Attached files
U.
S. SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K/A
Amendment
No.1
(Mark
One)
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x
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the fiscal year ended December 31, 2008
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OR
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o
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the transition period from ___________ to
___________
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Commission
File No. 0-30853
INTERNATIONAL
MONETARY SYSTEMS, LTD.
(Exact
name of registrant as specified in its charter)
Wisconsin
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39-1924096
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(State of
incorporation)
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(I.R.S.
Employer Identification No.)
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16901
West Glendale Drive New Berlin, Wisconsin 53151
(Address
of principal executive offices & Zip Code)
(Registrant's telephone number,
including area code) (262)
780-3640
Securities
registered pursuant to Section 12(b) of the Act: None
Securities
registered pursuant to Section 12(g) of the Act: Class A Common par value $.0001 per
share
Indicate
by checkmark if registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act. Yes o No x
Indicate
by checkmark if registrant is not required to file reports pursuant to Section
13 or Section 15(d) of the Act. Yes o No x
Indicate
by checkmark 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 if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of the Registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a small reporting company. See
definition of “large accelerated filer”, “accelerated filer”, and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer o
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Accelerated
filer o
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Non-accelerated
filer o (Do not check if
a smaller reporting company)
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Smaller
reporting company x
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Indicate
by checkmark whether the registrant is a shell company (as defined in Rule 12b-2
of the Securities Act). Yes o No x
As of
April 6, 2009, the Registrant had issued and outstanding 61,025,436 shares of
common stock. The aggregate market value of the voting Common Stock (par value
$.0001 per share) held by non-affiliates on June 30, 2008 (the last business day
of our most recently completed second quarter) was $25,630,683 using the ask
price on June 30, 2008.
1
EXPLANATORY NOTE
This
Amendment on Form 10-K/A amends our annual report on Form 10-K for the year
ended December 31, 2008 filed with the Securities and Exchange Commission on
April 8, 2009. It is in response to comment letters received from the Securities
and Exchange Commission dated September 25, 2009, November 25, 2009 and January
8, 2010 requesting clarifications and expansion of certain portions of the
original Form 10-K as listed below:
·
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Reconciling
subsidiaries listed under Part, 1 Item 1 to Note 1A in the Notes to the
Consolidated Financial Statements;
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·
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Update
the MD & A section regarding key variables and other quantitative and
qualitative factors;
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·
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Update
Disclosure Controls and Procedures in Item
9A(T);
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·
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Update
business experience for the directors and executive officers in Item
10;
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·
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Clarify
options or other stock rights available to officer or directors in Item
12;
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·
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Added
financial statements schedules to exhibits in Item
15;
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·
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Added auditors consent for
reference to Form S-8 in Item
15;
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·
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Updated
signature page with additional required
signatures.
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This
filing has been updated for the items listed above and does not include
subsequent events or the results of operations subsequent to December 31, 2008
except as noted above. Readers are encouraged to read subsequent filings on
forms 10-Q and 8-K for periods subsequent to December 31, 2008 for current
information.
INTERNATIONAL
MONETARY SYSTEMS, LTD.
Form 10-K
Annual Report
TABLE OF
CONTENTS
PART
I
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Page
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Item
1.
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Description
of Business
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4 | |||
Item
2.
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Description
of Property
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6 | |||
Item
3.
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Legal
Proceedings
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6 | |||
Item
4.
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Submission
of Matters to a Vote of Security Holders
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6 | |||
PART
II
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Item
5.
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Market
for IMSL Common Equity and Related Stockholder Matters
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7 | |||
Item
6.
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Selected
Financial Data
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7 | |||
Item
7.
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Management's
Discussion and Analysis of Financial Condition and Results of
Operations
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7 | |||
Item
8.
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Financial
Statements
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11 | |||
Item
9.
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Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
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11 | |||
Item
9 A(T).
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Controls
and Procedures
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11 | |||
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PART
III
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Item
10.
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Directors
and Executive Officers
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13 | |||
Item
11.
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Executive
Compensation
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15 | |||
Item
12.
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Security
Ownership of Certain Beneficial Owners and Management
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20 | |||
Item
13.
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Certain
Relationships and Related Transactions
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21 | |||
Item
14.
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Principal
Accountant Fees and Services
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21 | |||
Item
15.
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Exhibits
List and Reports On Form 8-K
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22 | |||
2
CERTAIN
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING INFORMATION
Certain
statements in this annual report on Form 10-K contain or may contain
forward-looking statements that are subject to known and unknown risks,
uncertainties and other factors which may cause actual results, performance or
achievements to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. These
forward-looking statements were based on various factors and were derived
utilizing numerous assumptions and other factors that could cause our actual
results to differ materially from those in the forward-looking statements. These
factors include, but are not limited to, economic, political and market
conditions and fluctuations, government and industry regulation, interest rate
risk, U.S. and global competition, and other factors. Most of these factors are
difficult to predict accurately and are generally beyond our control. You should
consider the areas of risk described in connection with any forward-looking
Statements that may be made herein. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date of
this report. Readers should carefully review this quarterly report in its
entirety, including but not limited to our financial statements and the notes
thereto. Except for our ongoing obligations to disclose material information
under the Federal securities laws, we undertake no obligation to release
publicly any revisions to any forward-looking statements, to report events or to
report the occurrence of unanticipated events. For any forward-looking
statements contained in any document, we claim the protection of the safe harbor
for forward-looking statements contained in the Private Securities Litigation
Reform Act of 1995.
3
PART
I
In this
report, "IMSL", "IMS", "The Company", "we", "us" and "our" refer to the
Registrant, International Monetary Systems, Ltd., a Wisconsin corporation, and
its subsidiaries.
ITEM
1 - DESCRIPTION OF BUSINESS
Introduction
International
Monetary Systems, Ltd. was incorporated in 1989 under the laws of the State of
Wisconsin. The Company acquires, owns, manages and operates trade exchanges and
other related businesses.
Trade
exchanges, or barter networks, are financial service firms which permit
companies and individuals to exchange goods and services utilizing an electronic
currency known as "trade dollars", the use of which is described below.
Currently, IMS services more than 18,000 barter customers. We have continually
expanded our customer base, principally through enrolling new members in our
existing markets, acquiring other barter exchanges, and by encouraging our
members to increase their trade volume.
Our
corporate headquarters mailing address is 16901 West Glendale Drive, New Berlin,
Wisconsin 53151, and our telephone numbers are (800) 559-8515 and (262)
780-3640; the telephone number for our primary facsimile line is (262) 780-3655.
Our Internet addresses are www.internationalmonetary.com and
www.imsbarter.com.
The
Modern Barter Industry
The
modern barter industry took shape in its current form in 1969 with the creation
of the first retail barter exchange. Currently there are an estimated 250 barter
system firms - including several with multiple licensees – operating in the
United States and Canada. These exchanges provide services that involve an
estimated 200,000 member companies.
Retail
trade exchanges range in size from those operated by a single person from a
small office to large firms operating out of multiple offices located over a
wide area. The 35 largest commercial exchange firms handle approximately 50% of
the estimated $700 million in transactions that flow through the barter system
annually. Most trade exchanges are private companies that make extensive use of
computers to track their members, match transactions, and provide necessary
accounting.
The
National Association of Trade Exchanges and the International Reciprocal Trade
Association are the two professional associations most active in the
industry.
How
Barter Works
In a
typical barter transaction, a member offers to sell products or services in
return for the exchange's trade dollars, typically referenced as "T$", which are
paid to the member by the purchaser in the transaction. For example, T$100
refers to $100 worth of trade dollars that are used to acquire a product or
service priced at $100 in U.S. currency. If the purchase price is greater than
the amount of earned trade dollars in the buyer's account, the exchange may
grant a trade dollar line of credit to the buyer. Periodically, each member has
to account for any deficit in its trade account just as it would with a
conventional loan or other credit facility.
As
compensation for providing its services, the trade exchange generally charges a
one-time membership fee, monthly maintenance fees and/or a percentage of the
price of each transaction (usually 10% to 15%). These fees are typically paid by
the member to the trade exchange in cash.
Barter
transactions which represent sales revenue are taxable as ordinary income to the
recipient of the trade dollars in the conventional dollar amount of the trade
dollars received, and conversely are deductible as ordinary expense by a
purchaser in the conventional dollar amount of the trade dollars paid. Members'
barter sales are reportable by the trade exchange to the Internal Revenue
Service on Form 1099B.
Advantages
and Disadvantages
Barter
offers a number of advantages to those who utilize it. A principle advantage to
trade exchange members is referred to as "barter leverage". This refers to the
fact that the typical barter exchange member is purchasing a product or service
in exchange for its own
4
product
or service. Consequently, each purchase results in a probable sale. And since
the actual cash cost of producing the product or service is typically less than
its retail sale price, a person utilizing barter is actually purchasing for a
real cash cost that is only a fraction of the price of the product or service
purchased. In effect, the barter exchange member buys at wholesale, but sells
its own goods or services at retail. Frequently, the member will charge a higher
price for barter than for cash to cover the charges due to the trade exchange.
However, the benefit to the person bartering for the product or service is still
significant as a result of the purchase being accomplished through
barter.
For
example, a trade exchange member may incur a $1,000 cash cost to produce a
product or to purchase it at wholesale. If the member then barters this product
for a good or service priced at $1,500, representing the retail price at which
it is normally sold, the member has effectively bought the good or service for a
cost of only $1,000 in cash. Barter leverage is particularly effective in the
case of products that have become hard to sell. Rather than write down their
value, the producer may be able to secure full value by bartering them through
the trade exchange. Barter leverage works most effectively when trading for
something that is perishable, such as hotel rooms or airline tickets. Once the
hotel room lies vacant or the airline seat is unfilled for a flight, its value
is lost forever. In those cases, exchange of the room or seat in barter offers
an effective way to gain value from something that would otherwise have been
rendered worthless. Due to barter leverage, the value of barter to exchange
members will more than likely offset the fees charged by the barter
exchange.
Barter
also provides an effective means by which a member may enter new markets, gain
trial usage by potential customers, or increase market share. The member may
well find that he can reach a customer who would not otherwise have tried his
product or service if the full price had to be paid in cash, but who will try
his goods or services, sometimes in large amounts or on extended terms, when the
price is being paid in goods or services of the purchaser in the form of trade
dollars. Because of the need to clear trade dollars over time, barter exchanges
become affinity marketing networks, in which members seek out opportunities to
do business with one another.
The
principle disadvantage of barter is that, in comparison to the general
cash-based economy, a more limited supply of products and services is
available.
International
Monetary Systems, Ltd. (IMS - the Company) is a Wisconsin holding company
located in New Berlin, Wisconsin, with three wholly-owned operating
subsidiaries: Continental Trade Exchange, Ltd (CTE) and National Trade
Association, both of which operate a barter (trade) exchange in the United
States, and INLM CN Inc., which operates a barter (trade) exchange in
Canada.
The
IMS Barter Network
As a
leader in the barter industry, IMS has created a network of more than 18,000
barter clients who regularly trade their goods and services with each other.
Through their participation in our barter program, these companies and
individuals are provided with an effective revenue management tool which enables
them to identify and capture incremental income, move surplus inventories and
profitably capitalize on their excess capacity. IMS functions as a third-party
record keeper - a status granted by the Internal Revenue Service - and also
manages the barter system.
To
provide clients with a flexible and effective means of trading, IMS has created
an alternative monetary system with its own unique currency. Upon enrolling in
the program, each member is assigned a barter account (much like a traditional
bank account) through which it receives IMS trade dollars - the medium of
exchange for the barter system. Under the T.E.F.R.A. act of 1982, we are
required to report all barter sales to the IRS. For accounting and tax purposes,
the IRS has ruled that trade dollars are treated the same as cash. Accordingly,
the Company may in any period report significant revenue, profits and increases
in net assets from transactions denominated in IMS trade dollars or other
non-cash consideration.
The IMS
barter system began operations in July of 1985 and has had a record of
consistent and steady growth, both organic and through acquisitions of other
barter networks. As we have added new members to the system we have witnessed a
compounded annual growth rate of approximately 15% per year for the past decade.
During that same period we have acquired twenty two independent trade exchange
operations. We believe that the barter industry, much like the banking industry,
is ready for a period of substantial consolidation and, therefore, we intend to
continue acquiring strategically located trade exchanges that will enable us to
achieve and maintain a dominant market position. A dominant position within a
market gives us better visibility within that market, allows us to offer a wider
range of customer products and services for the benefit of our clients, and
ensures that we will achieve greater economies of scale.
Three of
those acquisitions were consummated during 2008. In April 2008, IMSL exercised
its option to acquire the membership and assets of New York Commerce Group of
New York, NY. In May 2008, IMSL acquired the membership list and assets of
Business Network of Hauppauge, New York.. In July 2008, IMSL acquired
the membership list and assets of Bartermax of Norwood, MA.
5
Other
Related Businesses
In
addition to expanding our IMS barter operations, we intend to acquire other
related businesses that synergize with and enhance the barter
network.
ITEM 1A – RISK
FACTORS - No applicable risk factors
ITEM
2 - DESCRIPTION OF PROPERTY
Our
company's executive offices and principal operating facilities occupy 11,000
square feet of leased space located at 16901 West Glendale Drive, New Berlin,
Wisconsin, under a lease from Glendale Investments, LLC, a Wisconsin limited
liability company owned by Donald F. Mardak, Dale L. Mardak and John E.
Strabley, officers and directors of IMSL. Rent and other terms of our lease,
which expires September 30, 2010 are believed by us to be comparable to those
available for similar space from unaffiliated, third-party lessors in the same
area. We also lease (1) 400 square feet of office space at 1545 University
Avenue, Green Bay, Wisconsin, (2) 2,800 square feet of office space at 5350
Commerce Blvd., Rohnert Park, CA, (3) 6,840 square feet at 8938 Cotter Street,
Lewis Center, Ohio, (4) 1,000 square feet of office space at 1317 Oakdale Road,
Modesto, California, (5) 2,900 square feet of office at 4295 Cromwell Rd,
Chattanooga, TN, (6) 630 square feet of office space at 4600 Kietzke Lane,,
Reno, NV, (7) 7,600 square feet of office and warehouse space at 103 East Main
Street, Plainview, CT, (8) 833 square feet of office space at 6402 McLeod Drive,
Las Vegas, NV. (9) 200 square feet of office space at 50 Airport Parkway, San
Jose, CA, (10) 1,896 square feet of office space at 7670 Wolff Court,
Westminster, CO (11) 21,630 square feet of office and warehouse space at 7449
North Natchez Ave., Niles, IL, (12) 4,900 square feet of office space at 1595
Elmwood Ave., Rochester, NY, (13) 1,455 square feet of office space at 3100
Steeles Avenue West, Concord, Ontario, Canada, (14) 1,200 square feet of office
space at 438 S. Greenwood, Wichita, Kansas, (15) 250 square feet of office space
at 3418 Frankfort Ave, Louisville, KY.,(16) 1,400 square feet of office space at
1751 2nd
Avenue, New York, NY, (18) 1.500 square feet of office space at 800 Veterans
Blvd, Hauppauge, NY, (19) 1,910 square feet of office space at One Edgewood
Drive, Norwood, MA. The leases on all other properties aside from the New
Berlin, Wisconsin facility are from unaffiliated parties and are each on a
month-to-month basis or a short term lease of less than 5 years. Upon the
expiration of our current leases, we expect that, in each case, we will be able
to obtain either a renewal lease, if desired, or a new lease at an equivalent or
better location.
ITEM
3 - LEGAL PROCEEDINGS
On
January 20, 2008, Celia Greengrass filed a sexual harassment complaint with the
Equal Employment Opportunity Commission. The claim is still under
investigation by the EEOC but IMS believes the claims to be meritless and will
vigorously defend itself.
On March
20, 2008, Joan Mansfield filed a complaint alleging age discrimination with the
Connecticut Commission on Human Rights and Opportunities and the Equal
Employment Opportunity Commission. IMS has reached a settlement with
Ms. Mansfield and the complaints will be dismissed.
On May
29, 2008, John Lounsbury filed a claim of sexual harassment with the Connecticut
Commission on Human Rights and Opportunities and the Equal Employment
Opportunity Commission. The claim is still under investigation by the
CHRO but IMS feels the claim is without merit and will vigorously defend
itself.
On
September 25, 2008, IMS was notified of a wage claim filed with the Canadian
Ministry of Labour by Gerard Domet in the amount of $10,400.00. The
claim is still under review by the Ministry of Labour. There may be
wages due to Mr. Domet; however, the amount is substantially less than the
amount claimed.
On
September 30, 2008, WRS, Inc D/B/A WRS Motion Picture and Video Laboratory filed
suit in Allegheny County, PA for breach of contract. The complaint
seeks $38,649.58 in damages. The complaint against IMS is meritless;
the litigation seeks payment for services provided to a former member of the
Exchange, none of the services at the heart of the litigation were provided to
IMS and therefore, no payment is due from IMS. A motion to dismiss
this matter is pending with the court.
There are
no other material pending legal proceedings involving IMSL or any of its
properties.
ITEM
4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter
was submitted to a vote of our security holders during the fourth quarter of the
fiscal year ended December 31, 2008.
6
PART
II
ITEM
5 - MARKET FOR IMSL COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Stock.
