ICRD International Card Establishment Inc (CE)

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.

EXECUTIVE SUMMARY

Our strategy is to grow profitably by increasing our penetration of the expanding small merchant marketplace for payment processing services and Gift & Loyalty products. We find these merchants primarily through our independent outside agent channel of distribution.

OVERVIEW

We are a provider of credit and debit card-based payment processing services and Gift & Loyalty products to small merchants. As of September 30, 2007, we provided our services to 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. Our Gift & Loyalty products enable our merchants to offer customized merchant branded gift and loyalty cards and programs.

For additional detailed discussion regarding the Company's business and business trends affecting the Company and certain risks inherent in the Company's business, see "Item 6: Management's Discussion and Analysis or Plan of Operations" in the Company's Annual Report on Form 10-KSB for the year ended December 31, 2006.

DEVELOPMENT OF OUR BUSINESS

International Card Establishment, Inc. (the "Company") (formerly Summit World Ventures, Inc.) was incorporated on December 18, 1986 under the laws of the State of Delaware to engage in any lawful corporate activity, including, but not limited to, selected mergers and acquisitions. Prior to July 28, 2000, we were in the developmental stage and could be defined as a "shell" company, whose sole purpose was to locate and consummate a merger or acquisition with a private entity, and we did not have any operations. On July 18, 2003, we acquired iNetEvents, Inc., a Nevada corporation and commenced operations. iNetEvents, Inc., a Nevada corporation, was incorporated on February 3, 1999 and provided Internet support and supply software for real time event/convention information management.

On January 16, 2003, we entered into a Plan and Agreement of Reorganization with International Card Establishment, Inc., a Nevada corporation and its shareholders. International Card Establishment, Inc., a Nevada corporation, was incorporated on July 26, 2002. As part of the acquisition - a reorganization in the form of a reverse merger, International Card Establishment, Inc. became our wholly-owned subsidiary, and there was a change of our control. Following the International Card Establishment, Inc. acquisition we changed our corporate name from iNetEvents, Inc. to International Card Establishment, Inc. and reverse split our outstanding shares of Common Stock on a one for two share basis.

Effective September 8, 2004, we entered into a Plan and Agreement of Reorganization with Neos Merchant Solutions, Inc., a Nevada corporation and its shareholders. Effective September 8, 2004, Neos Merchant Solutions, Inc. became our wholly owned subsidiary.

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; and facilitates payment processing for the accounts. 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 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 was dormant in 2006 and 2005.

ANALYSIS OF BUSINESS

Over the past year, management has critically reviewed the operations of the Company to look for cost savings, efficiencies and better revenue streams. In 2006, the Company changed its processing of credit card transactions to a manner that allowed the recognition of gross processing revenues, and we restructured ourselves to be more cost effective and efficient. In 2007, the Company continues to look for additional cost savings and better revenue streams. We have significantly tightened our underwriting criteria for the purpose of lowering our exposure to bad debt for bank card processing. The initial impact of this new credit criterion caused the elimination of several large processing accounts and related revenue streams, which resulted in a decline of net revenues and gross profit for the period ended September 30, 2007 as compared to the period ended September 30, 2006. We anticipate that this trend will continue until such time as we are able to increase our overall gross sales under the new criteria. We are attempting to increase our sales agent base and identify strategic relations for resale of our services. There is no assurance that we will be successful in growing our agent base given the extremely competitive environment for recruiting sales agents or that attrition of our bank and gift & loyalty card portfolios will not continue to exceed new activations.

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 our allowance for doubtful accounts.

We believe the following critical accounting policies reflect our more significant estimates and assumptions used in the preparation of our consolidated financial statements:

REVENUES

The Company provides merchant services and customer support for merchants and other Merchant Services providers. Revenues are recognized as customer services are provided.

The Company provides merchant services to customers for acceptance and processing of electronic payments. Credit card processing fees are recognized as incurred. Sales and cost of sales of equipment are recognized when the equipment is provided and the customer accepts responsibility for the payment of the equipment.

We do not have any of the following:

* Off-balance sheet arrangements.

* Certain trading activities that include non-exchange traded contracts accounted for at fair value.

* Relationships and transactions with persons or entities that derive benefits from any non-independent relationships other than related party transactions discussed herein.

