Attached files
| file | filename |
|---|---|
| EX-32.1 - CERTIFICATION - INTERNATIONAL MONETARY SYSTEMS LTD /WI/ | f10k2015ex32i_international.htm |
| EX-32.2 - CERTIFICATION - INTERNATIONAL MONETARY SYSTEMS LTD /WI/ | f10k2015ex32ii_international.htm |
| EX-31.1 - CERTIFICATION - INTERNATIONAL MONETARY SYSTEMS LTD /WI/ | f10k2015ex31i_international.htm |
| EX-31.2 - CERTIFICATION - INTERNATIONAL MONETARY SYSTEMS LTD /WI/ | f10k2015ex31ii_international.htm |
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OFTHE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2015
OR
☐ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to ___________
Commission File No. 0-30853
INTERNATIONAL MONETARY SYSTEMS, LTD.
(Exact name of registrant as specified in its charter)
| Wisconsin | 39-1924096 | |
| (State of incorporation) | (I.R.S. Employer Identification No.) |
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 ☐ No ☒
Indicate by checkmark if registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
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 ☒ No ☐
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. ☐
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 | ☐ | Accelerated filer | ☐ |
| Non-accelerated filer | ☐ (Do not check if a smaller reporting company) | Smaller reporting company | ☒ |
Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Act). Yes ☐ No ☒
As of March 1, 2016 the Registrant had 587,652 issued and outstanding 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, 2015 (the last business day of our most recently completed second quarter) was $1,119,565 using the bid price on June 30, 2015.
INTERNATIONAL MONETARY SYSTEMS, LTD.
Form 10-K Annual Report
TABLE OF CONTENTS
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.
In this report, "ITNM", "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 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 approximately 15,000 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 in North America. Currently there are an estimated 300 barter system locations - including several with multiple licensees – operating in the United States and Canada. These exchanges provide services that involve an estimated 90,000 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 set-up 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 and trade dollars.
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 1099-B.
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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 product or service. Consequently, each purchase results in a potential 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 principal 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. (ITNM) is a holding company that currently has three operating subsidiaries: Continental Trade Exchange, Ltd., doing business as International Monetary Systems (IMS), National Trade Association, Inc. (NTA), and INLM CN Inc. (Canada). All are part of the IMS barter system which operates in the United States and Canada.
The IMS Barter Network
As a leader in the barter industry, IMS has created a network of more than 15,000 barter clients who 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.
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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. During the past decade, we have acquired thirty three independent trade exchange operations. While our main growth strategies will focus on organic growth and the sale of IMS franchises, we will also continue to review potential acquisitions of strategically located trade exchanges that would 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.
Other Related Businesses
IMS has no current plans to acquire other related or unrelated businesses.
ITEM 1A – RISK FACTORS
Not applicable to smaller reporting companies.
ITEM 2 - DESCRIPTION OF PROPERTY
Our Company's executive offices and principal operating facilities occupy 13,000 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 three executive officers and directors of ITNM. Rent and other terms of our lease, which expires October 31, 2016, are believed by us to be comparable to those available for similar space from unaffiliated, third-party lessors in the same area.
The Company currently leases 2,360 square feet of office space located in Rochester, New York, from a member of the board of directors of the Company. The triple net lease commenced in February 2007, and in March, 2015 was extended to January 31, 2018. The Company believes that the rental payments required and other terms of the lease are comparable to those available for similar space from unaffiliated, third-party lessors in the area.
The Company also leases the following office spaces:
| Location | Sq. Ft. | |||
| Green Bay, WI | 3,075 | |||
| Rohnert Park, CA | 2,800 | |||
| Lewis Center, OH | 6,840 | |||
| Chattanooga, TN | 1.230 | |||
| Plainville, CT | 7,600 | |||
| Las Vegas, NV | 833 | |||
| Westminster, CO | 1,134 | |||
| Niles, IL | 5,754 | |||
| Wichita, KS | 1,057 | |||
| St. Louis, MO | 1,221 | |||
| New York, NY | 1,400 | |||
| Norwood, MA | 1,910 | |||
The leases on all properties aside from the New Berlin, Wisconsin facility and the office in Rochester, NY are from unaffiliated parties and range from a month-to-month basis to leases expiring in 2020. 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, at comparable expense.
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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 legal claims pending which we feel will result in material loss to the Company.
