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 SEPTEMBER 30, 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)
|
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 / /
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE LAST 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 / /
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 CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
At November 14, 2008, there were 35,843,703 outstanding shares of the
Registrant's Common Stock, $.0005 par value.
Transitional Small Business Disclosure Formsat: Yes / / No /X/
2
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements 4
Item 2. Management's Discussion and Analysis 13
Item 3. Quantitative and Qualitative Disclosures About Market Risk 17
Item 4. Controls and Procedures 17
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 1A. Risk Factors 18
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 18
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits 18
SIGNATURES 19
|
3
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTERNATIONAL CARD ESTABLISHMENT, INC.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
September 30, 2008
4
INTERNATIONAL CARD ESTABLISHMENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31,
2008 2007
(UNAUDITED) (AUDITED)
_________________ _________________
ASSETS
CURRENT ASSETS
Cash $ 91,745 $ 126,149
Accounts receivable, trade, net allowance of $195,037 and $225,425
at September 30, 2008 and December 31, 2007, respectively 21,924 27,059
Inventory 96,115 109,628
Notes receivable, net of allowance of $50,000 at September 30, 2008
and December 31, 2007, respectively 88 6,428
Other receivables 132,676 268,779
Prepaid expenses 37,501 -
_________________ _________________
Total current assets 380,049 538,043
_________________ _________________
FIXED ASSETS, net of accumulated depreciation of $2,983,007 at
September 30, 2008 and December 31, 2007, respectively - 6,320
INTANGIBLE ASSETS 1,650,237 1,820,300
GOODWILL 87,979 87,978
OTHER NON-CURRENT ASSETS 116,687 117,700
_________________ _________________
Total assets $ 2,234,952 $ 2,570,341
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 22,898 $ 106,394
Accrued expenses 521,758 512,981
Notes payable - 42,613
Notes payable, related parties - 400,000
Line of credit, related parties 741,969 606,582
_________________ _________________
Total current liabilities 1,286,625 1,668,570
STOCKHOLDERS' EQUITY
Preferred stock: $0.01 par value; authorized 10,000,000 shares;
Issued and outstanding: 54,000 shares at September 30, 2008 and
December 31, 2007, respectively 540 540
Common stock: $0.0005 par value; authorized 100,000,000 shares;
issued and outstanding: 35,873,703 at September 30, 2008 and
35,286,449 at December 31, 2007, respectively 17,937 17,643
Common stock subscription 30,001 100,064
Additional paid-in capital 19,628,400 19,544,354
Accumulated deficit (18,728,551) (18,760,830)
_________________ _________________
Total stockholders' equity 948,327 901,771
_________________ _________________
Total liabilities and stockholders' equity $ 2,234,952 $ 2,570,341
================= =================
|
See accompanying Notes to these Condensed Consolidated Financial Statements.
5
INTERNATIONAL CARD ESTABLISHMENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPT. 30, SEPT. 30, SEPT. 30, SEPT. 30,
2008 2007 2008 2007
______________________________________________________________________
Merchant services revenues $ 1,688,444 $ 1,940,143 $ 5,266,420 $ 6,276,114
Equipment sales 173,889 229,687 503,889 688,998
Less: sales returns and allowances (7,052) (7,494) (28,114) (35,394)
______________________________________________________________________
Net revenues 1,855,281 2,162,336 5,742,195 6,929,718
Cost of revenues
Commissions 208,873 206,200 560,349 733,779
Cost of sales - equipment 34,224 55,764 115,189 204,579
Cost of sales 947,154 1,154,632 3,002,590 3,576,813
______________________________________________________________________
Cost of revenues 1,190,251 1,416,596 3,678,128 4,515,171
______________________________________________________________________
Gross profit 665,030 745,740 2,064,067 2,414,547
Operating, general, administrative and selling
expenses 666,150 1,343,918 1,975,082 3,431,815
______________________________________________________________________
Net operating gain/(loss) (1,120) (598,178) 88,985 (1,017,268)
Non-operating income (expense)
Interest income 14 380 94 381
Interest expense (16,331) (25,519) (56,800) (106,104)
______________________________________________________________________
(16,317) (25,139) (56,706) (105,723)
______________________________________________________________________
______________________________________________________________________
Net Income (Loss) $ (17,437) $ (623,317) $ 32,279 $ (1,122,991)
======================================================================
Income (Loss) per share, basic $ (0.00) $ (0.02) $ 0.00 $ (0.03)
======================================================================
Income (Loss) per share, diluted $ (0.00) $ (0.02) $ 0.00 $ (0.03)
======================================================================
Weighted average number of shares of common stock
outstanding, basic 35,548,160 35,283,520 35,374,323 34,567,550
======================================================================
Weighted average number of shares of common stock
outstanding, diluted 35,548,160 35,283,520 36,077,572 34,567,550
======================================================================
|
See accompanying Notes to these Condensed Consolidated Financial Statements.