Our initial public offering was concluded on December 31, 2001, and our Common
Stock began being quoted on the NASD's OTC Bulletin Board on June 25, 2002. For
the past 50 days ending on March 27, 2009, the trading volume has averaged
24,308 shares per day.
High
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Low
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Fiscal
2007
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||||||||
First
quarter ended March 31, 2007
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$ | 0.98 | $ | 0.98 | ||||
Second
quarter ended June 30, 2007
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$ | 0.81 | $ | 0.81 | ||||
Third
quarter ended September 30, 2007
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$ | 0.62 | $ | 0.62 | ||||
Fourth
quarter ended December 31, 2007
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$ | 0.54 | $ | 0.53 | ||||
Fiscal
2008
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||||||||
First
quarter ended March 31, 2008
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$ | 0.55 | $ | 0.51 | ||||
Second
quarter ended June 30, 2008
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$ | 0.49 | $ | 0.42 | ||||
Third
quarter ended September 30, 2008
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$ | 0.33 | $ | 0.28 | ||||
Fourth
quarter ended December 31, 2008
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$ | 0.20 | $ | 0.20 |
As of
December 31, 2008, the approximate number of holders of record of our Common
Stock was 675.
ITEM 6 – SELECTED FINANCIAL DATA -
Not
applicable.
ITEM
7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The
following commentary should be read in conjunction with the financial statements
and related notes contained elsewhere in this report.
2008 was
a year filled with achievements and challenges for International Monetary
Systems. After record-setting growth in 2007 triggered by IMS’ acquisitions of
two of America’s largest trade exchanges, the Company spent much of 2008
integrating those operations and continuing to build
infrastructure.
Following
are some of the highlights of 2008:
·
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The
Company completed its investment in new computers, monitors, printers,
servers, and other equipment, which has enhanced the efficiency of our
broker and sales staffs.
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·
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Substantial
progress was made in upgrading our web site, with new written content and
graphics, new testimonials, an educational video, a client/broker blog,
and audio clips which tell our story to prospective members. We have seen
new traffic to our web site increase 76% from 2007. The member portal has
been expanded with a new online barter marketplace, travel-on-trade
booking area, and account maintenance tools. As a result we are seeing
more and more members use the IMS web site to sell, buy, or simply input a
transaction or check their account. We are transforming member behavior to
positively impact our efficiency.
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·
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Last
year IMS acquired the source code for TradeWorks, our
proprietary clearing system, then migrated the entire program from its
original RPG format into a more current dot-net technology. This process
is ongoing as we are nearing the official rollout of the most updated
version of our new Trade
Network Tracking System (TNT). The cost of this project is
approaching $500,000.
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·
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Our
IT department now has five full-time employees, including a talented
graphics designer, who are servicing the network, converting the software
and enhancing the IMS web site.
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7
·
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We
have worked diligently to increase the productivity and cost-effectiveness
of our outside sales force. Some of our losses in the first two quarters
of 2008 were a direct result of non-productive efforts. We now have a
leaner, more efficient group who enrolled more than 3,000 new members
during 2008. Yet as impressive as that number seems, it barely matched the
attrition of existing members who had stopped functioning in the barter
system, or had ceased business
operations.
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·
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Our
annual barter expo series in November and December surpassed the
attendance and trading volume experienced in 2007. Overall volume at these
events increased by 16%, with aggregate sales of over $3
million.
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·
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During
2008 IMS acquired two small exchanges in Boston, MA and Long Island, NY,
and completed the acquisition of New York Commerce
Group.
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·
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During
2008 IMS repurchased more than one million of its shares under contractual
obligations with former owners of companies acquired in previous years.
This increased our treasury stock to more than two million
shares.
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To
evaluate operations, management monitors, among other measures, EBIDTA, cash
flow, trade volume, revenue generated from said trade volume, number of
customers and levels of significant operating expense categories. Key metrics to
evaluate the health of the company include cash position, ratio of current
assets to current liabilities, debt levels, and equity trading
activity.
As stated
above, 2008 was a year of investment in the business. 2009 will be a year of
evaluation and integration, right sizing the operations across the footprint to
take advantage of larger scale, standardizing processes in acquired markets, and
reducing overlapping expenses. Management feels that these changes will help to
drive increased profitability in the future.
The
national and international economic outlook requires us to be cautious in our
enthusiasm for the future. While a slow economy can emphasize barter
as an increased part of a successful business’s model, management must be extra
diligent in monitoring the health of the exchange members so as to ensure the
continued health of the exchange and collectability of fees
earned. That said, fees earned are relatively small amounts from a
large number of clients in 50 markets across the country. This
diversification provides substantial revenue risk mitigation.
RESULTS
OF OPERATIONS
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GROSS
REVENUE & EXPENSES
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In 2008
IMS experienced positive cash flows from operations of more than $610,000, and
operating profits (EBITDA) totaling nearly $594,000. However after deducting
amortization and impairment of our membership lists, as well as bad debt expense
and depreciation, the Company posted a net loss of $940,521, compared to a net
loss of $414,290, in 2007. The impairment loss was recorded when estimated
future cash flows were calculated as less than anticipated at the time of the
original acquisitions. Management believes that these expenses represent
investment in infrastructure that will provide substantial future organic
growth.
During
the year ended December 31, 2008 IMS processed more than $114 million in trade
sales transactions, generating gross revenue of $14,203,550, compared to
$14,772,045 in 2007. A substantial portion of the decline in revenue was
experienced in the corporate barter division, resulting in a decline in trade
revenue. While revenue from the corporate division has decreased year over year,
as operated it is an incrementally less profitable segment of our business.
Gross revenue from this division decreased from $2,678,605 in 2007 to $1,030,246
in 2008.
Total
operating expenses increased from $14,945,745 in 2007 to $15,448,086 for the
year ended December 31, 2008, an increase of 3.3%. This increase is primarily
due to inclusion of the operating expenses from market acquisitions made in 2007
and 2008. A full year’s expenses are included in 2008 for 2007 acquisitions,
compared to a partial year’s expenses in 2007. Similarly, 2008 includes a
partial year’s expenses for markets acquired in 2008 which would not have been
included in 2007’s results. Adjusting for these fluctuations,
operating expenses are relatively comparable on a year over year
basis.
Payroll
expenses increased 2.7% from $9,228,485 in 2007 to $9,483,364 in 2008, while
occupancy expenses increased from $969,243 to $1,078,288, or 11.4%. Selling
expenses increased 22.4%, from $687,079 in 2007 to $840,926 in 2008. The
increase in selling expenses was a direct result of our expanded sales force
early in the year. However, the sales department has been reduced and expenses
in 2009 should decrease proportionately. General and administrative expenses
were reduced 13.1%, from $2,319,680 to $2,014,856. Depreciation and
amortization expenses were increased 12.2%, from $1,465,367 to $1,643,534. This
was a mainly a result of the new exchanges acquired in 2008.
8
Net cash flows from operations totaled
$610,238 in 2008, compared to $945,111 in 2007. EBITDA (earnings before
interest, taxes, depreciation and amortization) totaled $593,728 compared to
EBITDA of $1,375,839 in 2007.
EBITDA
Calculation
|
||||||||
2008
|
2007
|
|||||||
Net
loss
|
$ | (940,521 | ) | $ | (414,290 | ) | ||
Interest
expense
|
275,332 | 342,855 | ||||||
Taxes
|
(594,222 | ) | (54,769 | ) | ||||
Depreciation
& amortization
|
1,643,534 | 1,465,367 | ||||||
Impairment
|
209,605 | 36,676 | ||||||
Total
EBITDA
|
$ | 593,728 | $ | 1,375,839 | ||||
FINANCIAL
CONDITION
LIQUIDITY,
COMMITMENTS FOR CAPITAL RESOURCES, AND SOURCES OF FUNDS
In 2008
IMS experienced positive cash flows from operations of $610,238. Our principal
source of liquidity from operations has been cash earnings from membership
charges, monthly service fees and transaction processing charges. We believe
that cash from operations will be adequate to provide for our continuing
liquidity needs.
At
December 31, 2008 the Company had a working capital deficit of $1,173,807 and a
net loss of $940,521. The loss resulted in part from $1,643,534 in depreciation
and amortization expenses and an impairment charge of $209,605. As a result of
recent cuts in personnel and salaries, management believes that cash flows from
operations will increase by approximately $1,300,000. We also
anticipate $100,000 in new financing, and an extension of a $100,000 note
payable currently due in 2009. Accordingly, management has mitigated the working
capital deficiency and does not believe that substantial doubt exists about the
Company’s ability to continue as a going concern.
In May of
2008, IMS acquired BNI of Long Island, NY for $400,000, and in July acquired
Barter Max of Boston, MA for $400,000. The Company also concluded its purchase
of New York Commerce Group in 2008. We are not currently obligated to purchase
any trade exchange or other business. However, we will continue to seek
opportunities to acquire additional quality exchanges in the
future.
Over 46%
of the current portion of long-term debt consists of notes convertible to
equity. We anticipate that some of this debt will be converted to equity.
However, existing cash flow is sufficient to meet current obligations, should
anticipated conversions not materialize.
CHANGES
IN ASSETS AND LIABILITIES
During
2008 cash balances decreased to $279,227 from $812,365 in 2007. The decrease is
due to the investments in additional markets and infrastructure for future
growth described above. Restricted cash deposited in escrow accounts totaled
$495,803, compared to $483,443 in 2007, primarily to guarantee the buyback of
shares related to the purchase of Alliance Barter. If IMS’ stock price exceeds
$.75 per share, these funds will revert back to the Company in accordance with
the purchase agreement. At the end of 2008, accounts receivable, net
of allowance for doubtful accounts, totaled $1,401,383, compared to $1,516,938
at the end of 2007. Earned trade decreased from $314,928 to $6,991 primarily due
to outlays for advertising during the fourth quarter. As a result of these
changes, total current assets decreased from $3,392,126 on December 31, 2007 to
$2,460,261 at the end of 2008. Other assets decreased by $433,906, or 3.2%.
Total assets decreased from $18,351,454 in 2007 to $16,772,946 on December 31,
2008.
Current
liabilities decreased by $344,401, or 8.6%, from $3,978,469 in 2007 to
$3,634,068 at the end of 2008. This decrease is primarily due to retiming and
renewal of notes payable, setting due dates further into the future, helping to
increase cash flow in 2009. Current and long-term notes payable consist of
various notes to former owners of acquired trade exchanges, or to investors who
funded the acquisitions. At the end of 2008, long-term debt was $5,119,647
compared to $5,292,037 in 2007, a decrease of $172,390. Total liabilities
decreased 5.5%, from $9,270,506 in 2007 to $8,753,715 at the end of
2008.
9
Common
stock and paid-in capital increased from $10,908,001 in 2007 to $11,703,201 in
2008. Treasury stock increased from $547,241 (1,276,542 shares) in 2007 to
$1,403,216 (2,322,542 shares) in 2008. Total shareholder equity decreased 11.7%,
from $9,080,948 in 2007 to $8,019,231 on December 31, 2008.
BOARD
OF DIRECTORS
In 2007
the board of directors formed a Compensation Committee. The members of that
committee, as of December 31, 2008, are Wayne Dalin, Thomas Delacy, Wayne Emmer
and Gerald Van Dyn Hoven.
The Audit
Committee members are Wayne Dalin, Thomas Delacy, Wayne Emmer, Gerald Van Dyn
Hoven and Donald Mardak.
CRITICAL
ACCOUNTING POLICIES
Our
financial statements and accompanying notes are prepared in accordance with
generally accepted accounting principles in the United States. Preparing
financial statements requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenue and expenses. These
estimates and assumptions are affected by management's applications of
accounting policies. The significant accounting policies which management
believes are the most critical to aid in fully understanding and evaluating our
reported financial results include revenue recognition, intangible asset testing
and income taxes.
NEW
ACCOUNTING STANDARDS
In
December 2007, the Financial Accounting Standards Board (FASB) issued SFAS No.
160, “Noncontrolling Interests
in Consolidated Financial Statements – an amendment of ARB No. 51”. This
statement improves the relevance, comparability, and transparency of the
financial information that a reporting entity provides in its consolidated
financial statements by establishing accounting and reporting standards that
require: the ownership interests in subsidiaries held by parties other than the
parent and the amount of consolidated net income attributable to the parent and
to the noncontrolling interest be clearly identified and presented on the face
of the consolidated statement of income; changes in a parent’s ownership
interest while the parent retains its controlling financial interest in its
subsidiary be accounted for consistently; when a subsidiary is deconsolidated,
any retained noncontrolling equity investment in the former subsidiary be
initially measured at fair value; entities provide sufficient disclosures that
clearly identify and distinguish between the interests of the parent and the
interests of the noncontrolling owners. SFAS No. 160 affects those entities that
have an outstanding noncontrolling interest in one or more subsidiaries or that
deconsolidate a subsidiary. SFAS No. 160 is effective for fiscal years, and
interim periods within those fiscal years, beginning on or after December 15,
2008. Early adoption is prohibited. The adoption of this statement is not
expected to have a material effect on the Company's financial
statements.
In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement No. 133”
(SFAS
161). This statement is intended to
improve transparency in financial reporting by requiring enhanced disclosures of
an entity’s derivative instruments and hedging activities and their effects on
the entity’s financial position, financial performance, and cash flows.
SFAS
161 applies to all derivative
instruments within the scope of SFAS 133, “Accounting for Derivative Instruments
and Hedging Activities” (SFAS 133), as well as related hedged items, bifurcated
derivatives, and nonderivative instruments that are designated and qualify as
hedging instruments. Entities with instruments subject to
SFAS
161 must provide more robust qualitative
disclosures and expanded quantitative disclosures.
SFAS
161 is effective prospectively for
financial statements issued for fiscal years and interim periods beginning after
November 15, 2008, with early application permitted. We are currently
evaluating the disclosure implications of this statement.
In
May 2008, the FASB issued FASB Staff Position APB 14-1 (FSP APB 14-1),
“Accounting for Convertible Debt Instruments That May Be Settled in Cash upon
Conversion (Including Partial Cash Settlement)”, which applies to all
convertible debt instruments that have a “net settlement feature”, which means
that such convertible debt instruments, by their terms, may be settled either
wholly or partially in cash upon conversion. FSP APB 14-1 requires issuers
of convertible debt instruments that may be settled wholly or partially in cash
upon conversion to separately account for the liability and equity components in
a manner reflective of the issuers’ nonconvertible debt borrowing rate. FSP APB
14-1 is effective for financial statements issued for fiscal years beginning
after December 15, 2008 and interim periods within those fiscal
years. Early adoption is not permitted and retroactive application to all
periods presented is required. We continue to evaluate the application of
FSP APB 14-1 on our financial statements.
10
In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles.” SFAS No. 162 identifies the sources of accounting
principles and provides entities with a framework for selecting the principles
used in preparation of financial statements that are presented in conformity
with GAAP. The current GAAP hierarchy has been criticized because it is directed
to the auditor rather than the entity, it is complex, and it ranks FASB
Statements of Financial Accounting Concepts, which are subject to the same level
of due process as FASB Statements of Financial Accounting Standards, below
industry practices that are widely recognized as generally accepted but that are
not subject to due process. The Board believes the GAAP hierarchy should be
directed to entities because it is the entity (not its auditors) that is
responsible for selecting accounting principles for financial statements that
are presented in conformity with GAAP. SFAS 162 is effective 60 days following
the SEC’s approval of PCAOB Auditing Standard No. 6, Evaluating Consistency
of Financial Statements (AS/6). The adoption of FASB 162 is not expected to have
a material impact on the Company’s financial position.
In May,
2008, 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 to an
event of default (insured event) when there is evidence that credit
deterioration has occurred in an insured financial obligation. SFAS 163 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. SFAS 163 is effective for financial statements
issued for fiscal years beginning after December 15, 2008, and interim periods
within those fiscal years. The Company does not expect the proposed guidance
will have an impact on its consolidated financial statements.
OFF
BALANCE SHEET ARRANGEMENT
We do not
have any off balance sheet arrangements or other relationships with
unconsolidated entities.
ITEM
7A – QUANTITATIVE AND QUALITATIVE DISCLOUSRES ABOUT MARKET RISK
Not
applicable because we are a small reporting company.
ITEM
8 - FINANCIAL STATEMENTS
Our
consolidated financial statements and related notes, and the report of Webb and
Company, P.A., independent auditors, with respect thereto, as described in the
Index to Financial Statements, appear elsewhere in this report at pages F-1
through F-31.
ITEM
9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
During
IMSL's two most recent fiscal years of IMSL's engagement of Webb and Company
P.A. ("Webb"), neither IMSL nor anyone on behalf of IMSL consulted with Webb
regarding either (i) the application of accounting principles to a specified
transaction, either completed or proposed, or the type of audit opinion that
might be rendered on IMSL's consolidated financial statements; or (ii) any other
matter that was either the subject of a disagreement (as defined in Regulation
S-K Item 304(a)(1)(iv)) or a reportable event (as described in Regulation S-K
Item 304(a)(1)(v)).
ITEM
9A(T) - CONTROLS AND PROCEDURES
Disclosure
Controls and Procedures
Donald F.
