___________________________________
William Lopshire
Chief Executive Officer
(Principal Executive Officer),
Secretary and Director
By: /s/ CANDACE MILLS
___________________________________
Candace Mills
Chief Financial Officer
(Principal Accounting Officer)
and Director
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18
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