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EXCEL - IDEA: XBRL DOCUMENT - INTERNATIONAL MONETARY SYSTEMS LTD /WI/Financial_Report.xls
EX-32.1 - CERTIFICATION - INTERNATIONAL MONETARY SYSTEMS LTD /WI/f10q0914ex32i_ims.htm
EX-32.2 - CERTIFICATION - INTERNATIONAL MONETARY SYSTEMS LTD /WI/f10q0914ex32ii_ims.htm
EX-31.1 - CERTIFICATION - INTERNATIONAL MONETARY SYSTEMS LTD /WI/f10q0914ex31i_ims.htm
EX-31.2 - CERTIFICATION - INTERNATIONAL MONETARY SYSTEMS LTD /WI/f10q0914ex31ii_ims.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

FORM 10-Q

 

   QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2014

 

   TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission file number 000-30853

 

INTERNATIONAL MONETARY SYSTEMS, LTD.

(Exact name of Registrant as specified in its charter)

 

Wisconsin   39-1924096

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

16901 West Glendale Drive, New Berlin,

Wisconsin 53151

(Address of principal executive offices)
 
(262) 780-3640
(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant has (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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 ☒          No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check One):

 

Large Accelerated Filer   ☐ Accelerated Filer       ☐ Non-Accelerated Filer    ☐ Smaller Reporting Company   ☒
    (Do not check if a smaller reporting company)  

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐       No ☒

 

The number of shares of Common Stock, $.0001 par value, outstanding as of November 4, 2014 was 599,175.

 

 

 

 
 

 

INTERNATIONAL MONETARY SYSTEMS, LTD.

 

TABLE OF CONTENTS

 

    Page No.
Part I. FINANCIAL INFORMATION  
     
Item 1 - Financial Statements September 30, 2014  
     
  Unaudited Consolidated Balance Sheets – September 30, 2014 and December 31, 2013 3
     
  Unaudited Consolidated Statements of Operations – Three Months and Nine Months Ended September 30, 2014 and 2013 4
     
  Unaudited Consolidated Statements of Cash Flows – Nine Months Ended September 30, 2014 and 2013 5
     
  Unaudited Notes to Consolidated Financial Statements 7
     
Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations 11
     
Item 3 - Quantitative and Qualitative Disclosures about Market Risk 14
     
Item 4 - Controls and Procedures 14
     
Part II. OTHER INFORMATION  
     
Item 1 Legal Proceedings 15
     
Item 1A - Risk Factors 15
     
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds 15
     
Item 3 - Defaults on Upon Senior Securities 15
     
Item 4 - Specialized Matters 15
     
Item 5 - Other Information 15
     
Item 6 - Exhibits 16

 

2
 

 

INTERNATIONAL MONETARY SYSTEMS, LTD.

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 

   September 30,
2014
   December 31,
2013
 
ASSETS        
Current assets        
Cash  $815,470   $1,035,493 
Marketable securities   259,197    240,712 
Accounts receivable, net   594,147    778,541 
Earned trade account   139,765    7,575 
Prepaid expenses   161,832    158,442 
Total current assets   1,970,411    2,220,763 
Other assets          
Property and equipment, net   423,720    498,332 
Membership lists and other intangibles, net   2,343,366    3,227,636 
Goodwill   3,482,522    3,507,522 
Assets held for investment   86,873    94,822 
Total non-current assets   6,336,481    7,328,312 
Total assets  $8,306,892   $9,549,075 
           
Current liabilities          
Accounts payable and accrued expenses  $966,393   $996,685 
Credit lines, short term notes, and current portion of long term debt   1,389,382    1,024,586 
Current portion of notes payable to related parties, including short term note   85,000    70,000 
Common stock subject to guarantee   21,702    39,702 
Total current liabilities   2,462,477    2,130,973 
Long-term liabilities          
Long term debt, net of current portion   1,468,222    1,026,205 
Notes payable related parties, net of current portion   470,000    505,000 
Deferred compensation   291,000    291,000 
Deferred income taxes   98,505    375,517 
Total long-term liabilities   2,327,727    2,197,722 
Total liabilities   4,790,204    4,328,695 
  Commitments and Contingencies          
           
Preferred stock, $.0001 par value, 2,000,000 authorized, -0- outstanding   

-

    - 

Common stock, $.0001 par value 28,000,000 authorized, and 599,175 and 739,546 issued and outstanding at September 30, 2014 and December 31, 2013, respectively

   57    74 
Paid in capital   6,018,208    7,631,317 
Treasury stock, 21,817 and 7,953 shares at September 30, 2014 and December 31, 2013, respectively   (203,863)   (78,640)
Accumulated other comprehensive income   97,512    84,094 
Accumulated deficit   (2,395,226)   (2,416,465)
Total stockholders’ equity   3,516,688    5,220,380 
Total liabilities and stockholders’ equity  $8,306,892   $9,549,075 

 

See accompanying notes to consolidated financial statements.