Mardak, our Principal Executive Officer and Danny W. Weibling, our Principal
Financial Officer, are responsible for establishing and maintaining disclosure
controls and procedures for us. Disclosure controls and procedures are controls
and procedures designed to reasonably assure that information required to be
disclosed in our reports filed under the Securities Exchange Act of 1934, such
as this report, is recorded, processed, summarized and reported within the time
periods prescribed by SEC rules and regulations, and to reasonably assure that
such information is accumulated and communicated to our management, including
our Principal Executive Officer and Principal Financial Officer, to allow timely
decisions regarding required disclosure.
11
Our
management does not expect that our disclosure controls or our internal controls
will prevent all error and fraud. A control system, no matter how well conceived
and operated, can provide only reasonable, not absolute, assurance that the
objectives of the control system are met. In addition, the design of a control
system must reflect the fact that there are resource constraints, and the
benefits of controls must be considered relative to their costs. Because of the
inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, within a company have been detected. These inherent limitations include the
realities that judgments in decision-making can be faulty, and that breakdowns
can occur because of simple error or mistake. Additionally, controls can be
circumvented by the individual acts of some persons, by collusion of two or more
people or by management override of the control. The design of any systems of
controls also is based in part upon certain assumptions about the likelihood of
future events, and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions. Over time,
controls may become inadequate because of changes in conditions, or the degree
of compliance with the policies or procedures may deteriorate. Because of these
inherent limitations in a cost-effective control system, misstatements due to
error or fraud may occur and not be detected.
As
required by Rule 13a-15 under the Securities Exchange Act of 1934, as of
December 31, 2008, the end of the period covered by this report, our management
concluded its evaluation of the effectiveness of the design and operation of our
disclosure controls and procedures. As of the evaluation date, our Principal
Executive Officer and our Principal Financial Officer concluded that we maintain
disclosure controls and procedures that are effective in providing reasonable
assurance that information required to be disclosed in our reports under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported
within the time periods prescribed by SEC rules and regulations, and that such
information is accumulated and communicated to our management to allow timely
decisions regarding required disclosure.
Management’s
Report on Internal Control over Financial Reporting
Our
management, including our Principal Executive Officer and Principal Financial
Officer, are responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rule 13a-15(f) under the
Securities Exchange Act of 1934. Our management assessed the effectiveness of
our internal control over financial reporting as of December 31, 2008. In making
its assessment of internal control over financial reporting, management used the
criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) in Internal
Control—Integrated Framework. Based on this evaluation, our management
concluded that, as of December 31, 2008, our internal control over financial
reporting was effective based on those criteria.
This
annual report does not include an attestation report of our registered public
accounting firm regarding internal control over financial reporting. Our
management’s report was not subject to attestation by our registered public
accounting firm pursuant to temporary rules of the Securities and Exchange
Commission that permit us to provide only management’s report in this annual
report.
Changes
in Internal Controls Over Financial Reporting
There
have been no changes in our internal control over financial reporting during our
fourth fiscal quarter that has materially affected, or is reasonably likely to
materially affect, our internal control over financial
reporting.
12
PART
III
ITEM
10 - DIRECTORS AND EXECUTIVE OFFICERS
Executive
Officers and Directors
The
following table sets forth information concerning our executive officers and
directors, including their names, ages and the positions they held with IMSL, as
of December 31, 2008.
Name
|
Age
|
Position
|
|
Donald
F. Mardak
|
72
|
Principal
Executive Officer, President and Director
|
|
Danny
W. Weibling
|
60
|
Treasurer
and Principal Financial Officer
|
|
John
E. Strabley
|
45
|
Executive
Vice President and Director
|
|
Dale
L. Mardak
|
48
|
Senior
Vice President and Director
|
|
Patricia
A. Katisch
|
63
|
Corporate
Secretary
|
|
Wayne
Emmer
|
54
|
Director
|
|
Gerald
Van Dyn Hoven
|
52
|
Director
|
|
Thomas
Delacy
|
44
|
Director
|
|
Wayne
Dalin
|
64
|
Director
|
|
Stephen
Webster
|
64
|
Director
|
Donald F. Mardak has been the
Principal Executive Officer, President and a director of IMSL since our
inception in 1988. From 1970 to 1974, Mr. Mardak was a partner in Learning
Unlimited, a division of Hal Leonard Publishing Corp. In 1974, he founded Don
Mardak Piano & Organ Centers, Ltd., a chain of retail piano and organ stores
in the Greater Milwaukee area. In 1985, Mr. Mardak founded the Continental Trade
Exchange barter network under the name "Continental Trading Company", a sole
proprietorship. Continental Trading Company was incorporated in 1988 as
Continental Trade Exchange, Ltd. and is now our primary operating subsidiary.
Mr. Mardak is a two-term president of NATE, the National Association of Trade
Exchanges (1995-96 and 1999-2000) and served on the board of directors of the
organization for seven years. NATE is the principal barter industry trade
association.
John E. Strabley has been the
Executive Vice President of IMSL since 1992 and a director since 1997. Mr.
Strabley joined Continental Trade Exchange, Ltd. as a trade broker in 1991. In
1992, he was promoted to General Manager and, in August of that year, was
appointed as Vice President of Continental Trade Exchange and IMSL. In 1995, Mr.
Strabley passed the barter industry certification examination and was awarded
with the industry's highest designation of CTB - Certified Trade Broker. In
1997, Mr. Strabley became a director of both Continental Trade Exchange, Ltd.
and IMSL.
Dale L. Mardak has been Senior
Vice President of IMSL since 1995, and a director since 1997. He joined
Continental Trade Exchange, Ltd. in 1993 as a trade broker and was appointed
trade director in 1995. In 1997, he was appointed Treasurer and a director of
both Continental Trade Exchange, Ltd. and IMSL. In 1999, Mr. Mardak received the
designation of CTB - Certified Trade Broker.
Danny W. Weibling is a
Certified Public Accountant and, along with his wife Lisa, was the former owner
of Trade Systems Interchange, the Rohnert Park, CA barter network that IMSL
acquired in April of 2001. Mr. Weibling is also the developer and programmer of
TradeWorks, a leading barter industry software program, and he served six years
as treasurer of the National Association of Trade Exchanges. He has been
Treasurer and Principal Financial Officer of IMSL since April of
2001.
Patricia A. Katisch is the
owner of Katisch & Associates, a marketing consulting and public relations
firm she has operated since 2002. From 1998 - 2001, Ms. Katisch was an Associate
Dean in the College of Professional Studies at Marquette University. Previous to
that, she founded and published the Women's Yellow Pages of Greater Milwaukee
and was the producer of the Wisconsin World of Women Show.
Wayne Emmer is the President
of Illinois Cement Co., a position he has held since August of 1998. Wayne is
also a former member of the Parkview Christian Academy School
Board.
Gerald Van Dyn Hoven has been
the president of the Van Dyn Hoven Automotive Group for more than 20 years.
Jerry is a director of American National Bank - Fox Cities, and is a member of
the Board of Trustees of Equitable Reserve Association.
Thomas Delacy is the president
and CEO of Independent Inspections, Ltd., a company that provides municipal
inspection services for several cities. Tom has held this position for more than
15 years.
13
Wayne Dalin has been a
Certified Public Accountant for more than 30 years and is a retired
principal in Dalin, Lindseth & Company.
Stephen Webster was the former
owner of Alliance Barter, of Rochester New York for more than 25 years. He is a
past president of the National Association of Trade Exchanges (NATE) and the
International Reciprocal Trade Association (IRTA). Steve is also a member of the
Barter Hall of Fame. He is currently a real estate developer and private
investor.
Donald F.
and Judy E. Mardak are husband and wife. John E. Strabley is their son-in-law,
and Dale L. Mardak is their son. Kimberly A. Strabley, the daughter of Donald F.
and Judy E. Mardak and the wife of John E. Strabley, is also employed as IMS
travel director and reciprocal accounts manager.
All of
our directors are serving three-year terms. Messrs. Van Dyn Hoven, Strabley and
Webster serve a three-year term expiring at the 2010 annual meeting of
shareholders. Mr. Donald F. Mardak, Messrs. Emmer and Dalin are serving
three-year terms expiring at the 2008 annual meeting of shareholders. And
Messrs. Delacy and Dale L. Mardak serve a three-year term expiring at the 2009
annual meeting of shareholders.
Director's
Compensation
While we
do not have an established compensation policy for our directors, from time to
time we may issue members of our outside Board of Directors shares of stock as
compensation for their services to us in those positions. During 2008 we issued
an aggregate of 60,000 shares of our common stock valued at $21,000 to Messrs.
Gerald Van Dyn Hoven, Wayne Emmer, Thomas Delacy, Wayne Dalin, Stephen Webster
and Patricia Katisch as compensation for their services.
Compliance
with Section 16(a) of the Exchange Act
Section
16(a) of the Securities Exchange Act of 1934 requires our directors, executive
officers and persons who own more than ten percent of a registered class of our
equity securities to file with the Securities and Exchange Commission ("SEC")
initial reports of ownership and reports of changes in ownership of our Common
Stock and other IMSL equity securities. Officers, directors and beneficial
owners of more than ten percent of such equity securities are required by SEC
regulations to furnish us with copies of all Section 16(a) reports filed by
them.
Based
solely upon review of the copies of such reports furnished to us and written
representations that no other reports were required, IMSL believes that there
was compliance for the fiscal year ended December 31, 2008 with all Section
16(a) reports filed by them.
14
ITEM 11 - EXECUTIVE
COMPENSATION.
The
following table summarizes the compensation paid to or accrued by our principal
executive officer and the two most highly compensated executive officers other
than the principal executive officer, who were serving as executive officers at
the end of December 31, 2008, for the fiscal years ended December 31,
2008 and 2007:
SUMMARY
COMPENSATION TABLE
Pension
Value
|
|||||||||||||||||||||||||||||||||
and
|
|||||||||||||||||||||||||||||||||
Nonqualified
|
|||||||||||||||||||||||||||||||||
Deferred
|
Non-Equity
|
||||||||||||||||||||||||||||||||
Stock
|
Option
|
Compensation
|
Incentive
Plan
|
All
Other
|
|||||||||||||||||||||||||||||
Name
and
|
Salary
|
Bonus
|
Awards
|
Awards
|
Earnings
|
Compensation
|
Compensation
|
Total
|
|||||||||||||||||||||||||
Principle
Position
|
Year
|
($)
|
($)
|
($)
|
($)
|
($)
|
($)
|
($)
(1)
|
($)
|
||||||||||||||||||||||||
Donald
F. Mardak,
|
2008
|
230,000 | -- | -- | -- | -- | -- | 10,367 | 240,367 | ||||||||||||||||||||||||
Principal
Executive
|
2007
|
200,000 | -- | -- | -- | -- | -- | 6,960 | 206,960 | ||||||||||||||||||||||||
Officer
& President
|
|||||||||||||||||||||||||||||||||
Danny
W. Weibling,
|
2008
|
190,000 | 2,500 | -- | -- | -- | -- | 4,367 | 196,867 | ||||||||||||||||||||||||
Principal
Financial
|
2007
|
165,000 | -- | -- | -- | -- | -- | 3,975 | 168,975 | ||||||||||||||||||||||||
Officer
& Treasurer
|
|||||||||||||||||||||||||||||||||
John
E. Strabley,
|
2008
|
175,000 | 2,500 | -- | -- | -- | -- | 6,092 | 183,592 | ||||||||||||||||||||||||
Executive
Vice
|
2007
|
150,000 | -- | -- | -- | -- | -- | 4,706 | 154,706 | ||||||||||||||||||||||||
President
& Director
|
|||||||||||||||||||||||||||||||||
(1)
Represents auto allowances.
15
Employment
Agreements
On March
10, 2007, we renewed the employment agreements with Donald F. Mardak, our
president, Danny W. Weibling, our Principal Financial Officer and John E.
Strabley, and Dale L. Mardak our senior vice presidents, pursuant to which these
employees will receive base salaries in 2008 of $230,000, $190,000, $175,000 and
$165,000, respectively, plus commissions and bonuses, if any, to be determined
by our principal executive officer at his discretion. On November 20, 2008 we
amended the contracts to freeze the compensation schedule at the above 2008
salaries. Each contract was modified to add one additional year to the original
three year terms. Each of these contracts will be automatically extended for
additional one-year periods thereafter, unless terminated by either IMSL or the
employee. Each agreement further provides that, for eighteen months after the
termination thereof, the employee will not, either directly or indirectly,
compete with the businesses of International Monetary Systems, Ltd. Each
employee also agrees to maintain the confidentiality of trade secrets and other
information concerning IMSL. Each receives an annual auto allowance of from
$4,000-$12,000. On March 31, 2009, each of the above officers agreed to a 10%
reduction in salary.
Each of
the agreements provides for stock options at the discretion of Management. All
agreements contain a change of control provision. In the event of a merger,
acquisition of IMSL or sale of substantially all of its assets, Donald Mardak's
contract provides for compensation equal to two years' salary plus a lump sum
payment of $400,000, Danny Weibling's, John Strabley's and Dale Mardak's
contracts provide for compensation equal to one year's salary plus a lump sum
payment of $200,000.
16
OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR END
The
following table provides information concerning unexercised options and stock
that has not vested for each of our Named Executive Officers for the fiscal year
ended December 31, 2008.
Option
Awards
|
Stock
Awards
|
|||||||||||||||||
Equity
|
Equity
|
|||||||||||||||||
incentive
|
incentive
|
|||||||||||||||||
Number
|
Market
|
plan
|
plan
awards:
|
|||||||||||||||
Equity
|
of
|
value
|
awards:
|
Market
or
|
||||||||||||||
incentive
|
shares
|
of
|
number
of
|
payout
|
||||||||||||||
plan
|
or
|
shares
|
unearned
|
value
of
|
||||||||||||||
awards:
|
units
|
or
units
|
shares
or
|
unearned
|
||||||||||||||
Number
of
|
Number
of
|
Number
of
|
of
|
of
|
units
or
|
shares,
|
||||||||||||
securities
|
securities
|
securities
|
stock
|
stock
|
other
|
units
or
|
||||||||||||
underlying
|
underlying
|
underlying
|
that
|
that
|
rights
|
other
|
||||||||||||
unexercised
|
unexercised
|
unexercised
|
Option
|
have
|
have
|
that
have
|
rights
|
|||||||||||
options
|
options
|
unearned
|
exercise
|
Option
|
not
|
not
|
not
|
that
have
|
||||||||||
exercisable
|
unexercisable
|
options
|
price
|
expiration
|
vested
|
vested
|
vested
|
not
vested
|
||||||||||
Name
|
(#)
|
(#)
|
(#)
|
($)
|
date
|
(#)
|
($)
|
(#)
|
($)
|
|||||||||
Donald
F.
|
|
|||||||||||||||||
Mardak
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
|||||||||
Danny
W.
|
||||||||||||||||||
Weibling
|
400,000
|
--
|
--
|
0.15
|
Jan
.2009
|
--
|
--
|
--
|
--
|
|||||||||
John
E.
|
||||||||||||||||||
Strabley
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
|||||||||
17
Compensation
of Directors
We pay
our outside directors cash of $200 to $300 per board meeting and an annual fee
of 10,000 shares of IMS stock. Our Named Executive Officers or other employees
are not compensated additionally as board members. No stock options have been
issued to our outside directors.
The table
below summarizes the total compensation paid by us to our outside directors for
the fiscal year ended December 31, 2008.
Nonqualified
|
||||||||||||||||||||||||||||
Non-Equity
|
Deferred
|
|||||||||||||||||||||||||||
Fees
Earned or
|
Stock
|
Option
|
Incentive
Plan
|
Compensation
|
All
Other
|
|||||||||||||||||||||||
Paid
in Cash
|
Awards
(1)
|
Awards
|
Compensation
|
Earnings
|
Compensation
|
Total
|
||||||||||||||||||||||
Name
|
($)
|
($)
|
($)
|
($)
|
($)
|
($)
|
($)
|
|||||||||||||||||||||
Wayne
Dalin
|
1,200 | 3,500 | -- | -- | -- | -- | 4,700 | |||||||||||||||||||||
Thomas
Delacy
|
900 | 3,500 | -- | -- | -- | -- | 4,400 | |||||||||||||||||||||
Wayne
Emmer
|
700 | 3,500 | -- | -- | -- | -- | 4,200 | |||||||||||||||||||||
Gerald
Van Dyn Hoven
|
900 | 3,500 | -- | -- | -- | -- | 4,400 | |||||||||||||||||||||
Stephen
Webster
|
900 | 3,500 | -- | -- | -- | -- | 4,400 |
(1) For
all directors, this is the fair value of the 10,000 shares of stock issued, at
the date of issue.
Limitation
of Liability and Indemnification
Our
bylaws provide for the elimination, to the fullest extent permissible under
Wisconsin law, of the liability of our directors to us for monetary damages.
This limitation of liability does not affect the availability of equitable
remedies such as injunctive relief. Our bylaws also provide that we shall
indemnify our directors and officers against certain liabilities that may arise
by reason of their status for service as directors or officers, other than
liabilities arising from certain specified misconduct. We are required to
advance their expenses incurred as a result of any proceeding against them for
which they could be indemnified, including in circumstances in which
indemnification is otherwise discretionary under Wisconsin law. At the present
time, there is no pending litigation or proceeding involving a director,
officer, employee or other agent of our company in which indemnification would
be required or permitted. We are not aware of any threatened litigation or
proceeding which may result in a claim for such indemnification.
