10-Q 1 ice_10q.htm FORM 10-Q ice_10q.htm


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, 2012.
 
OR
 
o 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 o
 
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 regulation S-T (§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 x No o
 
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 o Accelerated filer o
       
Non-accelerated filer o 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 o 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 o No o
 
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 November 20, 2012, there were 35,873,703 outstanding shares of the Registrant's Common Stock, $.0005 par value.
 


 
 

 
TABLE OF CONTENTS
 
PART I - FINANCIAL INFORMATION
     
       
Item 1.  Financial Statements 
    3  
Item 2.  Management's Discussion and Analysis 
    9  
Item 3.  Quantitative and Qualitative Disclosures About Market Risk 
    12  
Item 4.  Controls and Procedures 
    12  
         
PART II - OTHER INFORMATION
       
         
Item 1.  Legal Proceedings 
    13  
Item1A. Risk Factors 
    13  
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds 
    13  
Item 3.  Defaults Upon Senior Securities 
    13  
Item 4.  Mine Safety Disclosures 
    13  
Item 5.  Other Information 
    13  
Item 6.  Exhibits 
    14  
         
SIGNATURES
    15  
 
 
2

 
 
PART I
ITEM 1.  FINANCIAL STATEMENTS

INTERNATIONAL CARD ESTABLISHMENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2012
 
   
September 30,
2012
   
December 31, 2011
 
   
(Unaudited)
       
             
ASSETS
           
             
CURRENT ASSETS
           
Cash
  $ 148,339     $ 18,848  
Accounts receivable, net of allowance of $11,480 and $21,258 at September 30, 2012 and December  31, 2011, respectively
     17,370       12,957  
Note receivable, net of allowance of $50,000 at September 30, 2012 and  December 31, 2011, respectively
    15,842       32,797  
Inventory
    14,442       41,213  
Other receivables
    12,814       41,365  
Prepaid finance charges
    75,000       50,000  
                 
Total current assets
    283,807       197,180  
                 
FIXED ASSETS, net of accumulated depreciation of $3,116,431 and $3,082,069 at September 30, 2012 and December 31, 2011, respectively
     55,903        66,191  
INTANGIBLE ASSETS
    807,383       872,035  
GOODWILL
    87,979       87,979  
OTHER NON-CURRENT ASSETS
    114,606       114,606  
                 
Total assets
  $ 1,349,678     $ 1,337,991  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
               
                 
CURRENT LIABILITIES
               
Accounts payable and accrued expenses
  $ 929,708     $ 633,267  
Line of credit, related party
    217,161       434,971  
                 
Total current liabilities
    1,146,869       1,068,238  
                 
CONTINGENCIES & COMMITMENTS
    -       -  
                 
STOCKHOLDERS' EQUITY
               
Preferred stock; $0.01 par value; 10,000,000 shares authorized, 54,000 shares  issued and outstanding at September 30, 2012, and December 31, 2011, respectively
     540        540  
Common stock; $0.0005 par value; 100,000,000 shares authorized, 35,873,703 shares issued and outstanding at September 30, 2012, and December 31, 2011, respectively
     17,937        17,937  
Common stock subscribed
    30,000       30,000  
Additional paid-in capital
    19,628,401       19,628,401  
Accumulated deficit
    (19,474,069 )     (19,407,125 )
                 
Total stockholders' equity
    202,809       269,753  
                 
Total liabilities and stockholders' equity
  $ 1,349,678     $ 1,337,991  
 
See Accompanying Notes to Condensed Consolidated Financial Statements.
 
 
3

 
 
INTERNATIONAL CARD ESTABLISHMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
 
   
Three Months Ended
   
Nine Months Ended
 
   
September 30,
2012
   
September 30,
 2011
   
September 30,
2012
   
September 30,
 2011
 
                         
Revenue:
                       
Merchant services revenues
  $ 473,207     $ 564,784     $ 1,429,767     $ 1,665,914  
Equipment sales
    231,244       146,128       613,024       456,402  
Less: sales returns and allowances
    (2,907 )     (13,935 )     (8,050 )     (21,682 )
Net revenue
    701,544       696,977       2,034,741       2,100,634  
                                 
Cost of revenue:
                               