 

3
 

 

INTERNATIONAL MONETARY SYSTEMS, LTD.

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

 

  

Three Months Ended

September 30,

  

Nine Months Ended

September 30,

 
   2014   2013   2014   2013 
                 
 Net revenue  $2,987,878   $3,116,046   $8,883,522   $9,345,261 
 Operating expenses:                    
Employee costs   1,833,930    1,881,236    5,501,425    5,840,574 
    Selling, general and administrative   755,925    842,988    2,230,204    2,405,538 
Depreciation and amortization   325,659    343,150    996,451    1,059,885 
         Total operating expenses   2,915,514    3,067,374    8,728,080    9,305,997 
                     
    Income (loss) from operations   72,364    48,672    155,442    39,264 
                     
   Other income (expense)                    
     Interest income   10    20    36    926 
     Gain (loss) on sales of assets   -    (9,118)   (4,075)   (8,215)
     Interest expense   (53,413)   (59,720)   (166,409)   (195,502)
         Total other income (expense)   (53,403)   (68,818)   (170,448)   (202,791)
                     
     Income (loss) before income taxes   18,961    (20,146)   (15,006)   (163,527)
     Income tax (expense) benefit   9,337    10,605    36,246    96,577 
                     
     Net income (loss)   28,298    (9,541)   21,240    (66,950)
                     
Components of comprehensive income (loss):                    
    Foreign currency translation adjustment   (3,289)   966    (5,132)   (3,136)
    Unrealized gain on available for sale securities   9,648    11,700    18,550    34,522 
                     
Comprehensive income (loss)  $34,657   $3,125   $34,658   $(35,564)
                     
Net income (loss) per                    
      common share – basic  $.04   $(.01)  $.03   $(.09)
                      - dilutive  $.04   $(.01)  $.03   $(.09)
Weighted average common                    
  shares outstanding – basic   633,727    727,583    668,580    713,780 
                                            - dilutive   633,727    727,583    668,580    713,780 

 

See accompanying notes to consolidated financial statements.

 

4
 

 

INTERNATIONAL MONETARY SYSTEMS, LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

 

   Nine Months Ended
September 30,
 
   2014   2013 
CASH FLOWS FROM OPERATING ACTIVITIES:        
Net income (loss)  $21,240   $(66,950)
Adjustments to reconcile net loss to net cash provided by operating activities:          
Depreciation and amortization   996,451    1,059,885 
Increase (decrease) in bad debt provision   (8,792)   (5,403)
Amortization of note discount   5,575    7,471 
Losses on disposals of assets   4,075    8,215 
Changes in assets and liabilities          
Accounts receivable   193,186    222,106 
Earned trade account   (176,060)   (224,093)
Prepaid expenses   (2,555)   (13,124)
Accounts payable and accrued expenses   (30,230)   2,044 
Deferred income taxes   (277,012)   (291,871)
Net cash provided by operating activities   725,878    698,280 
CASH FLOWS FROM INVESTING ACTIVITIES:          
Capital expenditures   (8,660)   (16,819)
Proceeds from sale of assets   -    3,952 
(Increase) in marketable securities   -    (686)
Decrease  in cash surrender value   -    66,338 
Net cash provided by (used in) investing activities   (8,660)   52,785 
CASH FLOWS FROM FINANCING ACTIVITIES:          
Proceeds from notes payable including from related parties   50,000    555,000 
Net change in credit lines   62,000    45,697 
Payments on notes payable, convertible notes payable and related party notes   (1,003,848)   (1,332,924)
Purchase of treasury stock   (40,261)   (135,644)
Net cash used in financing activities   (932,109)   (867,871)
Effect of exchange rate changes   (5,132)   (3,136)
           
Net decrease in cash   (220,023)   (119,942)
           
Cash at beginning of period   1,035,493    956,217 
           
Cash at end of period  $815,470   $836,275 

 

See accompanying notes to consolidated financial statements.