18
CODE
OF ETHICS
The Board
of Directors has adopted a Code of Business Conduct and Ethics that applies to,
among other persons, our President (being our principal executive officer) as
well as all employees. As adopted, our Code of Business Conduct and Ethics sets
forth written standards that are designed to deter wrongdoing and to
promote:
honest
and ethical conduct, including the ethical handling of
actual
|
|
or
apparent conflicts of interest between personal and
professional
|
|
relationships;
|
|
full,
fair, accurate, timely, and understandable disclosure
in
|
|
reports
and documents that we file with, or submit to, the SEC
and
|
|
in
other public communications made by us;
|
|
compliance
with applicable governmental laws, rules and
regulations;
|
|
the
prompt internal reporting of violations of the Code of
Business
|
|
Conduct
and Ethics to an appropriate person or persons identified
in
|
|
the
Code of Business Conduct and Ethics; and
|
|
accountability
for adherence to the Code of Business Conduct and
Ethics
|
|
Our Code
of Business Conduct and Ethics requires, among other things, that all of our
company's personnel are accorded full access to our President with respect to
any matter that may arise relating to the Code of Business Conduct and Ethics.
Further, all of our company's personnel are to be accorded full access to our
Board of Directors if any such matter involves an alleged breach of the Code of
Business Conduct and Ethics by our President.
In
addition, our Code of Business Conduct and Ethics emphasizes that all employees,
and particularly managers and/or supervisors, have a responsibility for
maintaining financial integrity within our company, consistent with generally
accepted accounting principles, and federal, provincial and state securities
laws. Any employee who becomes aware of any incidents involving financial or
accounting manipulation or other irregularities, whether by witnessing the
incident or being told of it, must report it to his or her immediate supervisor
or to our company's President. If the incident involves an alleged breach of the
Code of Business Conduct and Ethics by the President, the incident must be
reported to any member of our Board Of Directors. Any failure to report such
inappropriate or irregular conduct of others is to be treated as a severe
disciplinary matter. It is against our company policy to retaliate against any
individual who reports in good faith the violation or potential violation of our
company's Code of Business Conduct and Ethics by another.
We will
provide a copy of the Code of Business Conduct and Ethics to any person without
charge, upon request. Requests can be sent to 16901 West Glendale Drive, New
Berlin, WI 53151.
19
ITEM
12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table provides certain information with respect to the beneficial
ownership of our common stock, as of December 31, 2008, by:
· each
person known by us to beneficially own more than 5% of our common
stock;
|
· each
of our directors and our named executive officers; and
|
· all
of our directors and executive officers as a
group.
|
We
believe that, subject to applicable community and marital property laws, the
beneficial owners of our common stock listed below have sole voting and
dispositive power with respect to such shares.
Shares
beneficially owned
|
||||||||
as
of December 31, 2008
|
||||||||
Name
of Beneficial Owner
|
Number
|
Percent
|
||||||
|
||||||||
Donald
F. Mardak (1)
|
17,707,800 | 28.73 | % | |||||
Dale
L. Mardak (2)
|
1,392,000 | 2.26 | % | |||||
John
E. Strabley (3)
|
676,000 | 1.10 | % | |||||
Danny
W Weibling (4)
|
393,500 | 0.64 | % | |||||
Stephen
Webster
|
2,714,000 | 4.40 | % | |||||
Thomas
Delacy
|
560,000 | 0.91 | % | |||||
Gerald
Van Dyn Hoven
|
442,000 | 0.72 | % | |||||
Wayne
Emmer
|
260,000 | 0.42 | % | |||||
Wayne
Dalin
|
243,460 | 0.40 | % | |||||
Patricia
Katisch
|
68,000 | 0.11 | % | |||||
All
directors and executive officers
|
||||||||
as
a group (10 persons)
|
24,456,760 | 39.69 | % | |||||
Other
Beneficial Owner
|
||||||||
Praetorian
Capital Management LLC (5)
|
8,957,793 | 14.54 | % |
Other
than the options listed below, issued to Mr. Weibling, there are no other stock
options or awards available to any officer or director. All shares listed on the
above table are owned by the individual. No shares listed on the above table are
shares that the individual has the right to acquire within the next 60
days.
(1)
|
Does
not include 676,000 shares held by his wife, Judy E. Mardak, as to which
Mr. Mardak disclaims beneficial ownership. All shares owned by Donald F.
and Judy E. Mardak are now held in a revocable living
trust.
|
(2)
|
Does
not include 8,400 shares held by his wife, Lisa L. Mardak, as to which Mr.
Mardak disclaims beneficial
ownership.
|
(3)
|
Does
not include 1,280,000 shares held by his wife, Kimberly A. Strabley, as to
which Mr. Strabley disclaims beneficial
ownership.
|
(4)
|
Does
not include 246,000 shares held by his wife, Alesia Peters, as to which
Mr. Weibling disclaims beneficial ownership. Does not include 400,000
shares of exercisable options.
|
(5)
|
Does
not include 2,200,000 shares of exercisable
warrants.
|
20
ITEM
13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain
Transactions
We
currently lease our executive offices and principal operating facilities,
consisting of 11,000 square feet of space located at 16901 West Glendale Drive,
New Berlin, Wisconsin, from Glendale Investments, LLC., a Wisconsin limited
liability company owned by Donald F. Mardak, Dale L. Mardak and John E.
Strabley, officers and directors of our company, under a triple net lease which
commenced in October, 2008 and expires September 30, 2010. For the fiscal year
ended December 31, 2007, we made rental payments of $90,000 and in the fiscal
year ended December 31, 2008, we made rental payments of $90,000 to Glendale
Investments, LLC. We believe that the rental payments required and other terms
of our lease are comparable to those available for similar space from
unaffiliated, third-party lessors in the area.
On August
3, 2007, the company issued 75,000 shares to Danny W. Weibling, Principal
Financial Officer of IMS, in exchange for a copy of the source code of the
software package called TradeWorks which he developed. The cost of the source
code was $50,000. Shares were issued from the company’s treasury
stock.
In 2008
and 2007, Patricia Katisch, our Corporate Secretary, was paid $500 and $480
respectively to produce and distribute the corporate minutes.
Conflicts
of Interest
Certain
potential conflicts of interest are inherent in the relationships between our
affiliates and us. From time to time, one or more of our affiliates may form or
hold an ownership interest in and/or manage other businesses both related and
unrelated to the type of business that we own and operate. These persons expect
to continue to form, hold an ownership interest in and/or manage additional
other businesses which may compete with ours with respect to operations,
including financing and marketing, management time and services and potential
customers. These activities may give rise to conflicts between or among the
interests of IMSL and other businesses with which our affiliates are associated.
Our affiliates are in no way prohibited from undertaking such activities, and
neither we nor our shareholders will have any right to require participation in
such other activities.
Further,
because we intend to transact business with some of our officers, directors and
affiliates, as well as with firms in which some of our officers, directors or
affiliates have a material interest, including for example the lease agreement
described above under "Certain Relationships and Related Transactions - Certain
Transactions", potential conflicts may arise between the respective interests of
IMSL and these related persons or entities. We believe that such transactions
will be effected on terms at least as favorable to us as those available from
unrelated third parties.
With
respect to transactions involving real or apparent conflicts of interest, we
have adopted policies and procedures which require that (1) the fact of the
relationship or interest giving rise to the potential conflict be disclosed or
known to the directors who authorize or approve the transaction prior to such
authorization or approval, (2) the transaction be approved by a majority of our
disinterested outside directors and (3) the transaction be fair and reasonable
to IMSL at the time it is authorized or approved by our directors.
ITEM
14 - PRINCIPAL ACCOUNTANT FEES AND SERVICES
Webb
& Company, P.A. served as our independent registered public accounting firm
for fiscal years 2008 and 2007. The following table shows the fees that were
billed for the audit and other services provided by each of these firms for the
2008 and 2007 fiscal years.
2008
|
2007
|
|||||||
Audit
Fees
|
$ | 47,167 | $ | 55,741 | ||||
Audit-Related
Fees
|
0 | 955 | ||||||
Tax
Fees
|
0 | 0 | ||||||
All
Other Fees
|
0 | 0 | ||||||
Total
|
$ | 47,167 | $ | 56,696 |
21
Audit
Fees -- This category includes the audit of our annual financial statements,
review of financial statements included in our Form 10-Q Quarterly Reports and
services that are normally provided by the independent auditors in connection
with engagements for those fiscal years. This category also includes advice on
audit and accounting matters that arose during, or as a result of, the audit or
the review of interim financial statements.
Audit-Related
Fees -- This category consists of assurance and related services by the
independent auditors that are reasonably related to the performance of the audit
or review of our financial statements and are not reported above under "Audit
Fees." The services for the fees disclosed under this category include
consultation regarding our correspondence with the SEC and other accounting
consulting.
Tax Fees
-- This category consists of professional services rendered by our independent
auditors for tax compliance and tax advice. The services for the fees disclosed
under this category include tax return preparation and technical tax
advice.
All Other
Fees -- This category consists of fees for other miscellaneous
items.
Our Board
of Directors has adopted a procedure for pre-approval of all fees charged by our
independent auditors. Under the procedure, the Board approves the engagement
letter with respect to audit, tax and review services. Other fees are subject to
pre-approval by the Board, or, in the period between meetings, by a designated
member of Board. Any such approval by the designated member is disclosed to the
entire Board at the next meeting. The audit fees paid to the auditors with
respect to fiscal year 2008 were pre-approved by the entire Board of
Directors.
ITEM
15 - EXHIBITS LIST AND REPORTS ON FROM 8-K
(a)
Exhibits:
Exhibit
|
|
Number
|
Description
|
3.1
|
Articles
of Incorporation of the Registrant *
|
3.2
|
Articles
of Amendment of the Registrant *
|
3.3
|
Bylaws
of the Registrant *
|
10.1
|
Lease
Agreement, between Glendale Investments, LLC. and the Registrant
*
|
23.1
|
Consent
of Independent Registered Public Accounting Firm **
|
31.1
|
Certificate
of the Principal Executive Officer pursuant to Section 302
of
|
the
Sarbanes-Oxley Act of 2002 **
|
|
31.2
|
Certificate
of the Principal Financial Officer pursuant to Section 302
of
|
the
Sarbanes-Oxley Act of 2002 **
|
|
32.1
|
Certificate
of the Principal Executive Officer to Section 906 of
|
the
Sarbanes-Oxley Act of 2002 **
|
|
32.2
|
Certificate
of the Principal Financial Officer to Section 906 of
|
the
Sarbanes-Oxley Act of 2002 **
|
|
* Incorporated
by reference to the registration statement of the
|
|
company
on Form SB-2 File No. 333-94597
|
|
**
Filed herein
|
(b)
Reports on Form 8-K -- None
(c)
Financial statements files as part of this
Report -- F-1 through F-30
22
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) 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
MONETARY SYSTEMS, LTD.
Dated: April
6, 2009
|
By:
|
/s/
DONALD F. MARDAK
|
|
Donald
F. Mardak, President
|
|||
(Principal
Executive Officer)
|
|||
Dated: April
6, 2009
|
By:
|
/s/
DANNY W. WEIBLING, CPA
|
|
Danny
W. Weibling, Treasurer
|
|||
(Principal
Financial Officer)
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
SIGNATURE
|
TITLE
|
DATE
|
||
/s/
DONALD F. MARDAK
|
Principal
Executive Officer,
|
April
6, 2009
|
||
President
and Director
|
||||
Donald
F. Mardak
|
||||
/s/DANNY
W. WEIBLING
|
Principal
Financial Officer,
|
April
6. 2009
|
||
Principal
Accounting Officer
|
||||
Danny
W. Weibling
|
and
Treasurer
|
|||
/s/
DALE L. MARDAK
|
Senior
Vice President
|
April
6, 2009
|
||
and
Director
|
||||
Dale
L. Mardak
|
||||
/s/
JOHN E. STRABLEY
|
Executive
Vice President
|
April
6, 2009
|
||
and
Director
|
||||
John
E. Strabley
|
||||
/s/
THOMAS E. DELACY
|
Director
|
October
23, 2009
|
||
Thomas
E. Delacy
|
||||
/s/
WAYNE R. DALIN
|
Director
|
October
23, 2009
|
||
Wayne
R. Dalin
|
||||
23
INTERNATIONAL
MONETARY SYSTEMS, LTD.
AND
SUBSIDIARIES
CONSOLIDATED
FINANCIAL STATEMENTS
and
REPORT
OF INDEPENDENT
REGISTERED
PUBLIC ACCOUNTING FIRM
For the
Years Ended December 31, 2008 and 2007
INTERNATIONAL
MONETARY SYSTEMS, LTD.
AND
SUBSIDIARIES
TABLE
OF CONTENTS
Page
|
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
|
1
|
FINANCIAL
STATEMENTS
|
|
Consolidated Balance
Sheets
|
2 -
3
|
Consolidated Statements of
Operations and Comprehensive Income (Loss)
|
4
|
Consolidated Statements of
Changes in Stockholder Equity
|
5
|
Consolidated Statements of Cash
Flows
|
6 -
7
|
Notes to Consolidated Financial
Statements
|
8 -
30
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Shareholders and Board of Directors
International
Monetary Systems, Ltd. and Subsidiaries
We have
audited the accompanying consolidated balance sheets of International Monetary
Systems, Ltd. and Subsidiaries as of December 31, 2008 and December 31,
2007, and the related consolidated statements of operations and comprehensive
income (loss), changes in stockholder equity, and cash flows for the years then
ended. These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of International
Monetary Systems, Ltd. and Subsidiaries at December 31, 2008 and
December 31, 2007, and the results of its operations and comprehensive
income (loss), and cash flows for the years then ended in conformity
with accounting principles generally accepted in the United States of
America.
WEBB
& COMPANY, P. A.
Boynton
Beach, Florida
March 21,
2009, except for Note 14,
To which
the date is April 4, 2009
The
accompanying notes are an integral part of the audited consolidated financial
statements.
F
-1
INTERNATIONAL
MONETARY SYSTEMS, LTD.
AND
SUBSIDIARIES
|
||||||||
CONSOLIDATED
BALANCE SHEETS
|
||||||||
December
31
|
||||||||
2008
|
2007
|
|||||||
ASSETS
|
(restated)
|
|||||||
Current
assets
|
||||||||
Cash
|
$ | 279,227 | $ | 812,365 | ||||
Restricted
cash
|
495,803 | 483,443 | ||||||
Marketable
securities
|
84,808 | 118,380 | ||||||
Accounts
receivable, net of allowance for doubtful
|
||||||||
accounts
of $796,261 in 2008 and $739,540 in 2007
|
1,401,383 | 1,516,938 | ||||||
Refundable
income taxes
|
48,500 | - | ||||||
Earned
trade account
|
6,991 | 314,928 | ||||||
Prepaid
expenses
|
109,710 | 112,233 | ||||||
Inventory
|
33,839 | 33,839 | ||||||
Total
current assets
|
2,460,261 | 3,392,126 | ||||||
Property
and equipment, net
|
1,056,526 | 1,269,263 | ||||||
Other
assets
|
||||||||
Membership
lists, net
|
9,577,257 | 9,962,154 | ||||||
Goodwill
|
3,435,479 | 3,435,479 | ||||||
Deferred
tax asset
|
75,000 | - | ||||||
Covenant
not to compete, net
|
- | 14,883 | ||||||
Purchase
option
|
- | 112,500 | ||||||
Assets
held for investment
|
99,298 | 99,298 | ||||||
Investment
in real estate
|
26,000 | 28,695 | ||||||
Cash
surrender value
|
43,125 | 37,056 | ||||||
Total
other assets
|
13,256,159 | 13,690,065 | ||||||
Total
assets
|
$ | 16,772,946 | $ | 18,351,454 | ||||
The
accompanying notes are an integral part of the audited consolidated financial
statements.
F
-2
INTERNATIONAL
MONETARY SYSTEMS, LTD.