6
INTERNATIONAL CARD ESTABLISHMENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
2008 2007
(RESTATED)
______________________ ___________________________
Cash flows from operating activities:
Net gain/(loss) from continuing operations $ 32,279 $ (1,122,991)
Depreciation - 735,379
Loss on lease settlement - 51,699
Write-off of cancelled merchant accounts 242,550 604,628
Allowance for doubtful accounts, trade and notes receivables (30,388) 13,276
Stock issued for antidilution clause - 23,042
Compensation for stock awards 14,027 240,124
Write-off of software consulting originally capitalized as fixed
asset 6,320 -
Adjustments to reconcile net loss to net cash provided from operating
activities:
Changes in assets and liabilities
Decrease in accounts receivable 35,523 87,526
Decrease in inventory 266,919 482,530
Decrease in other receivables 136,103 249,292
(Increase) in prepaid expenses (37,501) -
Decrease in deposits - 121
Decrease in other non-current assets 1,012 -
Increase in accounts payable (83,496) (131,814)
Decrease in accrued expenses 8,776 (202,715)
______________________ ___________________________
Net cash provided by (used in) operating activities 592,124 1,030,097
______________________ ___________________________
Cash flows from investing activities:
Acquisitions, net of reduction of merchant accounts (72,487) (152,887)
Purchase of property and equipment - (4,765)
Issuance of notes receivable, net of accrued interest income - (50,000)
Payments received toward notes receivable 6,340 6,279
______________________ ___________________________
Net cash used in investing activities (66,147) (201,373)
______________________ ___________________________
Cash flows from financing activities:
Payments on notes payable (42,613) (128,905)
Proceeds from notes payable - 70,000
Expenditures paid by line of credit, related party 120,246 99,952
Payment on line of credit, related party (858,264) (821,919)
Proceeds from line of credit, related party 620,000 286,000
Payments on related party notes payable (400,000) (360,000)
Proceeds from common stock subscribed 250 -
______________________ ___________________________
Net cash used in financing activities (560,381) (854,872)
______________________ ___________________________
Net decrease in cash (34,404) (26,148)
Cash, beginning of period 126,149 157,528
______________________ ___________________________
Cash, end of period $ 91,745 $ 131,380
====================== =============================
|
See accompanying Notes to these Condensed Consolidated Financial Statements.
7
INTERNATIONAL CARD ESTABLISHMENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
(UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
2008 RESTATED 2007
______________________________ ________________________
SUPPLEMENT DISCLOSURE OF CASH
FLOW INFORMATION
Cash paid for interest $ 51,338 $ 91,936
Cash paid for income taxes $ - $ -
NON-CASH INVESTING AND FINANCING TRANSACTIONS
Inventory purchased from line of credit, related party $ 253,406 $ 481,799
|
See accompanying Notes to these Condensed Consolidated Financial Statements.
8
INTERNATIONAL CARD ESTABLISHMENT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED 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.