ITEM 4 - MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5 - MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There were no sales of unregistered securities during 2015.
Trading information for the last two fiscal years:
| High | Low | |||||||
| Fiscal 2014 | ||||||||
| First quarter ended March 31, 2014 | $ | 7.70 | $ | 7.11 | ||||
| Second quarter ended June 30, 2014 | $ | 7.70 | $ | 5.25 | ||||
| Third quarter ended September 30, 2014 | $ | 5.72 | $ | 5.25 | ||||
| Fourth quarter ended December 31, 2014 | $ | 6.00 | $ | 5.32 | ||||
| Fiscal 2015 | ||||||||
| First quarter ended March 31, 2015 | $ | 6.60 | $ | 5.70 | ||||
| Second quarter ended June 30, 2015 | $ | 6.00 | $ | 5.63 | ||||
| Third quarter ended September 30, 2015 | $ | 9.00 | $ | 5.20 | ||||
| Fourth quarter ended December 31, 2015 | $ | 10.00 | $ | 6.75 | ||||
Repurchases in the fourth quarter of 2015 were as follows:
| Period | Total Number of Shares Purchased | Average Price Paid Per Share | Number Of Shares Purchased As Part of Publicly Announced Programs | Maximum Number of Shares That May Yet be Purchased Under the Plans | ||||||||||||
| Purchase related stock buyback guarantees | ||||||||||||||||
| October 1 to October 31, 2015 | none | |||||||||||||||
| November 1 to November 30, 2015 | none | |||||||||||||||
| December 1 to December 31, 2015 | none | 723 | ||||||||||||||
| Board Authorized repurchase plan | ||||||||||||||||
| October 1 to October 31, 2015 | -- | $ | ||||||||||||||
| November 1 to November 30, 2015 | 1,000 | $ | 7.04 | No | ||||||||||||
| December 1 to December 31, 2015 | 1,966 | $ | 9.01 | Maximum | ||||||||||||
As of December 31, 2015, the approximate number of shareholders of record was 270.
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The Company has declared no dividends.
ITEM 6 – SELECTED FINANCIAL DATA
Not applicable to smaller reporting companies.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In addition to current and historical information, this Annual Report on Form 10-K 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.
The following commentary should be read in conjunction with the financial statements and related notes contained elsewhere in this report.
Following are some of the highlights of 2015:
Return to Shareholders
| ● | During the year 14,781 shares of the Company’s outstanding common stock were repurchased into treasury. This represents approximately 2.4% of the outstanding shares of the Company as of January 1, 2015. |
Operations
| ● | In 2015, the Company produced income from operations of $206,588 compared to operating income of $183,647 last year. |
| ● | International Monetary Systems, Ltd. had EBITDA (earnings before interest, taxes, depreciation and amortization) of $1,352,817 compared to $1,503,354 in 2014. |
| ● | The addition of the Sarasota Florida franchise has contributed to revenue and net income in 2015. |
RESULTS OF OPERATIONS
To evaluate operations, management monitors, among other measures, number of members, trade volume, revenue generated from said trade volume, EBIDTA, cash flow, 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. Additionally, management considers minimizing the Company’s tax liability as an important part of planning the use of company resources and return to shareholders.
Revenue
During the year ended December 31, 2015, IMS processed approximately $190 million in billable trade purchase and sales transactions, generating gross revenue of $12,338,152 compared to $12,333,137 in 2014. While flat year over year, results are in line with or better than most trade exchanges in North America as there continues to be a challenging economic climate for small businesses, the main membership of the trade exchange. The increase in revenue is somewhat seasonal with the first quarter typically accounting for approximately only 22% of the Company’s annual revenue, compared to 24% to 26% in the second and third quarters, and 26% to 29% in the fourth quarter of the year.
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Cash Flows from Operations
Net cash flows from operations totaled $939,665 compared to $1,045,753 in 2014.
EBITDA (earnings before interest, taxes, depreciation and amortization)
| Adjustments to reconcile GAAP Net Income to EBITDA | ||||||||
| 2015 | 2014 | |||||||
| Net income (loss) | $ | 31,346 | $ | (20,489 | ) | |||
| Interest expense | 165,983 | 216,293 | ||||||
| Tax expense (benefit) | 7,012 | (14,415 | ) | |||||
| Depreciation & amortization | 1,148,476 | 1,321,965 | ||||||
| Total EBITDA | $ | 1,352,817 | $ | 1,503,354 | ||||
Operating Expenses
Total operating expenses decreased to $12,131,564 from $12,149,490 in 2014, a .1% decrease. Lower depreciation and amortization costs offset slightly higher employee costs and selling general and administrative costs. Employee costs were .9% higher, occupancy was 4.9% lower, and administrative costs were higher primarily due to increased franchise market revenue sharing. Amortization expense was down significantly as some of the membership lists acquired become fully amortized.