 

5
 

 

INTERNATIONAL MONETARY SYSTEMS, LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

Continued

 

   Nine Months Ended
September 30,
 
   2014   2013 
SUPPLEMENTAL DISCLOSURES        
Cash paid for interest  $167,253   $200,391 
Cash paid for income taxes  $181,134   $123,566 
           
SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES          
Unrealized net gain on marketable securities  $18,550   $34,522 
Notes issued for treasury stock  $1,698,085   $- 
Treasury stock retired  $1,626,850   $276,208 
Goodwill and note payable - purchase price adjustment  $25,000   $- 
Release of common stock guarantees  $18,000   $20,298 
Trade dollars exchanged for:          
Capital expenditures  $29,745   $37,024 
Purchase of treasury stock  $18,000   $15,000 
Trade dollars received for capital assets  $3,875   $- 

 

See accompanying notes to consolidated financial statements.

 

6
 

 

INTERNATIONAL MONETARY SYSTEMS, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

September 30, 2014

 

NOTE 1 - BASIS OF PRESENTATION

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine month periods ended September 30, 2014, are not necessarily indicative of the results that may be expected for the year ended December 31, 2014.

 

The Company's 10-K for the year ended December 31, 2013, filed on March 19, 2014, should be read in conjunction with this report.

 

Principles of Consolidation

 

The consolidated financial statements for 2014 and 2013 include the accounts of International Monetary Systems, Ltd. (“IMS” or “the Company”) and its’ wholly owned subsidiaries Continental Trade Exchange, Ltd., National Trade Association, Inc., INLM CN Inc. and INLM Holdings, Inc. Significant intercompany accounts and transactions have been eliminated in consolidation.

 

Revenue Sources and Cost of Revenue

 

The Company and its subsidiaries earn revenues in both traditional cash dollars and in IMS trade dollars.

 

Cash Revenue

 

Cash income is earned through fees assessed when a member joins, transaction fees generated when clients earn or spend their trade dollars, annual and monthly maintenance fees, finance charges on delinquent accounts receivable, and event fees.

 

Trade Dollar Revenue

 

Trade revenue is similarly generated through initial membership fees, monthly maintenance fees, transaction fees, finance charges on delinquent accounts, and event fees. Occasionally the Company will accept a favorable trade ratio in lieu of a cash fee.

 

Revenue Recognition

 

All 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.

 

7
 

 

Use of Trade Dollars

 

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.

 

Occasionally, the Company sells IMS trade dollars for US dollars. The cash received in these sales is included in gross revenue and the carrying value of the trade dollars up to the value of the cash received is netted against revenue, with any excess cost included in selling, general and administrative expenses.

 

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 could differ from those estimates.

 

Reclassifications

 

Certain amounts in the prior period financial statements have been reclassified to conform to the current period presentation.

  

Recent Accounting Pronouncements

 

Management does not anticipate that the recently issued but not yet effective accounting pronouncements will materially impact the Company’s financial condition.

  

NOTE 2 – CASH

 

For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents to the extent the funds are not being held for investment purposes. As of September 30, 2014, the Company has cash in excess of FDIC insurance of approximately $510,000. No losses have been incurred related to this credit risk exposure.

 

NOTE 3 – DEBT

 

In January 2014, the Company repurchased 96,860 shares of common stock from two private investors by issuing notes payable in the amount of $1,065,460. One note calls for 36 payments of $17,070 including interest at 3%, and 24 payments of $17,487, including interest at 6%. The second note calls for 36 payments of $3,462, including interest at 5%. The shares were placed in treasury.

 

In January 2014, the Company repaid a note to a private individual in the amount of $57,664. Up to $20,000 of the note was due. A related note in the amount of $242,336 was renewed and is now due in December 2017. Interest only at 7% is payable monthly until January 2015, at which time monthly payments of $10,850 including interest at 7% begin.

 

The note payable issued by the Company in 2011 in exchange for certain assets of a trade exchange in St. Louis, Missouri contained a clause that called for an adjustment of the final purchase price and note obligation at the time the former owner left employment with IMS. Based on the final calculations associated with this clause, in March 2014, the note obligation and the related discount were reduced by $25,000. The goodwill associated with the transaction was reduced by the same amount.