The accompanying unaudited condensed consolidated financial statements have been
prepared by the Company pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted in accordance with such
rules and regulations. The information furnished in the interim condensed
consolidated financial statements includes normal recurring adjustments and
reflects all adjustments, which, in the opinion of management, are necessary for
a fair presentation of such financial statements. Although management believes
the disclosures and information presented are adequate to make the information
not misleading, these interim condensed consolidated financial statements should
be read in conjunction with the Company's most recent audited financial
statements and notes thereto included in its December 31, 2007 Annual Report on
Form 10-KSB/A. Operating results for the period ended September 30, 2008 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2008.
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. Specifically, equipment revenues and cost of sales have been
broken out from the merchant services revenues and cost of sales for comparative
purposes in our Consolidated Statements of Income. Inventory purchased through
our line of credit has been reported as a non-cash financing item in our
Statement of Cash Flows.
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 non-derivative 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.
In May 2008, the FASB issued Statement of Financial Accounting Standards No.
162, "The Hierarchy of Generally Accepted Accounting Principles," ("SFAS 162").
SFAS 162 identifies the sources of accounting principles and the framework for
selecting the principles used in the preparation of financial statements of
non-governmental entities that are presented in conformity with generally
accepted accounting principles in the United States of America. SFAS 162 will be
effective 60 days after the Security and Exchange Commission approves the Public
Company Accounting Oversight Board's amendments to AU Section 411. The Company
does not anticipate the adoption of SFAS 162 will have an impact on its
financial statements.
In May 2008, the FASB issued SFAS No. 163, "Accounting for Financial Guarantee
Insurance Contracts - an interpretation of FASB Statement No. 60" ("SFAS 163").
SFAS 163 requires that an insurance enterprise recognize a claim liability prior
9
to an event of default (insured event) when there is evidence that credit
deterioration has occurred in an insured financial obligation. This Statement
also clarifies how Statement 60 applies to financial guarantee insurance
contracts, including the recognition and measurement to be used to account for
premium revenue and claim liabilities. Those clarifications will increase
comparability in financial reporting of financial guarantee insurance contracts
by insurance enterprises. This Statement requires expanded disclosures about
financial guarantee insurance contracts. The accounting and disclosure
requirements of the Statement will improve the quality of information provided
to users of financial statements. SFAS 163 will be effective for financial
statements issued for fiscal years beginning after December 15, 2008. The
Company does not expect the adoption of SFAS 163 will have a material impact on
its financial condition or results of operation.
In June 2008, the FASB issued FASB Staff Position EITF 03-6-1, "Determining
Whether Instruments Granted in Share-Based Payment Transactions Are
Participating Securities," ("FSP EITF 03-6-1"). FSP EITF 03-6-1 addresses
whether instruments granted in share-based payment transactions are
participating securities prior to vesting, and therefore need to be included in
the computation of earnings per share under the two-class method as described in
FASB Statement of Financial Accounting Standards No. 128, "Earnings per Share."
FSP EITF 03-6-1 is effective for financial statements issued for fiscal years
beginning on or after December 15, 2008 and earlier adoption is prohibited. The
Company is required to adopt FSP EITF 03-6-1 in the first quarter of 2009 and is
currently evaluating the impact that FSP EITF 03-6-1 will have on its financial
statements.
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.
In June 2008 we entered into a service agreement to issue 250,000 shares of
restricted common stock at an aggregate purchase price of $250 (.001 per share).
These shares were issued August 20, 2008.
As of June 30, 2008, we have instructed our SEC counsel to finalize all
necessary paperwork for the issuance of shares comprising the remaining $30,001
in our common stock subscription.
In the third quarter of 2008, we issued 337,254 shares of common stock related
to this common stock subscription.
We had no unvested stock options as of September 30, 2008. We had 183,000
options vest in the third quarter of 2008.
NOTE 3. OTHER RECEIVABLES
At September 30, 2008, and December 31, 2007, other receivables consisted of the
following:
September 30, 2008 December 31, 2007
Merchant residuals receivable $ 90,288 $ 265,235
Other receivables 42,388 3,544
______________________ _____________________
Total $ 132,876 $ 268,779
====================== =====================
|
Other receivables consist primarily of residuals due from commissions earned
from merchant account transactions. These receivables decreased approximately
$136,000 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. Additionally, merchants are charged an annual fee
in December accounting for approximately $145,000 of the December 2007 residuals
receivable.