Commissions
    119,722       101,949       379,244       356,680  
Cost of sales
    149,720       229,365       528,325       698,634  
Cost of sales – depreciation
    11,876       7,411       30,870       25,921  
Cost of sales – equipment
    7,284       13,918       28,123       28,591  
Cost of revenue
    288,602       352,643       966,562       1,109,826  
                                 
Gross profit
    412,942       344,334       1,068,179       990,808  
                                 
Operating, general and administrative expenses:
                               
General, administrative and selling expenses
    434,870       374,262       1,163,673       1,135,527  
Depreciation
    1,406       1,158       4,047       1,808  
Merchant portfolio attrition expense
    40,048       47,245       119,601       142,778  
Total operating, general and administrative expenses
     476,324        422,665        1,287,321        1,280,113  
                                 
Net operating loss
    (63,382 )     (78,331 )     (219,142 )     (289,305 )
                                 
Non-operating income (expense):
                               
Interest income
    418       -       1,623       1  
Interest (expense)
    (6,545 )     (7,043 )     (19,477 )     (17,492 )
       Gain on sale of fixed assets
    -       -       895       -  
       Gain on sale of Credit Card Portfolio
    169,157       -       169,157       -  
                                 
Total non-operating income (expense)
    163,030       (7,043 )     152,198       (17,491 )
                                 
Net income (loss) before provision for income taxes
    99,648       (85,374 )     (66,944 )     (306,796 )
                                 
Provision for income taxes
    -       -       -       -  
                                 
Net income (loss)
  $ 99,648     $ (85,374 )   $ (66,944 )   $ (306,796 )
                                 
Earnings per share – basic & dilutive
  $ 0.00     $ 0.00     $ (0.00 )   $ (0.01 )
                                 
Weighted average shares outstanding - basic
    35,873,703       35,873,703       35,873,703       35,873,703  
                                 
Weighted average shares outstanding - dilutive
    35,873,703       35,873,703       35,873,703       35,873,703  
 
See Accompanying Notes to Condensed Consolidated Financial Statements.
 
 
4

 
 
INTERNATIONAL CARD ESTABLISHMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 
   
Nine Months Ended
 
   
September 30, 2012
   
September 30, 2011
 
             
Cash Flows from Operating Activities:
           
Net (loss)
  $ (66,944 )   $ (306,796 )
                 
Adjustments to reconcile net loss to cash provided by operating activities:
               
Depreciation
    34,917       27,731  
Gain on sale of fixed assets
    (895 )     -  
Gain on sale of Credit Card portfolio
    (169,157 )     -  
Write off of cancelled merchant accounts
    40,048       95,530  
Allowance for doubtful accounts, other receivables and accrued interest income,  net of bad debt recoveries
    (9,778 )     (3,838 )
Changes in assets and liabilities
               
Decrease in accounts receivable
    5,365       46,972  
Decrease in inventories
    259,521       274,389  
Decrease in other receivables
    28,551       6,204  
Increase in prepaid expenses
    (25,000 )     (25,000 )
Decrease in other non-current assets
    -       1,761  
Increase (decrease) in accounts payable
    (2,813 )     6,611  
Increase in accrued expenses
    368,228       137,894  
                 
Net cash provided by operating activities
    462,043       261,458  
                 
Cash Flows from Investing Activities:
               
Acquisitions, net of attrition
    18,761       3,792  
       Purchase of property and equipment
    (24,629 )     (49,236 )
Proceeds from sale of fixed assets
    895       -  
Proceeds from sale of credit card portfolio
    175,000       -  
Payments received toward notes receivable
    16,955       -  
                 
Net cash used in investing activities
    186,982       (45,444 )
                 
Cash Flows from Financing Activities:
               
Payment on line of credit, related party
    (1,194,033 )     (696,012 )
Proceeds from line of credit, related party
    674,500       451,027  
                 
Net cash used in financing activities
    (519,533 )     (244,985 )
                 
Net increase (decrease) in cash
    129,491       (28,971 )
                 
Cash, beginning of period
    18,848       31,762  
                 
Cash, end of period
  $ 148,339     $ 2,791  
 
See Accompanying Notes to Condensed Consolidated Financial Statements.
 
