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, 2009.
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
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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]
Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Reguulation S-T (ss.232.405
of this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). Yes [ ] No [ ]
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 19, 2009, there were
35,873,703 outstanding shares of the Registrant's Common Stock, $.0005 par
value.
2
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements 4
Item 2. Management's Discussion and Analysis or Plan of Operation 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 14
Item 4. Controls and Procedures 14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 1A. Risk Factors 14
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 15
Item 6. Exhibits 15
SIGNATURES 15
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3
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTERNATIONAL CARD ESTABLISHMENT, INC.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
March 31, 2009
4
INTERNATIONAL CARD ESTABLISHMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2009 DECEMBER 31,
2008
________________ _________________
(UNAUDITED) (AUDITED)
________________ _________________
ASSETS
CURRENT ASSETS
Cash $ 72,070 $ 91,404
Accounts receivable, net of allowance of $51,780 and $50,178 at March 31,
2009 and December 31, 2008, respectively 15,236 22,572
Note receivable, net of allowance of $50,000 at December 31, 2008 and 2007,
respectively 88 88
Inventory 81,769 76,394
Other receivables 106,681 255,631
Prepaid assets 12,507 25,003
________________ _________________
Total current assets 288,351 471,092
________________ _________________
FIXED ASSETS, net of accumulated depreciation of $2,983,651 and $2,983,007 at
March 31, 2009 and December 31, 2008, respectively 8,088 -
INTANGIBLE ASSETS 1,501,612 1,579,378
GOODWILL 87,979 87,979
OTHER NON-CURRENT ASSETS 116,685 116,685
________________ _________________
Total assets $ 2,002,715 $ 2,255,134
================ =================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 40,966 $ 22,915
Accrued expenses 488,519 593,312
Line of credit, related party 560,395 658,536
________________ _________________
Total current liabilities 1,089,880 1,274,763
COMMITMENTS & CONTINGENCIES - -
STOCKHOLDERS' EQUITY
Preferred stock; $0.01 par value; 10,000,000 shares authorized, 54,000
shares issued and outstanding at March 31, 2009 and December 31, 2008,
respectively 540 540
Common stock; $0.0005 par value; 100,000,000 shares authorized, 35,873,703
and 35,873,703 shares issued and outstanding at March 31, 2009, and
December 31, 2008, respectively 17,937 17,937
Common stock subscribed 30,000 30,000
Additional paid-in capital 19,628,401 19,628,401
Accumulated deficit (18,764,043) (18,696,507)
________________ _________________
Total stockholders' equity 912,835 980,371
________________ _________________
Total liabilities and stockholders' equity $ 2,002,715 $ 2,255,134
================ =================
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See Accompanying Notes to Consolidated Financial Statements.
5
INTERNATIONAL CARD ESTABLISHMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (OPERATIONS)
(UNAUDITED)
THREE MONTHS ENDED ENDED
____________________________________________
MARCH31, MARCH 31,
2009 2008
________________ __________________
Revenue:
Merchant services revenues $ 1,427,381 $ 1,797,120
Equipment sales 99,065 162,194
Less: sales returns and allowances (8,732) (18,635)
________________ __________________
Net revenue 1,517,714 1,940,679
Cost of revenues:
Commissions 140,305 182,002
Cost of sales 734,411 1,015,162
Cost of sales - equipment 25,465 37,921
________________ __________________
Cost of revenue 900,181 1,235,085
________________ __________________
Gross profit
617,533 705,594
Operating, general and administrative expenses:
General, administrative and selling expenses 578,634 606,408
Depreciation 645
Merchant portfolio attrition expense 95,550 82,600
________________ __________________
Total operating, general and administrative expenses 674,829 689,008
Net operating income (loss) (57,296) 16,586
________________ __________________
Non-operating income (expense):
Interest income - 51
Interest (expense) (10,240) (22,182)
________________ __________________
Total non-operating income (expense) (10,240) (22,131)
________________ __________________
Net income (loss) before provision for income taxes (67,536) (5,545)
________________ __________________
Provision for income taxes - -
Net income (loss) $ (67,536) $ (5,545)
================ ==================
Earnings per share - basic and diluted $ (0.00) $ (0.00)
================ ==================
Weighted average number of shares of common stock outstanding - basic and diluted 35,873,703 35,286,449
================ ==================
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See Accompanying Notes to Consolidated Financial Statements.