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 2007, we fully
reserved the entire balance of this note. As of September 30, 2008 we are
attempting to collect on the note; however, the debtor has ignored all attempts
to collect the on the note. The debtor, nevertheless, acknowledges the
obligation to pay on their December 31, 2007 10-KSB. We are currently reviewing
all available options at our disposal to collect the debt.
10
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 SEPTEMBER 30, 2008
__________________________________________________________________
TOTAL LEVEL 1 LEVEL 2 LEVEL 3
__________________________________________________________________
Assets:
Intangibles $ 1,650,237 $ - $ 1,650,237 $ -
__________________________________________________________________
$ 1,650,237 $ - $ 1,650,237 $ -
==================================================================
Liabilities:
None
|
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, who tests for impairment on an
annual basis.
We had no Level 1 or Level 3 assets or liabilities as of September 30, 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.
NOTE 6. DEBT
In the second quarter of 2008 we paid off the note payable to TASQ. In the third
quarter we paid off the related party note payable to Worldwide Business
Services Group, Inc.
11
The terms and conditions of the related party line of credit with Worldwide
Business Services Group, Inc. provide that it is used for cash infusions and
payments for inventory only. The interest rate is prime plus 3% (8% as of
September 30, 2008). Inventory payments are paid down within 60 days. Now that
the related party note payable is paid in full, the company will begin paying
down the cash portions of the line of credit.
12
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 September 30, 2008, compared to the
three months ended September 30, 2007, and the nine months ended September
30, 2008, compared to the nine months ended September 30, 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 September 30, 2008, and December
31, 2007.
EXECUTIVE SUMMARY
Our strategy is to grow profitably by increasing our penetration into 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
September 30, 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.
13
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.
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.
In the second quarter of 2008, we formed the LIFT Networks division, based in
Tampa, Florida, in a drive to accelerate revenue growth in our smart card and
credit card processing businesses.
LIFT Networks will expand on our current product lines by offering additional
services to our stored value Gift and Loyalty products; such as, Shop & Dine
Rewards, a unique multi-merchant community stored value cash/gift, loyalty and
rewards card; stored value MasterCard with payroll rewards; and the introduction
of a consumer credit card program - LIFT Revolution.
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 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.
14
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. In keeping with the provisions of
FASB Statement No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"), we
also hire an outside firm to complete an annual valuation to determine any
impairment recognized in current earnings.
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 SEPTEMBER 30, 2008 COMPARED TO
THE THREE MONTHS ENDED SEPTEMBER 30, 2007
Results of operations consist of the following:
SEPTEMBER 30, 2008 SEPTEMBER 30, 2007 $ CHANGE % CHANGE
Net Revenues $ 1,855,281 $ 2,162,336 $ (307,055) (14%)
Cost of Revenues 1,190,251 1,416,596 (226,345) (16%)
____________________________________________________________________________________________
Gross Profit 665,030 745,740 (80,710) (11%)
Operating, General and
Administrative Costs 666,150 1,343,918 (677,768) (50%)
____________________________________________________________________________________________
Net Operating Income (Loss) $ (1,120) $ (598,178) $ 597,058 (100%)
|
Net revenues decreased by $307,055 from $2,162,336 for the three months ended
September 30, 2007 to $1,855,281 for the three months ended September 30, 2008
because of decreased residuals due to attrition of merchant accounts and the
current economic climate.
The costs associated with the merchant account services decreased by
approximately 16% or $226,345 primarily due to a $430,665 decrease in cost of
residuals expense, resulting from the attrition of residual accounts.