Net income (loss)
Net income for 2015 was $31,346 versus a net loss of $20,489 in 2014, as lower interest expense contributed to net income.
FINANCIAL CONDITION
Liquidity, Commitments for Capital Resources, and Sources of Funds
At December 31, 2015, the Company had a working capital surplus of $166,763 compared to a deficit of $117,583 at December 31, 2014.
The Company’s financial position continues to be adequate to meet continuing liquidity needs and in fact, there are a number of enhancements anticipated in 2016 as follows:
| ● | In 2015, IMS produced positive cash flows from operations of approximately $940,000. Our principal source of liquidity from operations has been cash earnings from membership charges, monthly service fees and transaction processing charges. In 2016, the Company is under no obligation to use these funds for stock buybacks as it did in prior years. |
| ● | In early 2016, the final payments will be made on a number of notes payable, thereby adding approximately $12,000 to monthly cash flow. |
| ● | At December 31, 2015, approximately $150,000 of current liabilities relates to future liabilities for time off earned by employees, but not yet taken. This liability would not be paid at one time, but rather over the course of future operations, and at least partially funded by a corresponding reduction in future payroll expense paid. |
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We believe that current cash needs can be met with the current cash balance and from working capital generated over the next 12 months. Additionally, the Company has lines of credit with various financial institutions with unused borrowing capacity totaling approximately $422,000 which may be drawn as needed.
FUTURE PLANS
The Company is 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.
In early 2015, the Company sold a franchise territory in Sarasota, Florida. Management is optimistic about the future contributions of this channel to the growth of the company.
Move to Lower Market
Our common stock currently trades on the over-the-counter market known as the OTC Pink Marketplace. The OTC Marketplace has three tiers, consisting of OTCQX, OTCQB and OTC Pink marketplaces. In 2014, the OTC Markets Group introduced new eligibility requirements for the OTCQB Marketplace, including requiring companies to commence paying an annual fee. Issuers that do not pay the new fee will be downgraded to the OTC Pink marketplace. We did not pay the additional fee, and were downgraded to the OTC Pink marketplace. On the OTC Pink marketplace, the trading market for our shares may be less liquid and the ability of our stockholders to sell their shares in the secondary market may be more limited.
CRITICAL ACCOUNTING POLICIES
Our consolidated 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, consideration of impairment of intangible assets and income taxes, as more fully described in Note 1 to the financial statements.
OFF BALANCE SHEET ARRANGEMENTS
We do not have any off balance sheet arrangements or other relationships with unconsolidated entities.
ITEM 7A – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable to small reporting companies.
Our consolidated financial statements and related notes, and the report of LBB & Associates Ltd., LLP, independent auditors, with respect thereto, as described in the Index to Financial Statements, appear elsewhere in this report at pages F-1 through F-18.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
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ITEM 9A(T) - CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of management, including our Chief Executive Officer (principal executive officer) and Chief Financial Officer(principal financial officer), we have evaluated the effectiveness of our disclosure controls and procedures as required by Exchange Act Rule 13a-15(b) as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective.
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 (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Based on our evaluation under the framework in Internal Control — Integrated Framework (1992) issued by COSO, our management concluded that our internal control over financial reporting was effective as of December 31, 2015, 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.
This annual report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to rules of the SEC that permit the Company to provide only management’s report in this annual report.
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 fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
No items noted.
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS
Executive Officers and Directors
Donald F. Mardak has been Chairman of ITNM and a director, since its’ inception in 1988. In July of 2011, he relinquished the titles of Chief Executive Officer (Principal Executive Officer) and President that he had held 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 (NATE)(1995-96 and 1999-2000) and served on the board of directors of the organization for seven years. NATE is one of the principal barter industry trade associations. He has also served on the board of directors of the International Reciprocal Trade Association (IRTA) and is a member of the Barter Hall of Fame.