6
INTERNATIONAL CARD ESTABLISHMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
_________________________________________________
MARCH 31, 2009 MARCH 31, 2008
(RESTATED)
_____________________ _______________________
Cash Flows from Operating Activities:
Net income(loss) $ (67,536) $ (5,545)
Depreciation 645 -
Write off of cancelled merchant accounts 95,550 82,600
Allowance for doubtful accounts, other receivables and accrued interest
income, net of bad debt recoveries 1,603 (14,210)
Write off of software consulting originally capitalized as fixed asset - 6,320
Adjustments to reconcile net income (loss) to cash provided by operating
activities:
Changes in assets and liabilities
Decrease in accounts receivable 5,733 33,291
Decrease in inventories 100,945 89,380
Decrease in other receivables 148,949 155,705
Decrease (increase) in prepaid expenses 12,498 (16,667)
Increase (decrease) in accounts payable 18,052 (11,465)
(Decrease) in accrued expenses (104,795) (27,039)
_____________________ _______________________
Net cash provided by operating activities 211,644 292,370
_____________________ _______________________
Cash Flows from Investing Activities:
Acquisition of merchant accounts, net of attrition (17,784) (24,463)
Purchase of property and equipment (8,733) -
Payments received toward notes receivable - 2,718
_____________________ _______________________
Net cash (used in) investing activities (26,517) (21,745)
_____________________ _______________________
Cash Flows from Financing Activities:
Payment on notes payable - (25,568)
Noncash advances from line of credit, related party 1,048 44,860
Payment on line of credit, related party (410,509) (338,060)
Proceeds from line of credit, related party 205,000 155,000
Payment on notes payable, related party - (160,000)
_____________________ _______________________
Net cash (used in) financing activities (204,461) (323,768)
_____________________ _______________________
Net decrease in cash (19,334) (53,143)
_____________________ _______________________
Cash, beginning of period 91,404 126,149
_____________________ _______________________
Cash, end of period $ 72,070 $ 73,006
===================== =======================
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See Accompanying Notes to Consolidated Financial Statements.
7
INTERNATIONAL CARD ESTABLISHMENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
THREE MONTHS ENDED
MARCH 31, 200 MARCH 31, 2008
(RESTATED)
_____________________ _______________________
SUPPLEMENT DISCLOSURE OF CASH
FLOW INFORMATION
Cash paid for interest $ 65,307 $ 15,379
Cash paid for income taxes $ - $ -
NON-CASH INVESTING AND FINANCING TRANSACTIONS
Inventory purchased from line of credit, related party $ 106,320 $ 57,385
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See Accompanying Notes to Consolidated Financial Statements.
8
INTERNATIONAL CARD ESTABLISHMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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-K for the year ended December 31, 2008.
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, 2008 Annual Report on
Form 10-K. Operating results for the period ended March 31, 2009 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2009.
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.
NOTE 2. OTHER RECEIVABLES
At March 31, 2009, and December 31, 2008, other receivables consisted of the
following:
MARCH 31, 2009 DECEMBER 31, 2008
Merchant residuals receivable $ 96,113 $ 226,717
Other receivables 10,568 28,914
______________ _____________
Total $ 106,681 $ 255,631
============== =============
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Other receivables consist primarily of residuals due from commissions earned
from merchant account transactions. These receivables decreased approximately
$14,500 due to reduced sales by merchants caused by the recession. 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 $116,100 of the December 2008
residuals receivable.
NOTE 3. SUBSCRIPTIONS
As of March 31, 2009, we have instructed our SEC counsel to finalize all
necessary paperwork for the issuance of shares comprising the remaining $30,000
in our common stock subscription.
9
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, 2009 compared to the three
months ended March 31, 2008. 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, 2009 and December 31,
2008.
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, 2009, 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. (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, 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
28, 2000, 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.
10
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.
On December 15, 2003, we entered into a Plan and Agreement of Reorganization
with GlobalTech Leasing, Inc., a California corporation, and its shareholders.
On December 29, 2003, GlobalTech Leasing, Inc. became our wholly owned
subsidiary. In May of 2006 we sold our GlobalTech Leasing, Inc. subsidiary which
comprised our entire equipment leasing segment.
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.
In May 2008 we started LIFT Network, new sales division focused on marketing for
small to medium sized businesses. LIFT Network is based in our corporate offices
in Camarillo, California with a small office in Tampa, Florida.
In January 2009 we began a new month-to-month "rental" ("Liftmysales") program.