 
5

 
 
INTERNATIONAL CARD ESTABLISHMENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(CONTINUED)

   
Nine Months Ended
 
   
September 30, 2012
   
September 30, 2011
 
             
SUPPLEMENT DISCLOSURE OF CASH FLOW INFORMATION
           
Cash paid for interest
  $ 22,339     $ 17,041  
                 
NON-CASH INVESTING AND FINANCING TRANSACTIONS
               
Noncash advances from line of credit, related party
  $ 637     $ 2,609  
Legal and Professional Fees paid from line of credit, related party
  $ 68,975     $ 52,204  
Inventory purchased from line of credit, related party
  $ 232,749     $ 287,428  
Inventory reclassified to fixed assets
  $ 20,814     $ 21,912  
 
See Accompanying Notes to Condensed Consolidated Financial Statements.
 
 
6

 
 
INTERNATIONAL CARD ESTABLISHMENT, INC. AND SUBSIDIARIES
NOTES TO 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. and Subsidiaries (the “Company”) should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2011. 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 Company’s 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”) , a Nevada corporation, 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 Annual Report on Form 10-K for the fiscal year ended December 31, 2011. Operating results for the period ended September 30, 2012, are not necessarily indicative of the results that may be expected for the year ending December 31, 2012.

Reclassifications

Certain reclassifications, which have no effect on net loss or change in equity, have been made in the prior period financial statements to conform to the current presentation.  

Note 2. Presentation as a Going Concern

The accompanying condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. The Company also has an accumulated deficit of $19,474,069 at September 30, 2012.

The items discussed above raise substantial doubts about the Company's ability to continue as a going concern. If the Company's financial resources are insufficient, the Company may require additional financing in order to execute its operating plan and continue as a going concern. The Company cannot predict whether this additional financing will be in the form of equity, debt or another form. The Company may not be able to obtain the necessary additional capital on a timely basis, on acceptable terms, or at all. Should financing sources fail to materialize, management would seek alternate funding sources such as the sale of common and/or preferred stock, the issuance of debt or other means. The Company plans to attempt to address its working capital deficiency by increasing its sales, maintaining strict expense controls and seeking strategic alliances.
 
Our ability to continue as a going-concern is in doubt due to the sale of our credit card portfolio. This will cause a reduction in income of approximately $16,000 per month going forward. We are continuing to sell new credit card accounts on which we will receive residuals as an independent sales organization. We believe these new revenues, which are risk free, will help offset the reduced income. We also used the proceeds of the sale to paydown the existing line of credit, reducing monthly interest payments and total outstanding liabilities. The Company is also exploring additional avenues of new revenue. If our revenues do not increase through new card sales or other new revenue streams or if our liabilities increase the Company may not be able to continue as a going concern.
 
 
7

 

In the event that these financing sources do not materialize, or the Company is unsuccessful in increasing its revenues and profits, the Company will be forced to further reduce its costs, may be unable to repay its debt obligations as they become due or respond to competitive pressures, any of which circumstances would have a material adverse effect on its business, prospects, financial condition and results of operations.

The financial statements do not include any adjustments relating to the recoverability and reclassification of recorded asset amounts or amounts and reclassification of liabilities that might be necessary, should the Company be unable to continue as a going concern.

Note 3. Sale of Merchant Portfolio

In August 2012 management negotiated the sale of one of its merchant card portfolios to the Company’s bank card processor in a third party transaction. The Company received net proceeds of $175,000 from the transaction with a net gain of $169,157. The Company used the net proceeds from the sale of one of its merchant card portfolios to pay down its related party line of credit in the amount of $175,000.
 
Note 4. Other Receivables

At September 30, 2012, and December 31, 2011, other receivables consisted of the following:

   
September 30, 2012
   
December 31, 2011
 
Merchant residuals receivable
  $ 11,676     $ 14,315  
Other receivables
    1,138       27,050  
  Total
  $ 12,814     $ 41,365  

December 31, 2011, merchant residuals of $14,315 were collected in January 2012. Other receivables were split between $22,050 in a funds pool flow through repayment and $5,000 in employee advances.  The balance of the employee advances was collected in first quarter of 2012.

At September 30, 2012, other receivables consisted of $11 in a funds pool flow through repayment and $1,127 in employee advances. The employee advances have been collected at the time of this filing.