AND
SUBSIDIARIES
|
||||||||
CONSOLIDATED
BALANCE SHEETS
|
||||||||
December
31
|
||||||||
2008
|
2007
|
|||||||
LIABILITIES
AND STOCKHOLDER EQUITY
|
(restated)
|
|||||||
Current
liabilities
|
||||||||
Accounts
payable
|
$ | 245,579 | $ | 324,808 | ||||
Accrued
compensation
|
298,317 | 377,515 | ||||||
Accrued
payroll taxes
|
103,150 | 99,602 | ||||||
Accrued
sales taxes
|
33,702 | 51,807 | ||||||
Accrued
income taxes
|
8,150 | 149,000 | ||||||
Trade
payable
|
321,476 | - | ||||||
Credit
lines
|
340,736 | - | ||||||
Current
portion of notes payable
|
838,992 | 785,460 | ||||||
Current
portion of convertible notes payable
|
175,466 | 1,195,277 | ||||||
Current
portion of common stock subject to guarantees
|
1,268,500 | 995,000 | ||||||
Total
current liabilities
|
3,634,068 | 3,978,469 | ||||||
Long-term
liabilities
|
||||||||
Notes
payable, less current portion
|
154,334 | 716,037 | ||||||
Convertible
notes payable, less current portion
|
1,306,813 | - | ||||||
Common
stock subject to guarantees, less current portion
|
1,359,500 | 1,890,000 | ||||||
Deferred
compensation
|
260,000 | 136,000 | ||||||
Deferred
income taxes
|
2,039,000 | 2,550,000 | ||||||
Total
long-term liabilities
|
5,119,647 | 5,292,037 | ||||||
Total
liabilities
|
8,753,715 | 9,270,506 | ||||||
COMMITMENTS
AND CONTINGENCIES
|
- | - | ||||||
STOCKHOLDER
EQUITY
|
||||||||
Preferred
stock, $.0001 par value; 20,000,000 shares
|
||||||||
authorized,
none outstanding
|
- | - | ||||||
Common
stock, $.0001 par value; 280,000,000 shares
|
||||||||
authorized,
61,625,436 and 60,565,436 shares
|
||||||||
issued
and outstanding, respectively
|
6,163 | 6,057 | ||||||
Paid
in capital
|
11,697,038 | 10,901,944 | ||||||
Treasury
stock, 2,322,542 and 1,276,542 shares
|
||||||||
outstanding,
respectively
|
(1,403,216 | ) | (547,241 | ) | ||||
Subscription
receivable
|
- | (31,196 | ) | |||||
Deferred
compensation
|
(25,467 | ) | - | |||||
Accumulated
other comprehensive income
|
(50,840 | ) | 15,310 | |||||
Accumulated
deficit
|
(2,204,447 | ) | (1,263,926 | ) | ||||
Total
stockholder equity
|
8,019,231 | 9,080,948 | ||||||
Total
liabilities and stockholder equity
|
$ | 16,772,946 | $ | 18,351,454 |
The
accompanying notes are an integral part of the audited consolidated financial
statements.
F
-3
INTERNATIONAL
MONETARY SYSTEMS, LTD.
|
||||||||
AND
SUBSIDIARIES
|
||||||||
CONSOLIDATED
STATEMENTS OF OPERATIONS
AND
COMPREHENSIVE INCOME
|
||||||||
For
the Years Ended December 31
|
||||||||
2008
|
2007
|
|||||||
Revenue
|
$ | 14,203,550 | $ | 14,772,045 | ||||
Operating
expenses
|
||||||||
Payroll,
related taxes and employee benefits
|
9,483,364 | 9,228,485 | ||||||
General
and administrative
|
2,014,856 | 2,319,680 | ||||||
Occupancy
|
1,078,288 | 969,243 | ||||||
Selling
|
840,926 | 687,079 | ||||||
Depreciation
and amortization
|
1,643,534 | 1,465,367 | ||||||
Impairment
of membership list
|
209,605 | 36,676 | ||||||
Provision
for bad debts
|
177,513 | 239,215 | ||||||
Total
operating expenses
|
15,448,086 | 14,945,745 | ||||||
Net
loss from operations
|
(1,244,536 | ) | (173,700 | ) | ||||
Other
income (expense)
|
||||||||
Interest
income
|
8,910 | 47,496 | ||||||
Loss
on disposal of fixed assets
|
(23,786 | ) | - | |||||
Interest
expense
|
(275,332 | ) | (342,855 | ) | ||||
Total
other income (expense)
|
(290,208 | ) | (295,359 | ) | ||||
Loss
before income taxes
|
(1,534,744 | ) | (469,059 | ) | ||||
Income
tax expense (benefit)
|
(594,222 | ) | (54,769 | ) | ||||
Net
loss
|
$ | (940,521 | ) | $ | (414,290 | ) | ||
Basic
earnings per common share
|
$ | (0.02 | ) | $ | (0.01 | ) | ||
Diluted
earnings per common share
|
$ | (0.02 | ) | $ | (0.01 | ) | ||
Weighted
average shares outstanding, basic
|
59,560,197 | 57,061,451 | ||||||
Weighted
average shares outstanding, diluted
|
59,560,197 | 57,061,451 | ||||||
Comprehensive
(loss)
|
2008
|
2007
|
||||||
Net
loss
|
$ | (940,521 | ) | $ | (414,290 | ) | ||
Comprehensive
income:
|
||||||||
Foreign
currency translation loss
|
(24,046 | ) | 12,863 | |||||
Unrealized
loss on available for sale investments
|
(42,104 | ) | 2,447 | |||||
Comprehensive
loss
|
$ | (1,006,671 | ) | $ | (398,980 | ) | ||
The
accompanying notes are an integral part of the audited consolidated financial
statements.
F
-4
INTERNATIONAL
MONETARY SYSTEMS, LTD. AND SUBSIDIARIES
|
||||||||||||||||||||||||||||||||||||||||||||||||
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDER EQUITY
|
||||||||||||||||||||||||||||||||||||||||||||||||
For
the Years Ended December 31
|
||||||||||||||||||||||||||||||||||||||||||||||||
Accumulated
|
Treasury
|
Total
|
||||||||||||||||||||||||||||||||||||||||||||||
Preferred
Stock
|
Common
Stock
|
Paid
in
|
Subscription
|
Comprehensive
|
Deferred
|
Accumulated
|
Stock
|
Stockholder
|
||||||||||||||||||||||||||||||||||||||||
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Receivable
|
Income
|
Compensation
|
Deficit
|
Shares
|
Amount
|
Equity
|
|||||||||||||||||||||||||||||||||||||
Balance,
December 31, 2006
|
- | $ | - | 52,623,769 | $ | 5,263 | $ | 9,291,988 | $ | (42,017 | ) | $ | - | $ | - | $ | (849,363 | ) | (1,566,542 | ) | $ | (626,241 | ) | $ | 7,779,537 | |||||||||||||||||||||||
Foreign
currency translation adjustment
|
- | - | - | - | - | - | 12,863 | - | - | - | - | 12,863 | ||||||||||||||||||||||||||||||||||||
Unrealized
gain on available for sale
|
||||||||||||||||||||||||||||||||||||||||||||||||
securities
|
- | - | - | - | - | - | 2,447 | - | - | - | - | 2,447 | ||||||||||||||||||||||||||||||||||||
Net
loss for 2007
|
- | - | - | - | - | - | - | - | (414,290 | ) | - | - | (414,290 | ) | ||||||||||||||||||||||||||||||||||
Total
comprehensive loss
|
- | - | - | - | - | - | - | - | - | - | - | (398,980 | ) | |||||||||||||||||||||||||||||||||||
Stock
issued for services
|
- | - | 75,000 | 8 | 48,242 | - | - | - | - | - | - | 48,250 | ||||||||||||||||||||||||||||||||||||
Stock
issued for software
|
- | - | - | - | - | - | - | - | - | 75,000 | 50,000 | 50,000 | ||||||||||||||||||||||||||||||||||||
Shares
issued in conjunction with
|
||||||||||||||||||||||||||||||||||||||||||||||||
the
acquisition of businesses
|
- | - | 3,683,333 | 368 | 2,849,632 | - | - | - | - | - | - | 2,850,000 | ||||||||||||||||||||||||||||||||||||
Warrants
redeemed
|
- | - | 750,000 | 75 | 412,425 | - | - | - | - | - | - | 412,500 | ||||||||||||||||||||||||||||||||||||
Options
exercised
|
- | - | - | - | - | - | - | - | - | 190,000 | 29,000 | 29,000 | ||||||||||||||||||||||||||||||||||||
Options
exercised for 2004, unissued
|
- | - | - | - | - | - | - | - | - | 25,000 | - | - | ||||||||||||||||||||||||||||||||||||
Shares
issued on conversion of
|
||||||||||||||||||||||||||||||||||||||||||||||||
notes
payable
|
- | - | 3,433,334 | 343 | 1,029,657 | - | - | - | - | - | - | 1,030,000 | ||||||||||||||||||||||||||||||||||||
Subscription
receivable
|
- | - | - | - | - | 10,821 | - | - | - | - | - | 10,821 | ||||||||||||||||||||||||||||||||||||
Reclassification
of shares released at
|
||||||||||||||||||||||||||||||||||||||||||||||||
guaranteed
prices to liabilities
|
- | - | - | - | (2,730,000 | ) | - | - | - | - | - | - | (2,730,000 | ) | ||||||||||||||||||||||||||||||||||
Balance
December 31, 2007
|
- | - | 60,565,436 | 6,057 | 10,901,944 | (31,196 | ) | 15,310 | - | (1,263,926 | ) | (1,276,542 | ) | (547,241 | ) | 9,080,948 | ||||||||||||||||||||||||||||||||
Foreign
currency translation adjustment
|
- | - | - | - | - | - | (24,046 | ) | - | - | - | - | (24,046 | ) | ||||||||||||||||||||||||||||||||||
Unrealized
loss on available for sale
|
||||||||||||||||||||||||||||||||||||||||||||||||
securities
|
- | - | - | - | - | - | (42,104 | ) | - | - | - | - | (42,104 | ) | ||||||||||||||||||||||||||||||||||
Net
loss for 2008
|
- | - | - | - | - | - | - | - | (940,521 | ) | - | - | (940,521 | ) | ||||||||||||||||||||||||||||||||||
Total
comprehensive loss
|
- | - | - | - | - | - | - | - | - | - | - | (1,006,671 | ) | |||||||||||||||||||||||||||||||||||
Stock
issued for services
|
- | - | 310,000 | 31 | 85,669 | - | - | (25,467 | ) | - | - | - | 60,233 | |||||||||||||||||||||||||||||||||||
Shares
issued in conjunction with
|
||||||||||||||||||||||||||||||||||||||||||||||||
the
acquisition of businesses
|
- | - | 200,000 | 20 | 149,980 | - | - | - | - | - | - | 150,000 | ||||||||||||||||||||||||||||||||||||
Warrants
redeemed
|
- | - | 550,000 | 55 | 302,445 | - | - | - | - | - | - | 302,500 | ||||||||||||||||||||||||||||||||||||
Treasury
stock purchases
|
- | - | - | - | - | - | - | - | - | (1,046,000 | ) | (855,975 | ) | (855,975 | ) | |||||||||||||||||||||||||||||||||
Subscription
receivable written off
|
- | - | - | - | - | 31,196 | - | - | - | - | - | 31,196 | ||||||||||||||||||||||||||||||||||||
Reclassification
of shares released at
|
||||||||||||||||||||||||||||||||||||||||||||||||
guaranteed
prices to liabilities
|
- | - | - | - | 257,000 | - | - | - | - | - | - | 257,000 | ||||||||||||||||||||||||||||||||||||
Balance
December 31, 2008
|
- | $ | - | 61,625,436 | $ | 6,163 | $ | 11,697,038 | $ | - | $ | (50,840 | ) | $ | (25,467 | ) | $ | (2,204,447 | ) | (2,322,542 | ) | $ | (1,403,216 | ) | $ | 8,019,231 |
The
accompanying notes are an integral part of the audited consolidated financial
statements.
F
-5
INTERNATIONAL
MONETARY SYSTEMS, LTD.
|
||||||||
AND
SUBSIDIARIES
|
||||||||
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
||||||||
For
the Years Ended December 31
|
||||||||
2008
|
2007
|
|||||||
CASH
FLOWS FROM OPERATING ACTIVITIES
|
||||||||
Net
loss
|
$ | (940,521 | ) | $ | (414,290 | ) | ||
Adjustments
to reconcile net loss to net cash
|
||||||||
provided
by operating activities
|
||||||||
Depreciation
and amortization
|
1,643,534 | 1,465,263 | ||||||
Impairment
loss
|
209,605 | 36,676 | ||||||
Provision
for bad debts
|
177,513 | 239,215 | ||||||
Stock
issued for services
|
60,233 | 98,250 | ||||||
Loss
on disposal of fixed assets
|
23,786 | 4,216 | ||||||
Accretion
of discount on notes payable
|
4,723 | 37,097 | ||||||
Deferred
compensation
|
124,000 | 15,000 | ||||||
Amortization
of deferred compensation
|
26,196 | - | ||||||
Changes
in operating assets and liabilities:
|
||||||||
Accounts
receivable
|
(30,957 | ) | 48,418 | |||||
Refundable
income taxes
|
(48,500 | ) | - | |||||
Earned
trade account
|
257,937 | (761,228 | ) | |||||
Prepaid
expense
|
2,523 | 115,602 | ||||||
Deferred
tax asset
|
(75,000 | ) | - | |||||
Accounts
payable
|
(79,229 | ) | 16,637 | |||||
Accrued
compensation
|
(79,198 | ) | 58,550 | |||||
Accrued
payroll taxes
|
3,548 | 47,464 | ||||||
Accrued
sales taxes
|
(18,105 | ) | 4,241 | |||||
Accrued
income taxes
|
(140,850 | ) | 99,000 | |||||
Deferred
income taxes
|
(511,000 | ) | (165,000 | ) | ||||
Net
cash provided by operating activities
|
610,238 | 945,111 | ||||||
CASH
FLOWS FROM INVESTING ACTIVITIES
|
||||||||
(Increase)
decrease in restricted cash
|
(12,360 | ) | (483,443 | ) | ||||
(Increase)
decrease in marketable securities
|
(8,531 | ) | (9,000 | ) | ||||
Capital
expenditures
|
(89,985 | ) | (768,588 | ) | ||||
Cash
received in business acquisitions
|
- | 498,453 | ||||||
Cash
payments for business acquisitions
|
(495,000 | ) | - | |||||
Proceeds
from sale of real estate
|
2,695 | 5,000 | ||||||
Increase
in cash surrender value
|
(6,069 | ) | (5,600 | ) | ||||
Net
cash used in investing activities
|
(609,250 | ) | (763,178 | ) |
The
accompanying notes are an integral part of the audited consolidated financial
statements.
F
-6
INTERNATIONAL
MONETARY SYSTEMS, LTD.
|
||||||||
AND
SUBSIDIARIES
|
||||||||
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
||||||||
For
the Years Ended December 31
|
||||||||
2008
|
2007
|
|||||||
CASH
FLOWS FROM FINANCING ACTIVITIES
|
||||||||
Proceeds
from notes payable to related parties
|
25,000 | (110,024 | ) | |||||
Proceeds
from credit lines
|
480,000 | - | ||||||
Proceeds
from convertible notes payable
|
300,000 | - | ||||||
Payments
on notes payable to related parties
|
(25,000 | ) | - | |||||
Payments
on credit lines
|
(139,264 | ) | - | |||||
Payments
on notes payable
|
(956,095 | ) | (655,689 | ) | ||||
Payments
on convertible notes payable
|
(17,721 | ) | - | |||||
Purchase
of treasury stock
|
(484,499 | ) | - | |||||
Proceeds
from subscription receivable
|
5,000 | 10,820 | ||||||
Proceeds
from issuance of stock
|
302,500 | 441,500 | ||||||
Net
cash used in financing activities
|
(510,079 | ) | (313,393 | ) | ||||
Effect
of exchange rate changes
|
(24,047 | ) | 12,863 | |||||
Net
decrease in cash
|
(533,138 | ) | (118,597 | ) | ||||
Cash
at beginning of year
|
812,365 | 930,962 | ||||||
Cash
at end of year
|
$ | 279,227 | $ | 812,365 | ||||
SUPPLEMENTAL
DISCLOSURES
|
||||||||
Cash
paid for interest
|
$ | 280,107 | $ | 332,891 | ||||
Cash
paid for income taxes
|
$ | 181,128 | $ | 11,231 | ||||
NON
CASH FINANCING AND INVESTING ACTIVITIES
|
||||||||
Acquisitions:
|
||||||||
Fair
value of assets acquired
|
$ | 1,155,424 | $ | 4,095,000 | ||||
Less:
liabilities assumed
|
- | (130,000 | ) | |||||
Stock
issued
|
(150,000 | ) | (2,850,000 | ) | ||||
Purchase
option
|
(112,500 | ) | - | |||||
Issuance
of long-term debt
|
(397,924 | ) | - | |||||
Deferred
tax liability
|
- | (650,000 | ) | |||||
Net
cash paid for acquisitions
|
$ | 495,000 | $ | 465,000 | ||||
Stock
issued for services
|
$ | 60,233 | $ | 98,250 | ||||
Treasury
stock redeemed for fixed assets
|
$ | - | $ | 50,000 | ||||
Unrealized
net gain (loss) on equity investments
|
$ | (42,103 | ) | $ | 2,447 | |||
Stock
guarantees on acquisitions
|
$ | 300,000 | $ | 2,500,000 | ||||
Stock
guarantees released
|
$ | 557,000 | $ | - | ||||
Payment
of long-term debt with stock
|
$ | - | $ | 1,030,000 | ||||
Treasury
stock acquired with trade payable
|
$ | 321,476 | $ | - |
The
accompanying notes are an integral part of the audited consolidated financial
statements.
F
-7
INTERNATIONAL
MONETARY SYSTEMS, LTD.
AND
SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 -
|
INFORMATION
ABOUT THE COMPANY AND
|
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
A. ORGANIZATION
|
International
Monetary Systems, Ltd. (IMS - the Company) is a Wisconsin holding company
located in New Berlin, Wisconsin, with three wholly-owned operating
subsidiaries: Continental Trade Exchange, Ltd (CTE) and National Trade
Association, both of which operate a barter (trade) exchange in the United
States, and INLM CN Inc., which operates a barter (trade) exchange in
Canada.
|
B. LIQUIDITY
AND OTHER MATTERS
|
At December 31, 2008 the Company
had a working capital deficit of $1,173,807 and a net loss of $940,521.