The first sales under this program were booked in February 2009. Under this
program, there is no long-term contract and the merchant pays an all inclusive
fee for the loan of a terminal and monthly fees for all services. These services
have been expanded to include assistance to the merchant in marketing their
company including on-line "coupon" and sales tools. This program is being
marketed under the LIFT name. A video detailing the program is available at
WWW.LIFTMYSALES.COM. Under this program, the merchant is provided a "loaner"
terminal.
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.
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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, at
least quarterly, amortize accounts at the time of attrition. Additionally, under
the provisions of SFAS No. 142, "Goodwill and Other Intangible Assets", at least
annually, the Company performs a census of merchant accounts received in such
acquisitions, analyzing the expected cash flows, and adjusts the intangible
asset accordingly to the lower of cost or market.
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, 2009 COMPARED TO THE
THREE MONTHS ENDED MARCH 31, 2008
Results of operations consist of the following:
March 31, 2009 March 31, 2008 Difference Difference
$ %
______________________________________________________________________________________________
Net Revenues $ 1,517,714 $ 1,940,679 $ (422,965) (22)
Cost of Revenues 900,181 1,235,085 334,904 27
______________________________________________________________________________________________
Gross Profit 617,533 705,594 (88,061) (12)
Operating, General,
and Administrative Costs 674,829 689,008 14,179 2
______________________________________________________________________________________________
Net Operating Gain/(Loss) $ (57,296) $ 16,586 $ (73,882) (445)
==============================================================================================
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12
Net revenues decreased by $422,965 from $1,940,679 for the three months ended
March 31, 2008 to $1,517,714 for the three months ended March 31, 2009, due
mainly to the poor economy as well as continued attrition of merchant accounts
and tighter credit policies. Residuals decreased by approximately $309,000. This
decrease was due in part to the attrition of merchant accounts but the primary
factor was the faltering economy which effected us in two ways. First, reduced
merchant sales led directly to reduced residuals. Secondly, many small
businesses closed shop last year due to the lagging economy. A number of
merchants simply closed their doors and bank accounts, precluding us from even
collecting their early termination fees. Sales dropped by approximately $113,964
the major portion of this drop being equipment sales which decreased
approximately $63,000. Again, this decline was due primarily to the economy.
Merchants were unwilling to sign three and four year contracts in such a drastic
economic climate. In January 2009 we introduced a new marketing model to counter
this reluctance on the part of merchants. Merchant attrition, caused by better
offers from competitors as well as closing businesses, is a common aspect of our
industry. However, we believe our new marketing models will help stop attrition
to some extent.
The costs associated with the merchant account services decreased by
approximately 27% or $334,904 primarily due to decreased costs associated with
residual income as well as decreased commissions and equipment costs due to
lower sales. Again, both residuals and sales were lower than in prior periods
due to the sluggish economy.
General and administrative costs decreased by approximately 2% or $14,179 from
$689,008 for the three months ended March 31, 2008 to $674,829 for the three
months ended March 31, 2009. While there was cumulative decrease of
approximately $61,500 for insurance, professional, office and bonus expenses
these were offset by a $56,000 combined increase in advertising, amortization,
salaries and office rent. The $15,800 increase in advertising reflects costs
associated with the startup of the new LiftMySales program.
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, 2009 December 31, 2008 Difference Difference
$ %
________________________________________________________________________
Cash $ 72,070 $ 91,404 $ (19,334) (21)
Accounts Payable and
Accrued Expenses $ 529,485 $ 616,227 $ (86,742) (14)
Accounts Receivable, net $ 15,236 $ 22,572 $ (7,336) (33)
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We have financed our operations during the first quarter 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, 2009, we had total current liabilities
of $1,089,880 compared to $1,274,763 as of December 31, 2008. The decrease in
current liabilities is primarily due to a decrease in Accrued Expenses and
paying down of the related party line of credit.
Cash decreased 21% from $91,404 at December 31, 2008 to $72,070 at March 31,
2009 due to the paying down of the related party line of credit and increased
advertising, amortization, salaries and office rent expeses.
As of March 31, 2009, our accounts receivable, net decreased to $15,236 compared
to $22,572 at December 31, 2008. The relating allowance for doubtful accounts
increased $1,600 from $50,178 at December 31, 2008 to $51,780 as of March 31,
2009 because of continued strong controls on cash collections.
We had no equity issuances in the first quarter of 2009.
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, 2009. 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 2009 Quarter
ended March 31, 2009. 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 2009 Quarter ended March
31, 2009 that has materially affected, or is reasonably likely to materially
affect, the Company's internal controls over financial reporting.
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.
14
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.
(b)
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.
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 20, 2009
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)
|
15
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