Note 5. Subscriptions

As of September 30, 2012, we anticipated issuing 30,000 shares of the Company’s common stock in connection with the sale of such securities pursuant to a subscription agreement dated as of April 2004 between the Company and an investor in the aggregate amount of $21,000. As of the date of filing this has not been completed.

Note 6. Subsequent Events

The Company has evaluated subsequent events for recognition or disclosure in the financial statements filed on Form 10-Q with the SEC and no other events, other than those described in these notes, have occurred that require disclosure.
 
 
8

 
 
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
 
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:
 
Ÿ 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.
 
Ÿ Results Of Operations. This section provides an analysis of our results of operations for the three and nine months ended September 30, 2012 compared to the three and nine months ended September 30, 2011. A brief description of certain aspects, transactions and events is provided, including related-party transactions that impact the comparability of the results being analyzed.
 
Ÿ Liquidity and Capital Resources. This section provides an analysis of our financial condition and cash flows as of September 30, 2012, and December 31, 2011.
 
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 have been a provider of credit and debit card-based payment processing services and Gift & Loyalty products to small merchants. In August 2012 we stopped acting as a processor and became an ISO, acting as an agent for Financial Transaction Services (FTS). At the same time, we sold ICE’s share of our current credit card portfolio to FTS. This has had a twofold effect. Firstly, we no longer bear the risk associated with being a processor. We sign new accounts as agents and receive a residual. All risk for these accounts is assumed by FTS. Secondly, while we will still receive a small revenue stream from FTS associated with the purchased portfolio these funds will flow through directly to the sales representatives responsible for the sale of those accounts. As of September 30, 2012, we continued to provide our Gift and Loyalty services to thousands of merchants located across the United States. Our proprietary Gift and Loyalty product allows merchants to issue custom branded gift and loyalty cards.
 
 
9

 
 
SIGNIFICANT ACCOUNTING POLICIES

We did not adopt any new accounting standards during the quarter ended September 30, 2012, nor were there any new accounting pronouncements during the period that would have an impact on our financial position or results of operation.

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2012 COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 2011
 
Results of operations consist of the following:
 
   
September 30, 2012
   
September 30, 2011
   
Difference
$
   
Difference
%
 
                         
Net Revenues
  $ 701,544     $ 696,977     $ 4,567       1  
Cost of Revenues
    288,602       352,643       (64,041 )     (18 )
                                 
Gross Profit
    412,942       344,334       68,608       20  
Operating, General, and Administrative Costs
    476,324       422,665       53,659       13  
                                 
Net Operating Loss
  $ (63,382 )   $ (78,331 )   $ 14,949       (19 )
 
Net revenues increased by $4,567 or 1% from $696,977 for the three months ended September 30, 2011, to $701,544 for the three months ended September 30, 2012. This increase was due primarily to the sale of the credit card portfolio and the annual fee on our Gift and Loyalty product which is charged to the merchants in August each year. Sales of the M2M program continued to grow, further contributing to the increase in revenues. This increase was offset by decreased residuals and DRIVE revenues.

The costs associated with the merchant account services decreased by approximately 18% or $64,041 primarily due to a no longer carrying an expense for the credit card portfolio and to decreased merchant chargebacks.
 
General and administrative costs increased by approximately 5% or $53,659 from $422,665 for the three months ended September 30, 2011, to $476,324 for the three months ended September 30, 2012. Starting in 2012, a portion of payroll, overhead and depreciation was allocated to Cost of Revenues. The payroll reductions were offset by an increased number of employees and bonuses accrued in the third quarter. This accounted for a increase in G&A expenses of $72,603. There was additional increased spending of approximately $4,942 for bad debt, depreciation, employee benefits, legal and professional fees and meals. These increases were offset by reductions of $23,886.The closing of the Colorado office, responsible for the DRIVE program, provided additional reductions of $5,021 in overhead. A reduction of $7,198 in amortization was achieved due to a slow down of cancellations and the fact that no amortization is allocated to LIFT M2M accounts as they are expensed at the time of activation. There were also Reductions in property taxes of $3,398. This was due to all accounts being current and no new adjustments by the county or state being applied. A reduction of $1,687 in auto expenses was accounted for by the decrease in inside sales reps due to the closure of the Colorado office. A $2,671decrease in insurance expenses was due to the decrease in employees enrolled in the company’s plan and to the change of carriers resulting in reduced rates. Additional cumulative reductions in advertising, bank fees, licenses, dues and subscriptions, office expense, penalties, postage, recruiting and training, , repairs and maintenance, telephone expenses accounted for $3,911.
 