The loss resulted in part from $1,643,534 in depreciation and amortization
expenses and an impairment charge of $209,605. As a result of recent cuts
in personnel and salaries, management believes that cash flows from
operations will increase by approximately $1,300,000. We also
anticipate $100,000 in new financing, and an extension of a $100,000 note
payable currently due in 2009. Accordingly, management has mitigated the
working capital deficiency and does not believe that substantial doubt
exists about the Company’s ability to continue as a going
concern.
|
C. OPERATIONS
OF BARTER EXCHANGES
|
A
barter (trade) exchange is a business network, a membership organization
comprised of businesses that buy and sell among the network without using
cash. It is a small, private economy with a unique currency called a
barter dollar or trade dollar. It is a third-party record keeper which
provides an alternative payment
system.
|
|
Member
businesses do not actually engage in direct barter. Rather, they sell
products or services to other members, accepting payment in trade dollars
which they then use to buy the products or services of other members of
the network. Transactions are recorded through manual and electronic data
transmission using a 24-hour telephone and Internet authorization system.
Some members consign their products to the barter exchange to hold as
saleable inventory. Others sell gift certificates or tickets that are
redeemable for their goods or
services.
|
|
The
barter exchange maintains the accounting records for all sales and
purchases, provides monthly statements, files annual tax forms 1099B,
enrolls businesses to the network, proactively markets member products and
services, maintains a member web site, facilitates transactions, and
provides personal customer support services to members and
clients.
|
D. CASH
EQUIVALENTS
|
For
purposes of the statement of cash flows, the Company considers all highly
liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents to the extent the funds are not held for investment
purposes.
|
30
F
-8
INTERNATIONAL
MONETARY SYSTEMS, LTD.
AND
SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
E. RESTRICTED
CASH
|
As
a condition to issuing the guarantee on the purchase of certain exchanges,
IMS agreed to deposit a monthly amount into an escrow account for the
repurchase of common stock under guaranteed transactions. As of December
31, 2008 the Company has made all required deposits into the escrow
account.
|
F. FAIR
VALUE OF FINANCIAL INSTRUMENTS
|
The
carrying amounts of the Company’s cash and cash equivalents, accounts
receivable, restricted cash, prepaid expense and other assets, accounts
payable, accrued liabilities, notes payable and deferred compensation
approximate their fair value due as of December 31, 2008 because of their
short-term natures.
|
|
Fair
Value Measurements
|
Effective
January 1, 2008, the Company adopted Statement of Financial Accounting
Standards (“SFAS”) No. 157, Fair Value Measurements
(“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring
fair value and enhances disclosures about fair value measurements.
SFAS 157
defines fair value as the exchange price that would be received for an asset or
paid to transfer a liability (an exit price) in the principal or most
advantageous market for the asset or liability in an orderly transaction between
market participants on the measurement date. SFAS 157 also establishes a fair
value hierarchy which requires an entity to maximize the use of observable
inputs and minimize the use of unobservable inputs when measuring fair value.
The standard describes three levels of inputs that may be used to measure fair
value:
Level 1:
Observable inputs such as quoted prices (unadjusted) in active markets for
identical assets or liabilities.
Level 2:
Inputs other than quoted prices that are observable for the asset or liability,
either directly or indirectly. These include quoted prices for similar assets or
liabilities in active markets; quoted prices for identical or similar assets or
liabilities that are not active; and model-driven valuations whose inputs are
observable or whose significant value drivers are observable. Valuations may be
obtained from, or corroborated by, third-party pricing services.
Level 3:
Unobservable inputs to measure fair value of assets and liabilities for which
there is little, if any market activity at the measurement date, using
reasonable inputs and assumptions based upon the best information at the time,
to the extent that inputs are available without undue cost and
effort.
In
February 2008, the Financial Accounting Standards Board (“FASB”) issued FASB
Staff Position (“FSP”) No. FAS 157-2, Effective Date of FASB Statement
No. 157. This FSP delays the effective date of FAS 157 for all
nonfinancial assets and nonfinancial liabilities, except those that are
recognized or disclosed at fair value on a recurring basis (at least annually)
to fiscal years beginning after November 15, 2008. The impact of adoption
had no effect on the Company.
In
October 2008, the FASB issued FASB Staff Position No. 157-3, Determining the Fair Value of a
Financial Asset When the Market for That Asset Is Not Active. This FASB
Staff Position clarifies the application of SFAS 157, in determining the fair
value of a financial asset when the market for that financial asset is not
active. This FASB Staff Position was effective upon issuance.
F
-9
INTERNATIONAL
MONETARY SYSTEMS, LTD.
AND
SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Securities
Available for Sale
Where
quoted prices are available in an active market, securities are classified
within level 1 of the valuation hierarchy. Level 1 securities include highly
liquid government bonds, certain mortgage products and exchange-traded
equities.
G. REVENUE
SOURCES AND REVENUE RECOGNITION
|
The
Company and its subsidiaries earn revenues in both traditional dollars
(cash income) and in trade dollars. Cash income is earned through fees
assessed when a member joins, through transaction fees generated when
clients earn or spend trade dollars, through monthly maintenance fees,
finance charges on delinquent accounts receivable, event fees, and
inventory sales.
|
|
Trade
revenue is similarly generated through initial membership fees, monthly
maintenance fees, transaction fees, event fees, and inventory sales.
Occasionally the Company will accept a favorable trade ratio in lieu of a
cash fee. The Company uses earned trade dollars to purchase various goods
and services required in its operations. All barter transactions are
reported at the estimated fair value of the products or services
received.
|
|
Revenues
are recognized when persuasive evidence of an arrangement exists, delivery
has occurred or services have been rendered, the price is fixed or
determinable, and collectability is reasonably
assured.
|
|
Transaction
fees are recognized upon receipt of transactional information accumulated
by our systems or reported by our clients. Membership fees, monthly
maintenance fees, finance charges, and other fees are billed monthly to
members’ accounts, and are recognized in the month the revenue is
earned.
|
H. PRINCIPLES
OF CONSOLIDATION
|
The
consolidated financial statements for 2008 and 2007 include the accounts
of the Company and its wholly owned subsidiaries Continental Trade
Exchange, Ltd., National Trade Association, Inc., and INLM CN, Inc. (from
the acquisition date of February 1, 2007 through December 31, 2008).
Significant inter-company accounts and transactions have been eliminated
in consolidation.
|
I. USE
OF ESTIMATES
|
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results may differ from those
estimates.
|
J. MARKETABLE
SECURITIES
|
Marketable
equity securities are classified into three categories: (1)
held-to-maturity securities reported at amortized cost, (2) trading
securities reported at fair value with unrealized gains and losses
included in earnings, and (3) available-for-sale securities reported at
fair value with unrealized gains and losses reported in other
comprehensive income (loss). Costs are determined by the specific
identification method.
|
F
-10
INTERNATIONAL
MONETARY SYSTEMS, LTD.
AND
SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
K. RECEIVABLES
AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
|
Accounts
receivable are stated at face value, net of the allowance for bad debts.
Finance charges on receivables are calculated using the simple interest
method on the amount outstanding.
|
|
The
allowance for bad debts is maintained at a level that is management’s best
estimate of probable bad debts incurred as of the balance sheet date.
Management’s determination of the adequacy of the allowance is based on an
evaluation of the accounts receivable, past collection experience, current
economic conditions, volume, growth and composition of the accounts
receivable, and other relevant factors. Actual results may differ from
these estimates. The allowance is increased by provisions for bad debts
charged against income.
|
L. INVENTORY
|
Inventory
consists primarily of jewelry and other merchandise held for sale by the
Company. Inventory is carried at the lower of actual cost or fair market
value.
|
M. EARNED
TRADE ACCOUNT
|
As
part of the operations of the subsidiaries, the Company earns trade
dollars which are used to purchase goods and services required in
operations. This account is increased principally for service, membership
and transaction fees, and is decreased by the Company’s purchase of goods
and services. An impairment loss is recognized if it becomes apparent that
the fair value of the trade dollars in the account is less than the
carrying amount, or if it is probable that the Company will not use all of
the balance.
|
N. PROPERTY
AND EQUIPMENT
|
Property
and equipment are stated at cost less accumulated depreciation.
Depreciation is computed using straight line methods over the estimated
useful lives of five to thirty-nine
years.
|
O. GOODWILL
AND MEMBERSHIP LISTS
|
Goodwill
and membership lists are stated at cost and arise when additional
exchanges are purchased. Membership lists are amortized over the estimated
life of ten years.
|
|
In
2002 the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 142, “Goodwill and Other Intangibles,” which requires that
goodwill and intangible assets with indefinite lives be tested annually
for impairment. In 2008 the Company recorded an impairment loss of
$209,605 on membership lists related to its Modesto, CA, Chattanooga, TN,
Las Vegas, NV, and Louisville, KY operations. In 2007 the Company recorded
an impairment loss of $36,676 on membership lists related to its Virginia,
Memphis, TN and Indiana operations.
|
P. ASSETS
HELD FOR INVESTMENT
|
Assets
held for investment consist of various works of art which are valued at
the lower of cost or fair market
value.
|
F
-11
INTERNATIONAL
MONETARY SYSTEMS, LTD.
AND
SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Q. INVESTMENT
IN REAL ESTATE
|
Investment
in real estate includes two parcels of undeveloped land valued at $26,000.
Both are valued at the lower of cost or fair market
value.
|
R. INCOME
TAXES
|
The
Company accounts for income taxes under the Statement of Financial
Accounting Standards No. 109, “Accounting for Income
Taxes” (“SFAS 109”). Under SFAS 109, deferred tax assets
and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or
settled. Under SFAS 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date.
|
S. CONCENTRATIONS
OF CREDIT RISK
|
Cash
|
|
Cash
includes deposits at financial institutions with maturities of three
months or less. The Company at times has cash in banks in excess of FDIC
insurance limits and places its temporary cash investments with high
credit quality financial institutions. At December 31, 2008 and 2007,
respectively, the Company had approximately $198,000 and $835,000 in cash
balances at financial institutions which were in excess of the FDIC
insured limits. The FDIC insured limits at December 31, 2008 and 2007,
respectively, were $250,000 and
$100,000.
|
|
Accounts
Receivable
|
|
The
Company grants credit to its customers, all of whom are members of
Continental Trade Exchange, National Trade Association and INLM CN.
Customers are principally located throughout California, Colorado,
Connecticut, Illinois, Indiana, Kansas, Kentucky, Louisiana, Maryland,
Massachusetts, Michigan, Nevada, New York, Ohio, Tennessee, Virginia,
Washington DC, Wisconsin, and Toronto, Canada. The Company routinely
assesses the financial strength of its customers and, therefore, believes
that its accounts receivable credit risk exposure is
limited.
|
T. SEGMENT
REPORTING
|
The
Company operates in one segment and, therefore, segment information is not
presented.
|
U. ADVERTISING
|
Advertising
costs, which are principally included in selling expenses, are expensed as
incurred. Advertising expense was $503,997 and $334,028 for the years
ended December 31, 2008 and 2007,
respectively.
|
F
-12
INTERNATIONAL
MONETARY SYSTEMS, LTD.
AND
SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
V. COMPREHENSIVE
INCOME
|
FAS
No. 130, Reporting Comprehensive Income (SFAS 130) establishes rules for
reporting and displaying comprehensive income and its components.
Comprehensive income is the sum of net loss as reported in the
consolidated statements of operations and other comprehensive income
transactions as reported in the consolidated statement of changes in
stockholders' equity. Other comprehensive income transactions that
currently apply to the Company result from unrealized gains or losses on
equity investments and from changes in exchange rates used in translating
the financial statements of its wholly owned subsidiary INLM CN, Inc. of
Canada.
|
W. FOREIGN
CURRENCY TRANSLATION
|
The
financial statements of the Company's foreign subsidiary have been
translated into U.S. dollars in accordance with SFAS No. 52, Foreign
Currency Translation (SFAS 52). All balance sheet accounts have been
translated using the exchange rate in effect at the balance sheet date.
Income statement amounts have been translated using an appropriately
weighted average exchange rate for the year. The translation gains and
losses of $(24,046) and $12,863 resulting from the changes in exchange
rates during 2008 and 2007, respectively, have been reported in
accumulated other comprehensive income, except for gains and losses
resulting from the translation of intercompany receivables and payables,
which are included in earnings for the
period.
|
X. LOSS
PER SHARE
|
Basic
and diluted net loss per common share is computed based upon the weighted
average common shares outstanding as defined by Financial Accounting
Standards No. 128, “Earnings Per Share.” As of December 31, 2008 and 2007
there were 7,301,161 and 6,477,528 common share equivalents outstanding
which consisted of:
|
2008
|
2007
|
|||||||
Shares
issuable upon the
|
||||||||
conversion
of notes payable
|
4,441,161 | 2,907,528 | ||||||
Shares
issuable upon the
|
||||||||
exercise
of warrants
|
2,200,000 | 2,750,000 | ||||||
Shares
issuable upon the
|
||||||||
conversion
of stock options
|
660,000 | 820,000 | ||||||
7,301,161 | 6,477,528 |
|
These
shares were not included in the computations of loss per share because
their effect was anti dilutive.
|
F
-13
INTERNATIONAL
MONETARY SYSTEMS, LTD.
AND
SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Y. RECENT
ACCOUNTING PRONOUNCEMENTS
|
In
December 2007, the Financial Accounting Standards Board (FASB) issued SFAS
No. 160, “Noncontrolling
Interests in Consolidated Financial Statements – an amendment of ARB No.
51”. This statement improves the relevance, comparability, and
transparency of the financial information that a reporting entity provides
in its consolidated financial statements by establishing accounting and
reporting standards that require: the ownership interests in subsidiaries
held by parties other than the parent and the amount of consolidated net
income attributable to the parent and to the noncontrolling interest be
clearly identified and presented on the face of the consolidated statement
of income; changes in a parent’s ownership interest while the parent
retains its controlling financial interest in its subsidiary be accounted
for consistently; when a subsidiary is deconsolidated, any retained
noncontrolling equity investment in the former subsidiary be initially
measured at fair value; entities provide sufficient disclosures that
clearly identify and distinguish between the interests of the parent and
the interests of the noncontrolling owners. SFAS No. 160 affects those
entities that have an outstanding noncontrolling interest in one or more
subsidiaries or that deconsolidate a subsidiary. SFAS No. 160 is effective
for fiscal years, and interim periods within those fiscal years, beginning
on or after December 15, 2008. Early adoption is prohibited. The adoption
of this statement is not expected to have a material effect on the
Company's financial statements.
|
In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement No. 133”
(SFAS 161). This statement is intended
to improve transparency in financial reporting by requiring enhanced disclosures
of an entity’s derivative instruments and hedging activities and their effects
on the entity’s financial position, financial performance, and cash flows.
SFAS 161 applies to all derivative
instruments within the scope of SFAS 133, “Accounting for Derivative Instruments
and Hedging Activities” (SFAS 133), as well as related hedged items, bifurcated
derivatives, and nonderivative instruments that are designated and qualify as
hedging instruments. Entities with instruments subject to SFAS 161 must provide more robust
qualitative disclosures and expanded quantitative disclosures. SFAS 161 is effective prospectively for
financial statements issued for fiscal years and interim periods beginning after
November 15, 2008, with early application permitted. We are currently
evaluating the disclosure implications of this statement.
In
May 2008, the FASB issued FASB Staff Position APB 14-1 (FSP APB 14-1),
“Accounting for Convertible Debt Instruments That May Be Settled in Cash upon
Conversion (Including Partial Cash Settlement)”, which applies to all
convertible debt instruments that have a “net settlement feature”, which means
that such convertible debt instruments, by their terms, may be settled either
wholly or partially in cash upon conversion. FSP APB 14-1 requires issuers
of convertible debt instruments that may be settled wholly or partially in cash
upon conversion to separately account for the liability and equity components in
a manner reflective of the issuers’ nonconvertible debt borrowing rate. FSP APB
14-1 is effective for financial statements issued for fiscal years beginning
after December 15, 2008 and interim periods within those fiscal
years. Early adoption is not permitted and retroactive application to all
periods presented is required. We continue to evaluate the application of
FSP APB 14-1 on our financial statements.
F
-14
INTERNATIONAL
MONETARY SYSTEMS, LTD.
AND
SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles.” SFAS No. 162 identifies the sources of accounting
principles and provides entities with a framework for selecting the principles
used in preparation of financial statements that are presented in conformity
with GAAP. The current GAAP hierarchy has been criticized because it is directed
to the auditor rather than the entity, it is complex, and it ranks FASB
Statements of Financial Accounting Concepts, which are subject to the same level
of due process as FASB Statements of Financial Accounting Standards, below
industry practices that are widely recognized as generally accepted but that are
not subject to due process. The Board believes the GAAP hierarchy should be
directed to entities because it is the entity (not its auditors) that is
responsible for selecting accounting principles for financial statements that
are presented in conformity with GAAP. SFAS 162 is effective 60 days following
the SEC’s approval of PCAOB Auditing Standard No. 6, Evaluating Consistency
of Financial Statements (AS/6). The adoption of FASB 162 is not expected to have
a material impact on the Company’s financial position.