 

8
 

 

In April 2014, the Company repurchased 50,610 shares of common stock from a private investor by issuing a note payable in the amount of $632,625. The note calls for payments of interest only at 6% beginning May 10, 2014. Beginning May 10, 2015, the note calls for monthly payments of $19,246, including interest at 6%. The shares were placed in treasury.

 

In April 2014, a convertible note payable to a director totaling $50,000, due in April 2014, was renewed. The note was then repaid in June, 2014.

 

In May 2014, a convertible note payable to an officer in the amount of $20,000 was repaid.

 

In May, 2014, the Company issued a $50,000 note payable to an officer for cash. The terms of the note call for quarterly interest payments at 8% for two years, after which the note is payable in full.

 

On July 1, 2014, a convertible note payable to an officer in the amount of $20,000, due October, 2014, was renewed under the same terms as originally issued. The note is now due in July, 2016.

 

The Company’s indebtedness as of September 30, 2014 includes the following:

 

Lines of credit payable to financial institutions, due in 2014  $125,000 
Convertible notes payable to related parties, mature between 2015 and 2017, $25,000 in 2014   255,000 
Non-convertible notes payable to related parties, maturing in 2015 and 2016   300,000 
Notes payable to third parties, $189,784 due in 2014   2,514,295 
Convertible notes payable, fixed conversion terms, $107,795 due in 2014   218,309 
Total indebtedness   3,412,604 
Less current maturities, including credit lines and short term debt   (1,474,382)
Long  term debt, net of current maturities  $1,938,222 

 

Additionally, the Company has lines of credit (including the one described above) with various financial institutions with unused borrowing capacity totaling approximately $422,000 as of September 30, 2014, which may be drawn as needed.

 

A financial institution has issued a $65,000 standby letter of credit to a landlord in lieu of a security deposit.

 

NOTE 4 – EQUITY

 

Common Stock Guarantee Repurchase

 

 In July 2014, the Company repurchased 600 shares of stock at a cost of T$18,000 (trade dollars) in accordance with the terms of the one remaining outstanding stock guarantee agreement. The repurchased shares were placed in treasury.

 

Share Buyback Program

 

During the first nine months of 2014, in accordance with a board approved plan, the Company repurchased 153,635 shares, at a cost of $1,738,348, in open market and private transactions: Of these repurchases, 3,151 shares, at a cost of $18,619, were completed in the third quarter.

 

All repurchased shares were placed in treasury.

 

Treasury Stock Retirements

 

During the first nine months of 2014, the Company retired 140,371 shares, which had been repurchased at a cost of $1,631,125. Of these retirements, 250 shares, repurchased at a cost of $1,875, were completed in the third quarter.

 

9
 

 

Stock Issued for Services

 

No stock has been issued for services in 2014.

 

Stock Options

 

The Company has adopted an incentive stock option plan under which certain officers, key employees, or prospective employees may purchase shares of the Company's stock at an established exercise price, which shall not be less than the fair market value at the time the option is granted. The final exercise date is any time prior to the five-year anniversary of the first exercise date.

 

There are no options outstanding at September 30, 2014. 

 

Stock Warrants

 

No warrants were issued in the current period. 

 

There are no warrants outstanding as of September 30, 2014.

 

NOTE 5 – INCOME TAXES

 

The difference between the combined Federal and state statutory rate and the effective rate for the nine months ended September 30, 2014 relates to the difference in timing of deduction for certain expenses, primarily bad debts, amortization of acquired membership lists, and depreciation of property and equipment, and the rates at which deferred taxes were originally established.

 

NOTE 6 – CONTINGENT LIABILITIES

 

In the ordinary course of business, the Company is occasionally involved in litigation, both as plaintiff and defendant. Management either litigates or settles claims after evaluating the merits of the actions and weighing the costs of settling vs. litigating. There are currently no open litigation matters which the Company feels will result in a material loss.

 

NOTE 7– SUBSEQUENT EVENTS

 

In October, 2014, a convertible note payable to a director in the amount of $25,000 was repaid.

 

10
 

 

INTERNATIONAL MONETARY SYSTEMS, LTD. 

 

ITEM 2    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

In addition to current and historical information, this Quarterly Report on Form 10-Q contains forward-looking statements.  These statements relate to our future operations, prospects, potential products, services, developments, business strategies or our future financial performance.  These statements can generally be identified by the use of terms such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “future,” “intend,” “may,” “plan,” “potential,” “predict,” “seek,” “should,” “target,” “will” or the negative of these terms or other similar expressions.  Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties.  Actual events or results may differ materially.  We undertake no obligation to update or revise publicly any forward-looking statement after the date of this report, whether as a result of new information, future events or otherwise.