 
10

 
 
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER, 2012 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 2011
 
Results of operations consist of the following:
 
   
September 30, 2012
   
September 30, 2011
   
Difference
$
   
Difference
%
 
                         
Net Revenues
  $ 2,034,741     $ 2,100,634     $ (65,893 )     (3 )
Cost of Revenues
    966,562       1,109,826       (143,264 )     (13 )
                                 
Gross Profit
    1,068,179       990,808       77,371       8  
Operating, General, and Administrative Costs
    1,287,321       1,280,113       7,208       1  
                                 
Net Operating Loss
  $ (219,142 )   $ (289,305 )   $ 70,163       (24 )
 
Net revenues decreased by $65,893 or 3% from $2,100,634 for the nine months ended September 30, 2011, to $2,034,741 for the nine months ended September 30, 2012, due mainly to a decrease in credit card residuals and sales of the DRIVE card program. This decrease was offset by increased revenues under the Month To Month program and the new White Label Licensing program begun in late 2011.

The costs associated with the merchant account services decreased $143,264. There was an overall increase of $46,330 allocated as $19,174 for commissions, a $3,391 increase in residuals, $10,776 for merchant marketing, $7,964 for processing expense and $5,025 for overhead. This was offset by decreased costs of $189,594 associated with $10,053 for payroll, $12,199 for inventory, $5,115 for costs associated with M2M marketing, $87,985 for credit card residual expenses, $2,095 for freight and $72,147 for chargebacks due to recovery of significant sums for the nine months ended September 30, 2012.
 
General and administrative costs increased by approximately 1% or $7,208 from $1,280,113 for the nine months ended September 30, 2011, to $1,287,321 for the nine months ended September 30, 2012.  Increases were allocated as $2,239 for depreciation, $198 in bad debt recovery, $16,375 to legal and professional fees, $2,089 for licenses, dues and subscriptions, $1,581 to meals and entertainment, $5,751 in office expenses and $66,109 associated with payroll, due primarily to bonuses accrued in the third quarter of 2012. These increases offset by decreased spending of approximately $86,935. These decreases were allocated as $23,176 for amortization, $5,508 for auto expenses, $8,977 for bad debt expense, $4,587 for employee benefits, $3,556 for postage, $17,456 for rent, $3,500 in travel expenses and a combined $20,175 for advertising, bank fees, consulting fees, insurance expense, penalties & fines, equipment rental, recruiting, taxes, and telephone expenses for the nine months ended September 30, 2012.
 
LIQUIDITY AND CAPITAL RESOURCES
 
We are currently seeking to expand our merchant services offerings in gift and loyalty. In addition, we are investigating additional business opportunities and potential acquisitions. Accordingly we may require additional capital to complete the expansion and to undertake any additional business opportunities.
 
   
September 30, 2012
   
December 31, 2011
   
Difference
$
   
Difference
%
 
                         
Cash
  $ 148,339     $ 18,848     $ 129,491       687  
Accounts Receivable, net
  $ 17,370     $ 12,957     $ 4,413       34  
Accounts Payable and Accrued Expenses
  $ 929,708     $ 633,268     $ 296,441       47  
 
 
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We have financed our operations during the third quarter of 2012 primarily through sales, the collection of accounts receivable, the annual fee on the gift and loyalty portfolio, the sale of ICE’s share of the credit card portfolio, and the use of cash on hand. As of September 30, 2012, we had total current liabilities of $1,146,869 compared to $1,068,238 as of December 31, 2011. The $78,631 increase in current liabilities is due to total increases of $304,381 in accrued expenses allocated as $510 to the Merchant chargeback reserve, $204,078 in payroll expenses, and $99,793 in customer deposits. The increase in payroll is due to three members of upper management receiving only a portion of their pay since November 2010 and accrual of the balance owed to them. These increases were offset by total decreases of $225,750, allocated as $2,813 to accounts payable, $691 in commissions and residuals, $1,574 in sales tax payable, $217,810 on the line of credit and $2,862 in accrued interest.
 