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John E. Strabley has been Chief Executive Officer and Principal Executive Officer since July 1, 2011. Prior to that, he was the Executive Vice President of ITNM 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 ITNM. In 1995, Mr. Strabley passed the barter industry certification examination and was awarded with the industry designation of CTB - Certified Trade Broker. In 1997, Mr. Strabley became a director of both Continental Trade Exchange, Ltd. and ITNM. He is currently a director of IRTA.
Dale L. Mardak has been President since July 1 2011. Prior to that, he was Senior Vice President of ITNM 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 ITNM. In 1999, Mr. Mardak received the designation of CTB - Certified Trade Broker. He has also served on the board of directors of NATE.
David A. Powell was appointed as the Company’s Chief Financial Officer in May, 2010. He is a Certified Public Accountant and Chartered Global Management Accountant with 10+ years experience in public accounting and more than 20 years of private industry experience, holding a variety of senior financial positions with a number of companies. Prior to joining IMS, he has served as finance and operations manager for the insurance subsidiaries of US Bancorp for 12 years, and most recently spent several years as corporate controller/senior financial officer for a number of privately held companies.
Kimberly A. Strabley was named Corporate Secretary in October, 2012. She is currently Vice President of International Monetary Systems and has been employed with IMS since 1993. She has focused on several areas of the company including the broker department, the travel division, and currently with interoffice trading and the reciprocal division. Kim has received the designation of Certified Trade Broker (CTB), was voted “Broker of the Year” by her peers in the National Association of Trade Exchanges (NATE) and has earned the highest industry designation of Master Trade Broker (MTB).
Wayne Dalin has been a Certified Public Accountant for more than 30 years and is a retired principal in Dalin, Lindseth & Company. He serves as chairman of the audit and compensation committees.
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.
Additional information in response to this Item 10 can be found in the Company’s Proxy Statement under the headings “Directors, Executive Officers, Promoters, and Control Persons, Financial Disclosure” and “Security Ownership of Certain Beneficial Owners and Management”. That information is incorporated into this report by reference.
Code of Ethics
The Board of Directors has adopted a Code of Business Conduct and Ethics that applies to all employees, including our Chief Executive Officer, (our principal executive officer) and Chief Financial Officer (our principal accounting officer).
The Company’s Code of Ethics and Business Conduct can be found at www.imsbarter.com by clicking on “Investor Relations” and then clicking on “Code of Conduct and Ethics” under the “Management Corporate Governance” heading, which is located at the top of the page. The Company intends to satisfy the disclosure requirements under Item 5.05 of Form 8-K regarding amendments to, or waivers from, certain provisions of the Code of Ethics and Business Conduct that apply to its principal executive officer, principal financial officer and principal accounting officer by posting such information on its website, at the address and location specified above.
In addition, 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.
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ITEM 11 - EXECUTIVE COMPENSATION
Information in response to this Item 11 can be found in the Company’s Proxy Statement under the headings “Executive Compensation” and “Director Compensation.” That information is incorporated into this report by reference.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information in response to this Item 12 can be found in the Company’s Proxy Statement under the heading “Security Ownership of Certain Beneficial Owners and Management” That information is incorporated into this report by reference.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information in response to this Item 13 can be found in the Company’s Proxy Statement under the headings “Director Independence” and “Certain Relationships and Related Transactions.” That information is incorporated into this report by reference
ITEM 14 - PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information in response to this Item 14 can be found in the Company’s Proxy Statement under the headings “Fees to Independent Auditor” and “Administration of Engagement of Independent Auditor.” That information is incorporated into this report by reference.
ITEM 15 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES
The Company is filing the following exhibits herewith:
| 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 * | |
| 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 ** | |
| 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 ** |
| * Incorporated by reference to the registration statement of the Company on Form SB-2 File No. 333-94597 |
| ** Filed herein |
| 11 |
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: March 17, 2016 | By: | /s/ John E Strabley |
| John E Strabley, Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| Dated: March 17, 2016 | By: | /s/ David A. Powell |
| David A. Powell, Chief Financial Officer | ||
| (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/ John E Strabley | Principal Executive Officer, | March 17, 2016 | ||
| John E. Strabley | CEO and Director | |||
| /s/ David A Powell | Principal Financial Officer, | March 17, 2016 | ||
| David A Powell | Principal Accounting Officer | |||
| /s/ Dale L. Mardak | President | March 17, 2016 | ||
| Dale L. Mardak | and Director | |||
| /s/ Donald F. Mardak | Chairman of the Board | March 17, 2016 | ||
| Donald F. Mardak | and Director | |||
| /s/ Stephen Webster | Director | March 17, 2016 | ||
| Stephen Webster | ||||
| /s/ Wayne R. Dalin | Director and Chairman of the | March 17, 2016 | ||
| Wayne R. Dalin | Audit Committee |
| 12 |
INTERNATIONAL MONETARY SYSTEMS, LTD.