In May,
2008, 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 to an
event of default (insured event) when there is evidence that credit
deterioration has occurred in an insured financial obligation. SFAS 163 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. SFAS 163 is effective for financial statements
issued for fiscal years beginning after December 15, 2008, and interim periods
within those fiscal years. The Company does not expect the proposed guidance
will have an impact on its consolidated financial statements.
NOTE
2 - MARKETABLE SECURITIES
SFAS No.
115 "Accounting for Certain Investments in Debt and Equity Securities," requires
that all applicable investments be classified as trading securities,
available-for-sale securities or held-to-maturity securities. The Company has
classified certain of its investments as trading securities which are reported
at fair value, which is defined as the last closing price for the listed
securities. The unrealized gains and losses which the Company recognizes from
its trading securities are included in earnings. The Company also has
investments classified as available-for-sale, which are also required to be
reported at fair value, with unrealized gains and losses excluded from earnings
and reported as a separate component of stockholders' equity (net of the effect
of income taxes). Fair value is also defined as the last closing price for the
listed security. Due to the size of certain of the Company's investments and
their limited trading volume, there can be no assurance that the Company will
realize the value which is required to be used by SFAS No. 115.
F
-15
INTERNATIONAL
MONETARY SYSTEMS, LTD.
AND
SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
The
amortized cost of equity securities as shown in the accompanying balance sheet
and their estimated market value at December 31, 2008 and 2007 are as
follows:
2008
|
2007
|
|||||||
Available
for sale securities:
|
||||||||
Cost
|
$ | 98,966 | $ | 90,434 | ||||
Unrealized
gain or (loss)
|
(14,158 | ) | 27,946 | |||||
Marketable
equity securities
|
||||||||
classified
as current
|
$ | 84,808 | $ | 118,380 |
The
changes in unrealized gains (losses) from available-for-sale securities included
as a component of equity for the years ended December 31, 2008 and 2007 were as
follows:
2008
|
2007
|
|||||||
Unrealized
gain (loss)
|
$ | (42,104 | ) | $ | 2,447 |
The
investment in marketable equity securities has been pledged to secure the
liability for deferred compensation (Note 8).
NOTE
3 - ACQUISITIONS
A.
|
On
February 1, 2007 the Company entered into a Share-Exchange agreement for
the acquisition of all outstanding shares of Alliance Barter, Inc., a New
York corporation with offices in Rochester, NY and Toronto, Canada, for
$2,500,000. IMS issued 3,333,333 shares of common stock guaranteed at
$2,500,000 ($.75 per share).
|
Purchase
price
|
$ | 2,500,000 | ||
Cash
|
$ | 498,452 | ||
Accounts
receivable
|
116,972 | |||
Furniture
and equipment
|
87,235 | |||
Member
lists
|
1,927,341 | |||
Goodwill
|
650,000 | |||
Liabilities
assumed
|
(130,000 | ) | ||
Deferred
tax liability
|
(650,000 | ) | ||
Net
assets acquired
|
$ | 2,500,000 |
F
-16
INTERNATIONAL
MONETARY SYSTEMS, LTD.
AND
SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
B.
|
On
September 1, 2007, the Company purchased selected assets of Barter
Partners of St. Joseph, Michigan for $50,000. IMS issued 50,000 shares of
common stock guaranteed at $50,000 ($1.00 per
share).
|
Purchase
price
|
$ | 50,000 | ||
Accounts
receivable
|
$ | 4,400 | ||
Member
list
|
45,600 | |||
Total
assets acquired
|
$ | 50,000 |
C.
|
On
September 30, 2007, the Company purchased selected assets of Kansas Trade
Exchange of Wichita, Kansas for $600,000. Terms of the acquisition
included a note payable for $300,000 with 36 monthly payments of $9,126,
and 300,000 shares of IMS common stock guaranteed at $300,000 ($1.00 per
share). The shares will be issued in three annual installments starting in
January 2008.
|
Purchase
price
|
$ | 600,000 | ||
Accounts
receivable
|
$ | 27,400 | ||
Furniture
and equipment
|
8,000 | |||
Member
list
|
564,600 | |||
Total
assets acquired
|
$ | 600,000 |
D.
On September 30, 2007, the Company purchased selected assets of Synergy Trade
Exchange of Louisville, Kentucky for $165,000. Terms of the acquisition included
a down payment of $10,000 and a note payable for $155,000 with 15 monthly
payments of $10,751.
Purchase
price
|
$ | 165,000 | ||
Accounts
receivable
|
$ | 11,500 | ||
Furniture
and equipment
|
5,000 | |||
Member
list
|
148,500 | |||
Total
assets acquired
|
$ | 165,000 |
F
-17
INTERNATIONAL
MONETARY SYSTEMS, LTD.
AND
SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
E.
|
On
April 4, 2008, IMS exercised its option to purchase specific assets from
New York Commerce Group (NYCG) pursuant to an agreement from September
2006, for $405,424. IMS paid NYCG $100,000 on April 8, 2008. Payments made
prior to this date totaled $132,500. The balance due of $172,924 is
payable over the next 8 months with interest at 6% per
annum.
|
Purchase
price
|
$ | 405,424 | ||
Accounts
receivable (net)
|
$ | 4,501 | ||
Furniture
and equipment
|
5,000 | |||
Membership
list
|
395,923 | |||
Total
assets acquired
|
$ | 405,424 |
F.
|
On
May 2, 2008, IMS acquired the assets of Business Network, Inc. of
Hauppauge, New York for $400,000. Terms include a down payment of $200,000
and a $100,000 note to the seller, payable over 18 months with interest at
6% per annum, starting June 10, 2008. In addition IMS issued 133,333
shares of common stock guaranteed to a value of $100,000 ($.75 per
share).
|
Purchase
price
|
$ | 400,000 | ||
Accounts
receivable (net)
|
$ | 12,600 | ||
Furniture
and equipment
|
6,000 | |||
Membership
list
|
381,400 | |||
Total
assets acquired
|
$ | 400,000 |
G.
|
On
July 31, 2008, IMS completed its acquisition of the assets of Bartermax of
Norwood, Massachusetts for $400,000. Terms include a cash down payment of
$175,000, $50,000 in IMS trade dollars, and a $125,000 note to the seller,
payable over 24 months with interest at 6% per annum, starting September
20, 2008. In addition IMS issued 66,667 shares of IMS common stock
guaranteed to a value of $50,000 ($.75 per
share).
|
Purchase
price
|
$ | 400,000 | ||
Accounts
receivable (net)
|
$ | 13,900 | ||
Furniture
and equipment
|
8,500 | |||
Member
list
|
377,600 | |||
Total
assets acquired
|
$ | 400,000 |
F
-18
INTERNATIONAL
MONETARY SYSTEMS, LTD.
AND
SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
The table below summarizes the
unaudited pro forma information of the results of operations as though the
acquisitions had been completed as of January 1, 2008 and January 2007,
respectively:
2008
|
2007
|
|||||||
Gross
revenue
|
$ | 14,631,508 | $ | 15,341,572 | ||||
Total
expenses
|
(16,084,089 | ) | (15,361,959 | ) | ||||
Net
income (loss) before taxes
|
$ | (1,452,581 | ) | $ | (20,387 | ) | ||
Earnings
per share
|
$ | (0.02 | ) | $ | 0.00 |
NOTE
4 - INTANGIBLE ASSETS
|
Intangible
assets consist of membership lists, goodwill and a covenant not to
compete, and for the years ended December 31, 2008 and 2007 are as
follows:
|
2008
|
2007
|
|||||||
Membership
lists
|
$ | 13,635,423 | $ | 12,517,176 | ||||
Impairment
|
(209,605 | ) | (36,676 | ) | ||||
Accumulated
amortization
|
(3,848,561 | ) | (2,518,346 | ) | ||||
Net
|
$ | 9,577,257 | $ | 9,962,154 | ||||
Covenant
not to compete
|
$ | 89,300 | $ | 89,300 | ||||
Accumulated
amortization
|
(89,300 | ) | (74,417 | ) | ||||
Net
|
$ | - | $ | 14,883 | ||||
Goodwill
|
$ | 3,448,602 | $ | 3,448,602 | ||||
Accumulated
amortization
|
(13,123 | ) | (13,123 | ) | ||||
Net
|
$ | 3,435,479 | $ | 3,435,479 |
F
-19
INTERNATIONAL
MONETARY SYSTEMS, LTD.
AND
SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
Aggregate
amortization expense was $1,345,098 and $1,222,041 for the years ended
December 31, 2008 and 2007, respectively. In 2008 the Company
recorded an impairment loss of $209,605 on membership lists related to its
California, Kentucky, Nevada and Tennessee operations. In 2007
the Company recorded an impairment loss of $36,676 on membership lists
related to its Virginia, Memphis, Tennessee and Indiana operations.
Estimated future amortization expense is as
follows:
|
2009
|
$ | 1,343,793 | ||
2010
|
1,343,793 | |||
2011
|
1,329,266 | |||
2012
|
1,285,742 | |||
2013
|
1,195,046 | |||
thereafter
|
3,079,617 | |||
$ | 9,577,257 |
NOTE
5 - PROPERTY AND EQUIPMENT
|
Property
and equipment consist of the following as of December 31, 2008 and
2007:
|
2008
|
2007
|
|||||||
Office
furniture, equipment,
|
||||||||
computers
and software
|
$ | 1,753,839 | $ | 1,724,643 | ||||
Leasehold
improvements
|
211,202 | 211,202 | ||||||
1,965,041 | 1,935,845 | |||||||
Accumulated
depreciation
|
(908,515 | ) | (666,582 | ) | ||||
$ | 1,056,526 | $ | 1,269,263 |
Depreciation
expense during the years ended December 31, 2008 and 2007 was $298,436 and
$243,326, respectively.
NOTE
6 - CREDIT LINES, NOTES AND CONVERTIBLE NOTES PAYABLE
CREDIT
LINES:
CTE has a
revolving credit line of $500,000 with a financial institution, with no maturity
date and an interest rate of Prime plus 1%. The note is secured by the assets of
the Company. As of December 31, 2008 the balance of the note is $248,658 and as
of December 31, 2007 it was $0.
CTE has
an unsecured business credit line of $122,000 with a financial institution, with
no maturity date and an interest rate of prime plus 6%. As of December 31, 2008
the balance of the note is $92,078 and as of December 31, 2007 it was
$0.
F
-20
INTERNATIONAL
MONETARY SYSTEMS, LTD.
AND
SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
NOTES
PAYABLE:
|
|
In
connection with the purchase of Barternet in 2003, the Company assumed an
unsecured note payable to an individual with maturity in February 2010 and
monthly payments of $2,500. The face value of the original note was
$207,500, discounted at 7.5% to $161,510. The balance as of December 31,
2008 is $35,000, discounted to $33,412, and $65,000, discounted to $59,821
as of December 31, 2007. The discount is being amortized over the life of
the promissory notes as additional interest expense. During the years
ended December 31, 2008 and 2007, the Company recorded interest expense
from the discounts of $3,591 and $5,493,
respectively.
|
|
In
connection with the acquisition of Barter Business Unlimited, Inc., CTE
issued an unsecured note payable to the former owner, with maturity in
June 2008 and monthly payments of $9,722. The face value of the original
note was $350,000, discounted at 7.5% to $312,500. The balance as of
December 31, 2008 is $0, and as of December 31, 2007 was $58,333,
discounted to $57,076. The discount was amortized over the life of the
note as additional interest expense. During the years ended December 31,
2008 and 2007 the Company recorded interest expense from the discount of
$1,257 and $8,728, respectively.
|
In
connection with the acquisition of Barter Business Unlimited, Inc., CTE issued
an unsecured note payable for a covenant not to compete with maturity in June
2008 and monthly payments of $2,778. The face value of the original note was
$100,000, discounted at 7.5% to $89,300. The balance as of December 31, 2008 is
$0, and as of December 31, 2007 was $16,667, discounted to $16,308. The discount
was amortized over the life of the note as additional interest expense. During
the years ended December 31, 2008 and 2007 the Company recorded interest expense
from the discount of $359 and $2,490, respectively.
In 2006
IMS issued an unsecured note payable to a private investor in the amount of
$1,465,000 with a maturity date of December 2009, monthly payments of $45,000,
and interest at 10%. The balance outstanding was $475,702 and $943,370 as of
December 31, 2008 and 2007, respectively.
In 2007
in connection with the acquisition of Kansas Trade Exchange, CTE issued an
unsecured note payable for $300,000 to the former owners. Terms include
thirty-six monthly payments of $9,267 including interest at 6% beginning January
10, 2008. The balance outstanding was $205,922 and $300,000 as of December 31,
2008 and 2007, respectively.
In 2007
in connection with the acquisition of Synergy Trade Exchange, CTE issued an
unsecured note payable for $155,000 to the former owners. Terms include fifteen
monthly payments of $10,751 including interest at 6% beginning October 20, 2007.
The balance outstanding was $124,921 as of December 31, 2007. The balance was
paid in full as of December 31, 2008.
In 2008
in connection with the acquisition of New York Commerce Group, CTE issued an
unsecured note payable for $172,924 to the former owner. Terms included monthly
payments ranging from $10,000 to $15,000 per month plus interest of 6% beginning
May 5, 2008. The balance outstanding was $72,924 as of December 31,
2008.
F
-21
INTERNATIONAL
MONETARY SYSTEMS, LTD.
AND
SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
In 2008
in connection with the acquisition of BNI of Long Island, CTE issued an
unsecured note payable for $100,000 to the former owner. Terms include eighteen
monthly payments of $5,823 including interest at 6% beginning June 10, 2008. The
balance outstanding was $62,174 as of December 31, 2008.
In 2008
in connection with the acquisition of Bartermax, CTE issued an unsecured note
payable for $125,000 to the former owner. Terms include twenty four monthly
payments of $5,540 including interest at 6% beginning September 20, 2008. The
balance outstanding was $105,192 as of December 31, 2008.
In 2008
in CTE issued two unsecured notes payable for $25,000 each in exchange shares of
IMS stock issued and guaranteed for the purchase of Barter Partners of Michigan.
Terms include seven monthly payments of $3,000 each and a final payment of
$4,000, plus interest at 6% beginning November 10, 2008. The balance outstanding
of each note was $19,000 (total of $38,000) as of December 31,
2008.
CONVERTIBLE NOTES
PAYABLE:
In 2005,
two private investors loaned $1,050,000 to IMS. Due dates of the notes ranged
from March to November 2007, with quarterly interest payments of 10%. The notes
were convertible to 3,500,000 shares of IMS stock at $.30 per share at the
holder’s option. The value of the convertible feature on the notes was
calculated to be $84,333 and treated as a discount and amortized over the life
of the notes. During 2007 all of the notes were converted to 3,500,000 shares of
IMS common stock at $.30 per share. As of December 31, 2008 and 2007 the
discounted balance of the notes was $0.
In 2006 a
private investor loaned $1,200,000 to IMS. The due dates of the notes range from
March to September 2008, with quarterly interest payments of 10%. The notes are
convertible to 1,883,334 shares of IMS stock at $.30 per share, and 1,024,194
shares of IMS stock at $.62 per share, at the option of the holder. The value of
the convertible feature on the notes was calculated to be $39,833 and treated as
a discount which is being amortized over the life of the note. As of December
31, 2007 the discounted balance of the notes is $1,195,277.
In
September 2008, the notes in the previous paragraph were converted to an
amortized note in the amount of $1,200,000, with 60 monthly payments of $15,858
including interest of 10%, and a balloon payment of $746,367 due September 2013.
The investor has the option to convert the principle balance to shares of IMS
commons stock at $.31 per share. As of December 31, 2008 the balance of the note
is $1,182,279.
In 2008 a
private investor loaned $100,000 and $200,000 to IMS. The due dates of the notes
are July 2009 to April 2010, with quarterly interest payments of 10%. The notes
are convertible to 250,000 shares of IMS stock at $.40 per share, and 377,358
shares of IMS stock at $.53 per share, at the option of the holder. As of
December 31, 2008 the outstanding balance of the notes was
$300,000.
F
-22
INTERNATIONAL
MONETARY SYSTEMS, LTD.
AND
SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
A summary of the Company’s credit
lines, notes and convertible notes payable is as follows:
Balance
as of
|
Current
|
Long-term
|
||||||||||
December
31, 2008
|
Portion
|
Portion
|
||||||||||
Financial
institutions credit lines
|
$ | 340,736 | $ | 340,736 | $ | - | ||||||
Individual
– note payable
|
475,702 | 475,702 | - | |||||||||
Individual
– note payable
|
205,922 | 99,881 | 106,041 | |||||||||
Individual
– note payable
|
105,192 | 61,852 | 43,340 | |||||||||
Individual
– note payable
|
72,924 | 72,924 | - | |||||||||
Individual
– note payable
|
62,174 | 62,174 | - | |||||||||
Individual
– note payable
|
33,412 | 28,459 | 4,953 | |||||||||
Individuals
– notes payable
|
38,000 | 38,000 | - | |||||||||
Individuals
– convertible notes
|
1,482,279 | 175,466 | 1,306,813 | |||||||||
2,816,341 | 1,355,194 | 1,461,147 | ||||||||||
Discounts
|
- | - | - | |||||||||
$ | 2,816,341 | $ | 1,355,194 | $ | 1,461,147 |
The
aggregate amount of maturities of long-term debt for each of the next five years
is as follows:
2009
|
$ | 1,355,194 | ||
2010
|
437,702 | |||
2011
|
92,098 | |||
2012
|
101,742 | |||
2013
|
829,605 | |||
$ | 2,816,341 |
Interest
expense for the years ended December 31, 2008 and 2007 was $275,332 and
$342,855, respectively.