Cash increased 687% from $18,848 at December 31, 2011, to $148,339 at September 30, 2012 due to the sale of the credit card portfolio and collection of the annual fee.
 
As of September 30, 2012, our accounts receivable net increased to $17,370 compared to $12,957 at December 31, 2011. The related allowance for doubtful accounts decreased $9,778 from $21,258 at December 31, 2011, to $11,480 as of September 30, 2012, due primarily to timing on collections in the third quarter.

The Company used the net proceeds from the sale of one of its merchant card portfolios to pay down its related party line of credit in the amount of $175,000. The Company intends to use its line of credit to develop additional merchant card portfolios in the future. To this end, the Company renewed the line of credit effective June 30, 2012, to accommodate the acquisition of additional merchant accounts.

We had no equity issuances in the third quarter of 2012.
 
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 three months ended September 30, 2012. 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 CEO and CFO, performed an evaluation to determine whether any change in our internal controls over financial reporting occurred during the three month period ended September 30, 2012. Based on that evaluation, our CEO and our CFOconcluded that no change occurred in the Company's internal controls over financial reporting during the three months ended September 30, 2012, that has materially affected, or is reasonably likely to materially affect, the Company's internal controls over financial reporting.
 
 
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PART II
 
OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

None.

ITEM 1A.   RISK FACTORS

WE GENERATED A NET LOSS OF $66,944 AND LOSS OF $306,796 BEFORE TAXES FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012 AND SEPTEMBER 30, 2011, RESPECTIVELY. WE MAY BE UNABLE TO CONTINUE AS A GOING CONCERN.

Our consolidated financial statements have been prepared on a going concern basis which assumes that we will be able to realize our assets and discharge our liabilities in the normal course of business for the foreseeable future. We generated a consolidated net loss before taxes of $66,944 for the nine months ended September 30, 2012 compared to a consolidated net loss before taxes of $306,796 during 2011. We realized a positive cash flow from operating activities of $631,200 for the nine months ended September 30, 2012 compared to $261,458 for the nine months ended September 30, 2011. For the nine months ended September 30, 2012, we had an accumulated deficit of $19,474,069 compared to an accumulated deficit of $19,407,125 for the year ended December 31, 2011. At September 30, 2012, we had a stockholders' surplus of $202,809 compared to a stockholders' surplus of $269,753 as at December 31, 2011. Our ability to continue as a going-concern is in doubt due to the sale of our credit card portfolio. This will cause a reduction in income of approximately $16,000 per month going forward. We are continuing to sell new credit card accounts on which we will receive residuals as an independent sales organization. We believe these new revenues, which are risk free, will help offset the reduced income. We also used the proceeds of the sale to paydown the existing line of credit, reducing monthly interest payments and total outstanding liabilities. The Company is also exploring additional avenues of new revenue. If our revenues do not increase through new card sales or other new revenue streams or if our liabilities increase the Company may not be able to continue as a going concern.

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.  MINE SAFETY DISCLOSURES

N/A

ITEM 5.  OTHER INFORMATION

None.
 
 
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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.

101**
The following materials from International Card Establishment, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2012 are formatted in XBRL (eXtensible Business Reporting Language):  (i) the Consolidated Statements of Income, (ii) the Consolidated Statements of Cash Flow, (iii) the Consolidated Balance Sheets, and (iv) Notes to Consolidated Financial Statements tagged as blocks of text.
 
**
In accordance with Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

 
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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: November 20, 2012
 
INTERNATIONAL CARD ESTABLISHMENT, INC.

 
BY:
/s/ WILLIAM LOPSHIRE  
   
WILLIAM LOPSHIRE
   
CHIEF EXECUTIVE OFFICER
   
SECRETARY AND DIRECTOR
   
(PRINCIPAL EXECUTIVE OFFICER),
     
 
BY:
/s/ CANDACE MILLS  
   
CANDACE MILLS
   
CHIEF FINANCIAL OFFICER
   
(PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)
 
 
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