General and administrative costs decreased by approximately $677,767 from
$1,343,918 for the three months ended September 30, 2007 to $666,150 for the
three months ended September 30, 2008 because of full depreciation of fixed
assets in the third quarter of 2007 resulting in no depreciation expense in
2008, decreased amortization due to the cost to market adjustment of the
merchant portfolio at December 31,2007 and decreased interest expense due to the
pay down of the Worldwide note payable.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008 COMPARED TO
THE NINE MONTHS ENDED SEPTEMBER 30, 2007
Results of operations consist of the following:
SEPTEMBER 30, 2008 SEPTEMBER 30, 2007 $ CHANGE % CHANGE
Net Revenues $ 5,742,195 $ 6,929,718 $ (1,187,523) (17%)
Cost of Revenues 3,678,128 4,515,171 (837,043) (19%)
____________________________________________________________________________________________
Gross Profit 2,064,067 2,414,547 (350,480) (15%)
Operating, General and
Administrative Costs 1,975,082 3,431,815 (1,456,733) (42%)
____________________________________________________________________________________________
Net Operating Income (Loss) $ 88,985 $ (1,017,268) $ 1,106,253 (109%)
|
Net revenues fell by 17% from $6,929,718 for the nine months ended September 30,
2007 to $5,742,195 compared to the nine months ended September 30, 2008
primarily because of decreased residuals due to attrition of merchant accounts.
Furthermore, this decrease caused a corresponding $837,043 decrease in the cost
of revenues from $4,515,171 for the nine months ended September 30, 2007 to
$3,678,128 for the nine months ended September 30, 2008.
15
Operating, general, and administrative costs decreased by $1,456,733 from
$3,431,815 for the nine months ended September 30, 2007 to $1,975,082 during the
nine months ended September 30, 2008 primarily because of because of full
depreciation of fixed assets in the third quarter of 2007 resulting in no
depreciation expense in 2008, decreased amortization due to the cost to market
adjustment of the merchant portfolio at December 31,2007 and decreased interest
expense due to the pay down of the Worldwide note payable.
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.
SEPTEMBER 30, 2008 DECEMBER 31, 2007 $ CHANGE % CHANGE
Cash $ 91,745 $ 126,149 $ (34,404) 27%
Accounts Payable and Accrued Expenses $ 544,656 $ 619,375 $ (74,719) 12%
Accounts Receivable, net $ 21,924 $ 27,059 $ (5,135) 19%
|
We have financed our operations during the year primarily through sales and use
of cash on hand. As of September 30, 2008, we had total current liabilities of
$1,286,625 compared to $1,668,570 as of December 31, 2007. The decrease in
current liabilities is primarily due to the payoff of the related party note
payable and the pay down of accounts payable. At this time, there are no plans
to increase our debt load in the coming year.
Cash decreased 27% as of September 30, 2008 due to because of an increased
demand on cash due to the pay down of accounts payable and debt, as well as
increased payroll due to the new LIFT division. This trend is expected to
reverse with increased sales generated by LIFT.
As of September 30, 2008, our accounts receivable, net decreased to $21,924
compared to $27,059 at December 31, 2007. The relating allowance for doubtful
accounts decreased from $225,425 at December 31, 2007 to $195,037 as of
September 30, 2008 because of aggressive collections of old receivables.
16
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
N/A.
ITEM 4. 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 nine-month period ended September 30, 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
requiring disclosure 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 to determine whether any change in
our internal controls over financial reporting occurred during the nine-month
period ended September 30, 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 nine months
ended September 30, 2008 that has materially affected, or is reasonably likely
to materially affect, the Company's internal controls over financial reporting.
17
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.
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.
18
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.
INTERNATIONAL CARD ESTABLISHMENT, INC.
Dated: November 14, 2008 By: /s/ WILLIAM LOPSHIRE
____________________________________
William Lopshire
Chief Executive Officer
(Principal Executive Officer)
Dated: November 14, 2008 By: /s/ CANDACE MILLS
____________________________________
Candace Mills
Chief Financial Officer
(Principal Accounting Officer)
|
19
International Card Estab... (CE) (USOTC:ICRD)
Gráfico Histórico do Ativo
De Jan 2025 até Fev 2025
International Card Estab... (CE) (USOTC:ICRD)
Gráfico Histórico do Ativo
De Fev 2024 até Fev 2025