 

HIGHLIGHTS

 

Operations

 

The operating income in the third quarter of 2014 was 49% higher than in the third quarter of 2013.

 

The Company was able to reduce operating costs in the first nine months of 2014 through continued review and evaluation.

 

Return to Shareholders

 

During the nine months ended September 30, 2014, 154,235 shares of the Company’s stock have been repurchased under the Company’s stock buyback plan.  

 

RESULTS OF OPERATIONS

 

THIRD QUARTER RESULTS

 

Revenue

 

Revenue decreased 4.1% in the third quarter of 2014 compared to the same period in 2013, as we continue to see the residual effects of uncertain economic and regulatory climates on the Company’s primary members, small businesses.

 

Expenses

 

Operating expenses in the quarter ended September 30, 2014 were $2,915,514, a decrease of $151,860 or 5% compared to the third quarter of 2013. This decrease is primarily due to decreased employee, occupancy and administrative costs as a result of continued review and evaluation of operations.

 

The Company generated operating income of $72,364 for the quarter, compared to operating income of $48,672 in 2013.  After adjusting for interest and income taxes, there was a net income for the quarter of $28,298 compared to a net loss of $(9,541) in the third quarter of 2013.  Interest expense has decreased as the Company has replaced debt carrying higher interest rates with lower interest rate debt.

 

11
 

 

EBITDA for the three months ended September 30, 2014 and 2013 are as follows:

 

Adjustments to Reconcile GAAP Net Income to EBITDA

 

   2014   2013 
Net income  $28,298   $(9,541)
Interest expense   53,413    59,720 
Income taxes   (9,337)   (10,605)
Depreciation and amortization   325,659    343,150 
EBITDA  $398,033   $382,724 

 

YEAR TO DATE

 

Revenue

 

Revenue decreased 4.9% in the first nine months of 2014 compared to the same period in 2013, as we continue to see the residual effects of uncertain economic and tax climates.

 

Expenses

 

Operating expenses for the nine months ended September 30, 2014 were $8,728,080, a decrease of $577,917, or 6.2% compared to the same period in 2013. This decrease is primarily due to decreased employee and administrative costs, as a result of continued review and evaluation of operations.

 

The Company has generated operating income of $155,442 for year to date, compared to operating income of $39,264 in 2013.  After adjusting for interest and income taxes, net income for the first nine months of 2014 was $21,240 compared to a net loss of $66,950 in the comparable period in 2013.  Interest expense has decreased as the Company has replaced debt carrying higher interest rates with lower interest rate debt.

 

EBITDA for the six months ended September 30, 2014 and 2013 are as follows:

 

Adjustments to Reconcile GAAP Net Loss to EBITDA

 

   2014   2013 
Net loss  $21,240   $(66,950)
Interest expense   166,409    195,502 
Income tax (benefit)   (36,246)   (96,577)
Depreciation and amortization   996,451    1,059,885 
EBITDA  $1,147,854   $1,091,860 

 

LIQUIDITY, SOURCES OF CAPITAL AND LINES OF CREDIT

 

On September 30, 2014, there was a working capital deficit of approximately $492,000, compared to a surplus of approximately $90,000 at December 31, 2013. Working capital deficits are not unusual in the first nine months of the year due to the somewhat seasonal nature of the business. We believe that current cash needs can be met with the present cash and investments balances and from working capital generated from operations over the next 12 months. Additionally, the Company has letters of credit with various financial institutions with unused borrowing capacity of approximately $420,000, which may be drawn as needed.

 

12
 

 

   

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, revenues and expenses. These estimates and assumptions are affected by management's applications of accounting policies. Critical accounting policies for IMS include the following:

 

REVENUE SOURCES AND REVENUE RECOGNITION

 

The Company and its subsidiaries earn revenues in both traditional cash dollars and in IMS trade dollars.

 

Cash Revenue

 

Cash income is earned through fees assessed when a member joins, transaction fees generated when clients earn or spend their trade dollars, annual and monthly maintenance fees, finance charges on delinquent accounts receivable, and event fees.

 

Trade Dollar Revenue

 

Trade revenue is similarly generated through initial membership fees, monthly maintenance fees, transaction fees and event fees. Occasionally the Company will accept a favorable trade ratio in lieu of a cash fee.