 SEPTEMBER 30, 2007 SEPTEMBER 30, 2006 $ CHANGE % CHANGE

Net Revenues $ 2,162,336 $ 2,827,008 $ (664,672) (24%)
Cost of Revenues 1,416,596 1,636,215 (219,619) (13%)
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Gross Profit 745,740 1,190,793 (445,053) (37%)

Operating, General and
Administrative Costs 1,343,918 1,134,356 209,562 18%
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Net Operating Loss $ (598,178) $ 56,437 $ (654,615) (1160%)

Net revenues decreased by $664,672 from $2,827,008 for the three months ended September 30, 2006 to $2,162,336 for the three months ended September 30, 2007 because of reduced sales due to tighter controls on new accounts, elimination of high risk accounts, and the reduction in residuals due to attrition to both the Merchant portfolios.

The costs associated with the merchant account services decreased by approximately 13% or $219,619 primarily due to a $430,665 decrease in commission expense, resulting from the consolidation of operations from our Neos subsidiary to ICE Nevada in the third quarter of 2006.

General and administrative costs increased by approximately $209,562 from $1,134,356 for the three months ended September 30, 2006 to $1,343,918 for the three months ended September 30, 2007 because of changes instituted in April of 2007 to the methodology used to measure the allowance for doubtful accounts and the corresponding bad debt expense. While theses changes have lowered net revenues and increased general and administrative expenses, their net effect is to increase the quality of reported earnings.

 SEPTEMBER 30, 2007 SEPTEMBER 30, 2006 $ CHANGE % CHANGE

Net Revenues $ 6,929,718 $ 7,683,082 $ (753,364) (10%)
Cost of Revenues 4,515,171 5,243,888 (728,717) (14%)
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Gross Profit 2,414,547 2,439,194 (24,647) (1)%
Operating, General and
Administrative Costs 3,431,815 5,406,793 (1,974,978) (37%)
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Net Operating Loss $(1,017,268) $(2,967,599) $1,950,331 (66%)

Net revenues fell by 10% from $7,683,082 for the nine months ended September 30, 2006 to $6,929,718 compared to the nine months ended September 30, 2007 primarily because of reduced sales due to tighter controls on new accounts, elimination of high risk accounts, and the reduction in residuals due to attrition of the Merchant portfolio. Furthermore, these policies caused a corresponding $728,717 decrease in the cost of revenues from $5,243,888 for the nine months ended September 30, 2006 to $4,515,171 for the nine months ended September 30, 2007.

Operating, general, and administrative costs decreased by $1,974,978 from $5,406,793 for the nine months ended September 30, 2006 to $3,431,815 during the nine months ended September 30, 2007 primarily because of cost reductions of $500,778 in payroll expenses, $800,816 in compensation expense for stock option awards, $368,277 in bad debts expense, $118,830 in consulting fees, and $218,632 in office expenses relating to the consolidation of operations from the Irvine, CA office to our headquarters in Camarillo, CA. We do not expect dramatic fluctuations in expenses in future periods barring corresponding fluctuations in revenues.

 SEPTEMBER 30, 2007 SEPTEMBER 30, 2006 $ CHANGE % CHANGE

Cash $ 131,380 $ 157,528 $ (26,148) (17%)
Accounts Payable and
 Accrued Expenses $ 594,831 $ 865,336 $ (270,505) (31%)
Accounts Receivable, net $ 36,904 $ 87,705 $ (50,801) (58%)

We have financed our operations during the year primarily through sales and use of cash on hand. As of September 30, 2007, we had total current liabilities of $1,727,216 compared to $1,980,213 as of December 31, 2006. The decrease in current liabilities is primarily due to a decrease in Accrued Expenses and paying down Accounts Payable.

Cash decreased 17% as of September 30, 2007 due to the above and the issuance of a $50,000 Note Receivable in the second quarter.

As of September 30, 2007, our accounts receivable, net decreased to $36,904 compared to $87,705 at December 31, 2006. The relating allowance for doubtful accounts decreased from $280,595 at December 31, 2006 to $243,871 as of September 30, 2007 because of a wholesale restructuring of credit policies, the tightening of requirements for the extension of credit, the scrubbing of our accounts receivable portfolio of all risky accounts, and the implementation of an aggressive collections policy.

As of September 30, 2007, 4,500 shares of preferred stock were converted into 1,200,000 shares of common stock, resulting in a $555 decrease to additional paid-in capital. We had $131,380 cash on hand as of September 30, 2007 compared to $157,528 as of December 31, 2006. We will continue to need additional cash during the following twelve months and these needs will coincide with the cash demands resulting from our general operations and planned expansion.