NOTE
7 - NOTES PAYABLE, RELATED PARTY
|
From
time to time officers and stockholders of the Company have loaned funds to
IMS.
|
2008
|
2007
|
|||||||
Balance
January 1
|
$ | - | $ | 110,024 | ||||
New
loans during the year
|
25,000 | - | ||||||
Repayments
during the year
|
(25,000 | ) | (110,024 | ) | ||||
Balance
December 31
|
$ | - | $ | - |
|
These
loans were paid in full during the year ended December 31,
2008.
|
F
-23
INTERNATIONAL
MONETARY SYSTEMS, LTD.
AND
SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
8 - DEFERRED COMPENSATION
|
As
part of the acquisition of Tradecard, Inc., the Company assumed a deferred
compensation liability of $2,500 per month for 120 months, payable to
a key employee after her
retirement.
|
|
The
value of future payments required under the agreement is being charged to
operations over the period of active employment until the employee reaches
her retirement date in approximately four
years.
|
|
Assets
intended to fund this liability include an investment in marketable
securities (Note 2) with a balance of $84,808 and $118,380 as of
December 31, 2008 and 2007, respectively, and a life insurance policy
with a $300,000 death benefit and a cash surrender value as of
December 31, 2008 and 2007, of $43,125 and $37,056, respectively. All
incidents of ownership accrue to the Company, which is the designated
beneficiary. There are no loans outstanding on the insurance policy, but
the cash surrender value has been pledged by the Company to secure the
liability for deferred
compensation.
|
NOTE
9 - INCOME TAXES
|
Income
tax expense for the years ended December 31, 2008 and 2007 reflect a
higher or lower effective tax rate due to certain expenses that are not
deductible for tax purposes, such as the impairment loss of the membership
list and 50% of meals and entertainment. The difference between actual and
expected tax liability also includes the effects of timing differences in
deducting certain expenses such as charitable contributions and
depreciation, as well as the permanent effects of different financial
accounting and tax bases of certain
assets.
|
|
Income
tax expense consists of the following
components:
|
Years
Ended December 31
|
||||||||
2008
|
2007
|
|||||||
Currently
payable - state
|
$ | 8,150 | $ | 27,000 | ||||
Currently
payable - Federal
|
- | 122,000 | ||||||
Currently
refundable - Federal
|
(48,500 | ) | - | |||||
Deferred
tax asset
|
(75,000 | ) | - | |||||
Deferred
- state
|
(100,250 | ) | (36,669 | ) | ||||
Deferred
- federal
|
(378,622 | ) | (167,100 | ) | ||||
$ | (594,222 | ) | $ | (54,769 | ) |
F
-24
INTERNATIONAL
MONETARY SYSTEMS, LTD.
AND
SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
The following table reconciles the
reported income taxes and the income taxes that would be computed byapplying the
Company’s normal tax rate to income before taxes for the periods ended December
31:
Years
Ended December 31
|
||||||||
2008
|
2007
|
|||||||
Federal
income tax
|
$ | (522,000 | ) | $ | (170,650 | ) | ||
State
income tax
|
(92,100 | ) | (32,850 | ) | ||||
Tax
effects of:
|
||||||||
Nondeductible
impairment loss
|
83,800 | 15,050 | ||||||
Disallowed
meals
|
9,700 | 10,300 | ||||||
Change
in allowance for
|
||||||||
doubtful
accounts
|
22,700 | - | ||||||
Charitable
contributions carryover
|
900 | (1,800 | ) | |||||
Depreciation
and amortization
|
||||||||
variances
due to tax basis
|
||||||||
and
useful life differences
|
(14,000 | ) | 142,581 | |||||
Other
|
(83,222 | ) | - | |||||
Net
operating loss carryover
|
- | (17,400 | ) | |||||
$ | (594,222 | ) | $ | (54,769 | ) | |||
|
The
tax effects of temporary differences that give rise to significant
portions of deferred tax assets and liabilities are as
follows:
|
2008
|
2007
|
|||||||
Deferred
income tax asset:
|
||||||||
Net
operating loss
|
||||||||
carryover
to future periods
|
$ | 75,000 | $ | - | ||||
Deferred
income tax liabilities:
|
||||||||
Difference
in tax basis of
|
||||||||
membership
lists and goodwill
|
$ | 2,039,000 | $ | 2,550,000 |
NOTE
10 – STOCKHOLDER EQUITY
|
In
2007, 3,683,333 shares of common stock were issued as part of the purchase
of three trade exchanges. The fair value of the shares was
$2,850,000.
|
|
On
March 20, 2007, 750,000 warrants were exercised for IMS common stock. IMS
received cash in the amount of $412,500 ($.55 per
share).
|
|
In
2007, $1,030,000 of convertible notes payable was converted to 3,433,334
shares of IMS common stock, at $.30 per
share.
|
F
-25
INTERNATIONAL
MONETARY SYSTEMS, LTD.
AND
SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
In
2007, 25,000 shares of common stock were issued to investor relation
firms. 50,000 shares of common stock were issued to the outside members of
the Board of Directors. Total fair value was
$48,250.
|
|
On
December 18, 2007, 25,000 shares of treasury stock were issued for options
that were exercised in 2004, but remained unissued until
2007.
|
|
In
2007, 190,000 options were exercised for shares of IMS treasury stock. IMS
received $29,000 in cash.
|
|
On
August 2, 2007 IMS issued 75,000 shares of IMS treasury stock to acquire
the source code for our proprietary software, at a fair value of
$50,000.
|
|
Cash
received on the subscription receivable in 2007 was
$10,821.
|
|
The
stock guarantee liability was reduced by $120,000 during 2007 pursuant to
the release from an owner of guaranteed stock. The liability increased by
$2,850,000 for three acquisitions in 2007. The liability was increased by
$150,000 in 2008.
|
|
In
2007 marketable securities had an unrealized gain of $4,049 and the cash
surrender value had an unrealized loss of $1,602, resulting in other
comprehensive income of $2,447.
|
|
The
effect of the exchange rate on the currency conversion between our U.S.
and Canadian offices resulted in an equity adjustment increase of $12,863
for 2007.
|
|
In
2008, 200,000 shares of common stock were issued as part of the purchase
of two trade exchanges. The fair value of the shares was
$150,000.
|
|
On
April 14, 2008, 550,000 warrants were exercised for IMS common stock. IMS
received cash in the amount of $302,500 ($.55 per
share).
|
|
In
2008, 250,000 shares of common stock were issued to investor relation
firms. 60,000 shares of common stock were issued to the outside members of
the Board of Directors. Total fair value was
$60,233.
|
|
In
2008, 250,000 shares of common stock were issued to investor relation
firms. 60,000 shares of common stock were issued to the outside members of
the Board of Directors. Total fair value was
$60,233.
|
|
On
December 9, 2008 IMS paid $321,476 in trade dollars for 350,000 shares of
common stock, which were placed into treasury
stock.
|
|
In
2008 the balance due of $26,196 on the subscription receivable was written
off as a bad debt.
|
|
The
stock guarantee liability was reduced by $557,000 during 2008 pursuant to
the release from owners of guaranteed stock. The liability increased by
$150,000 for two acquisitions in 2008, and an additional $150,000 for the
settlement of a prior years’ dispute. The net decrease was
$257,000.
|
F
-26
INTERNATIONAL
MONETARY SYSTEMS, LTD.
AND
SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
In
2008 marketable securities had an unrealized loss of $42,572 and the cash
surrender value had an unrealized gain of $468, resulting in other
comprehensive loss of $42,104.
|
|
The
effect of the exchange rate on the currency conversion between our U.S.
and Canadian offices resulted in an equity adjustment decrease of $24,046
for 2008.
|
|
Effective
January 1, 2006 the Company adopted SFAS No. 123R, "Share-Based Payment"
("SFAS 123R"), a revision to SFAS No. 123 "Accounting for Stock-Based
Compensation" ("SFAS 123"). The Company has adopted the provisions of SFAS
123R and related interpretations as provided by SAB 107. As
such, compensation cost is measured on the date of grant at their fair
value. Such compensation amounts, if any, are amortized over
the respective vesting periods of the option
grant.
|
Common
stock, stock options and common stock warrants issued to other than
employees or
directors are recorded on the basis of their fair value, as required by SFAS No.
123(R), which is measured as of the date required by EITF Issue 96-18,
“Accounting for Equity Instruments That Are Issued to Other Than Employees for
Acquiring, or in Conjunction with Selling, Goods or Services.” In accordance
with EITF 96-18, the stock options or common stock warrants are valued using the
Black-Scholes option pricing model on the basis of the market price of the
underlying common stock on the “valuation date,” which for options and warrants
related to contracts that have substantial disincentives to non-performance is
the date of the contract, and for all other contracts is the vesting date.
Expense related to the options and warrants is recognized on a straight-line
basis over the shorter of the period over which services are to be received or
the vesting period. Where expense must be recognized prior to a valuation date,
the expense is computed under the Black-Scholes option pricing model on the
basis of the market price of the underlying common stock at the end of the
period, and any subsequent changes in the market price of the underlying common
stock up through the valuation date is reflected in the expense recorded in the
subsequent period in which that change occurs.
|
A
summary of the status of Company’s fixed stock option plan as of December
31, 2008 and 2007, and the changes during the years then ended is
presented below:
|
December
31, 2008
|
December
31, 2007
|
|||||||||||||||
Weighted
Average
|
Weighted
Average
|
|||||||||||||||
Fixed
Options
|
Shares
|
Exercise
Price
|
Shares
|
Exercise
Price
|
||||||||||||
Outstanding
at
|
||||||||||||||||
beginning
of period
|
820,000 | $ | 0.16 | 1,050,000 | $ | 0.16 | ||||||||||
Granted
|
- | $ | - | - | $ | - | ||||||||||
Purchased
|
- | $ | - | (190,000 | ) | $ | 0.15 | |||||||||
Forfeited
|
- | $ | - | - | $ | - | ||||||||||
Expired
|
(160,000 | ) | $ | 0.15 | (40,000 | ) | $ | 0.13 | ||||||||
Outstanding
at end of period
|
660,000 | $ | 0.16 | 820,000 | $ | 0.16 | ||||||||||
Options
exercisable at
|
||||||||||||||||
period
end
|
660,000 | |||||||||||||||
Weighted
average fair value
|
||||||||||||||||
of
options granted to
|
||||||||||||||||
employees
during the year
|
$ | - |
F
-27
INTERNATIONAL
MONETARY SYSTEMS, LTD.
AND
SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
As
of December 31, 2008 there were 660,000 options outstanding and
exercisable, with a weighted average remaining contractual life of .07
years, and a weighted average exercise price of
$.16.
|
|
As
of December 31, 2007 there were 820,000 options outstanding and
exercisable, with a weighted average remaining contractual life of 1.07
years, and a weighted average exercise price of
$.16.
|
|
Warrants
|
|
In
May 2006 the Company issued 3,500,000 fully vested warrants with an option
price of $.55, which expire in May, 2011. 550,000 warrants were exercised
in March 2008 with proceeds of $302,500. 750,000 warrants were exercised
in 2007 with proceeds of $412,500. The remaining balance as of December
31, 2008 is 2,200,000.
|
NOTE
11 - RELATED PARTY TRANSACTIONS
|
The
Company leases its executive offices and principal operating facilities in
New Berlin, Wisconsin from Glendale Investments, LLC, a Wisconsin limited
liability company which is owned by officers and stockholders of the
Company. The original lease commenced October 1, 2002 and extends
through September 30, 2010. Lease payments are $7,500 monthly plus certain
operating costs, including sales and use taxes, insurance, utilities,
maintenance, and non-structural repairs. Total payments in 2008 and 2007
were $90,000 and $90,000,
respectively.
|
|
From
time to time officers and stockholders of the Company have loaned funds to
IMS.
|
2008
|
2007
|
|||||||
Balance
January 1
|
$ | - | $ | 110,024 | ||||
New
loans during the year
|
25,000 | - | ||||||
Repayments
during the year
|
(25,000 | ) | (110,024 | ) | ||||
Balance
December 31
|
$ | - | $ | - |
|
These
loans were paid in full in the year ended December 31,
2008.
|
On August
3, 2007, the company issued 75,000 shares to Danny W. Weibling, Chief Financial
Officer of IMS, in exchange for a copy of the source code of the software
package called TradeWorkswhich he developed. The cost of the source code was
$50,000. Shares were issued from the company’s treasury stock.
On July
11, 2008, 60,000 of shares of IMS common stock were issued to the six outside
members of the board of directors (10,000 shares each), as annual compensation
with a fair value of $21,000 ($3,500 each).
In 2008
and 2007 the Company paid $500 and $480, respectively, to Corporate Secretary
Patricia Katisch to produce and distribute the corporate
minutes.
F
-28
INTERNATIONAL
MONETARY SYSTEMS, LTD.
AND
SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
12 - COMMITMENTS AND CONTINGENCIES
|
Leases
|
|
The
Company has various leases for office facilities and vehicles which are
classified as operating leases, and which expire at various times through
2014. Total rent expense for all operating leases for 2008 and 2007 is
summarized as follows:
|
2008
|
2007
|
|||||||
Related
party lease
|
$ | 90,000 | $ | 90,000 | ||||
Office
leases
|
768,405 | 668,122 | ||||||
Vehicle
leases
|
18,157 | 16,548 | ||||||
$ | 876,562 | $ | 774,670 |
|
Minimum
future lease commitments as of December 31, 2008, are summarized as
follows:
|
Office
|
||||||||
Year
ending December 31
|
Facilities
|
Vehicles
|
||||||
2009
|
687,672 | $ | 8,921 | |||||
2010
|
554,123 | 5,310 | ||||||
2011
|
157,422 | - | ||||||
2012
|
82,835 | - | ||||||
thereafter
|
147,265 | - | ||||||
$ | 1,629,317 | $ | 14,231 |
|
Employment
Agreements
|
|
The
Company has employment agreements with key employees, including the chief
executive officer, the chief financial officer, and the senior vice
presidents, pursuant to which these employees will receive base salaries
in 2009 of $230,000, $190,000, $175,000 and $165,000, plus commissions and
bonuses at the discretion of the chief executive officer. Each contract is
for a term of three years, and will be automatically extended for
additional one-year periods thereafter, unless terminated by the Company
or by the employee. On March 31, 2009, each of the above officers agreed
to a 10% reduction in salary.
|
|
The
agreements also provide for the issuance of stock options at the chief
executive officer’s discretion. All agreements contain a change of control
provision. In the event of a merger, acquisition of the Company or sale of
substantially all of its assets, the chief executive officer’s contract
provides for compensation equal to two years' salary plus a lump sum
payment of $400,000. The chief financial officer and senior vice
presidents will receive compensation equal to one year's salary plus lump
sum payments of $200,000 each.
|
F
-29
INTERNATIONAL
MONETARY SYSTEMS, LTD.
AND
SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
13 – RESTATED FINANCIAL STATEMENTS (restated)
On April
1, 2008, the Company restated the December 31, 2007 financial statements to
reclassify the current and long-tem portions of common stock subject to
guarantees. This reclassification had no effect on net loss, loss per
share, cash flows or stockholder equity. A summary of the changes is as
follows:
Balance
Sheet
|
As
Reported
|
As
Restated
|
||||||
LIABILITIES
|
||||||||
Current
liabilities
|
||||||||
Current
portion of common stock subject to guarantees
|
652,664 | 995,000 | ||||||
Total
current liabilities
|
3,636,133 | 3,978,469 | ||||||
Long-term
liabilities
|
||||||||
Common
stock subject to guarantees, less current portion
|
2,232,336 | 1,890.000 | ||||||
Total
long term liabilities
|
5,634,373 | 5,292,037 |
NOTE
14 - SUBSEQUENT EVENTS
|
On
January 2, 2009 IMS repurchased 600,000 shares of common stock at $.75 per
share using restricted cash of $450,000, thereby releasing $450,000 of the
common stock guarantee.
|
|
On
January 15, 2009 IMS issued notes payable totaling $300,000 in exchange
for release of the stock guarantee on, and the return of 300,000 shares of
IMS stock. The notes are interest only at 4.5% per annum, and annual
principal payments begin January 21, 2009. Principal payments range from
$0 to $120,000 at the discretion of the note
holders.
|
|
On
March 16, 2009 IMS issued 300,000 shares of IMS stock to an investor
relations firm. The fair value of the stock was
$24,000.
|
|
On
March 31, 2009 IMS issued two interest only notes payable totaling
$100,000 in exchange for cash. The notes are $50,000 each, issued to a
board member and an officer of the Company. Interest is 8% per annum paid
quarterly for two years.
|
|
On
March 31, 2009, an interest only note payable to a private investor with
an original due date of July 2009, was extended for 2 years, to July
2011.
|
F
-30