 

Revenue Recognition

 

All 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.

 

Use of Trade Dollars

 

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.

 

Occasionally, the Company sells IMS trade dollars for US dollars. The cash received in these sales is included in gross revenue and the carrying value of the trade dollars up to the value of the cash received is netted against revenue, with any excess cost included in selling, general and administrative expenses.

 

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 and decreased by accounts written off as uncollectable.

 

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GOODWILL AND MEMBERSHIP LISTS

 

Goodwill and membership lists are stated at cost and arise when IMS acquires another company or the assets of another trade exchange. Membership lists are amortized over the estimated life of ten years.

 

The Company tests goodwill and intangible assets at least annually for impairment, or when facts and circumstances indicate impairment is probable. It is the Company’s policy to test impairment at the end of each year. Therefore, no impairment of goodwill or membership lists was recorded in the first nine months of 2014.

 

INCOME TAXES

 

The Company accounts for income taxes in accordance with FASB ASC 740. Under ASC 740, 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 ASC 740, 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.

 

RECENT ACCOUNTING PRONOUNCEMENTS 

 

Management does not anticipate that any recently issued, but not yet effective, accounting pronouncements will materially impact the Company’s financial condition.

 

OFF BALANCE SHEET ARRANGEMENTS

 

We do not have any off balance sheet arrangements or other relationships with unconsolidated entities.

 

ITEM 3  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not required by Smaller Reporting Companies.

 

ITEM 4  CONTROLS AND PROCEDURES

 

Management's Report on Internal Control over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

 

Based on our evaluation under the framework in Internal Control — Integrated Framework issued by COSO, our management concluded that our internal control over financial reporting was effective as of September 30, 2014, in providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

 

Changes in Internal Control over Financial Reporting

 

There was no change in internal control over financial reporting (as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) during our first fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

 

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PART II OTHER INFORMATION

 

Item 1    Legal Proceedings

 

In the ordinary course of business, the Company is occasionally involved in litigation, both as plaintiff and defendant. Management either litigates or settles claims after evaluating the merits of the actions and weighing the costs of settling vs. litigating. There are currently no open litigation matters which the Company feels will result in a material loss.

 

Item 1A Risk Factors

 

Not applicable for Smaller Reporting Companies.

 

Item 2    Unregistered Sales of Equity Securities and Use of Proceeds

 

(a) and (b) There were no unregistered sales of equity securities.

 

(c) Repurchases were as follows:

 

           Maximum 
          Number
of Shares
 
  

Total

Number

   Average   That May Yet be Purchased 
   of Shares   Price Paid   Under the 
Period  Purchased   Per Share   Plans 
Purchase related stock buyback guarantees            
    July 1 to July 31, 2014   600   $30.00      
    August 1 to August 31, 2014   -   $-      
    September 1 to September 30, 2014   -   $-    723 
                
Board Authorized repurchase plan               
    July 1 to July 31, 2014   1,933   $6.12      
    August 1 to August 31, 2014   123   $5.49      
    September 1 to September 30, 2014   1,095   $5.58    unlimited 

 

Item 3    Defaults Upon Senior Securities

 

None

 

Item 4    Mine Safety Disclosures

 

No applicable items for disclosure.

 

Item 5    Other Information

 

None 

 

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Item 6    Exhibits and Reports on Form 8-K

 

(a)   Exhibits

 

31.1   Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) of the Exchange Act.
     
31.2   Certification of Principal Financial and Accounting Officer Pursuant to Rule 13a-14(a) of the Exchange Act.
     
32.1    Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
32.2    Certification of Principal Financial and Accounting Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
101.INS   XBRL Instance Document***
     
101.SCH   XBRL Taxonomy Extension Schema Document ***
     
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document ***
     
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document ***
     
101.LAB   XBRL Taxonomy Extension Label Linkbase Document ***
     
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document ***

 

*** Furnished herewith. Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of any registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, and otherwise are not subject to liability under those sections.

 

(b)   Reports on Form 8-K

 

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INTERNATIONAL MONETARY SYSTEMS, LTD.

 

Signatures

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

International Monetary Systems, Ltd.

(Registrant)

 
   
/s/ John E. Strabley  
John E. Strabley, Chief Executive Officer  
(Principal Executive Officer)  
   
November 6, 2014  
   
/s/ David A. Powell  
David A. Powell, Chief Financial Officer  
(Principal Accounting and Financial Officer)  
   
November 6, 2014  

 

 

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