CONSOLIDATED FINANCIAL STATEMENTS
and
REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
For the Years Ended December 31, 2015 and 2014
INTERNATIONAL MONETARY SYSTEMS, LTD.
TABLE OF CONTENTS
| Page | ||
| REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | F-1 | |
| FINANCIAL STATEMENTS | ||
| Consolidated Balance Sheets | F-2 | |
| Consolidated Statements of Operations and Comprehensive Income | F-3 | |
| Consolidated Statements of Stockholders’ Equity | F-4 | |
| Consolidated Statements of Cash Flows | F-5 - F-6 | |
| Notes to Consolidated Financial Statements | F-7 - F-18 |
LBB & ASSOCIATES LTD., LLP
10260 Westheimer Road, Suite 310
Houston, TX 77042
Phone: (713) 800-4343 Fax: (713) 456-2408
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of
International Monetary Systems, Ltd.
New Berlin, WI
We have audited the accompanying consolidated balance sheets of International Monetary Systems, Ltd. (the “Company”) as of December 31, 2015 and 2014, and the related consolidated statements of operations and comprehensive income, stockholders' equity, and cash flows for each of the years in the two-year period ended December 31, 2015. International Monetary Systems, Ltd.’s management is responsible for these financial statements. 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 audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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. as of December 31, 2015 and 2014, and the results of its operations and comprehensive income and its cash flows for each of the years in the two-year period ended December 31, 2015, in conformity with accounting principles generally accepted in the United States of America.
/s/ LBB & Associates Ltd., LLP
LBB & Associates Ltd., LLP
Houston, Texas
March 17, 2016
| F-1 |
INTERNATIONAL MONETARY SYSTEMS, LTD.
CONSOLIDATED BALANCE SHEETS
December 31, 2015 and 2014
| 2015 | 2014 | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash | $ | 844,961 | $ | 796,547 | ||||
| Marketable securities | 275,568 | 269,931 | ||||||
| Accounts receivable, net | 705,912 | 786,849 | ||||||
| Earned trade account | 66,971 | 26,821 | ||||||
| Prepaid expenses | 134,298 | 124,987 | ||||||
| Total current assets | 2,027,710 | 2,005,135 | ||||||
| Property and equipment, net | 322,482 | 393,446 | ||||||
| Membership lists and other intangibles, net | 1,064,673 | 2,053,755 | ||||||
| Goodwill | 3,482,522 | 3,482,522 | ||||||
| Deferred income taxes | 254,620 | - | ||||||
| Assets held for investment | 93,823 | 84,773 | ||||||
| Total non-current assets | 5,218,120 | 6,014,496 | ||||||
| Total assets | $ | 7,245,830 | $ | 8,019,631 | ||||
| LIABILITIES | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued expenses | $ | 1,019,193 | $ | 1,032,380 | ||||
| Credit lines, short term notes, and current portions of long term debt | 800,052 | 1,008,636 | ||||||
| Common stock subject to guarantee | 21,702 | 21,702 | ||||||
| Current portion of convertible notes payable to related parties, including short term note | 20,000 | 60,000 | ||||||
| Total current liabilities | 1,860,947 | 2,122,718 | ||||||
| Long-term liabilities | ||||||||
| Long term debt, net of current portion | 946,502 | 1,571,546 | ||||||
| Notes payable to related parties, less current portion | 650,000 | 470,000 | ||||||
| Deferred compensation | 238,500 | 291,000 | ||||||
| Deferred income taxes | - | 27,290 | ||||||
| Total long-term liabilities | 1,835,002 | 2,359,836 | ||||||
| Total liabilities | 3,695,949 | 4,482,554 | ||||||
| Commitments and contingencies | ||||||||
| STOCKHOLDERS' EQUITY | ||||||||
| Preferred stock, $.0001 par value, 2,000,000 authorized, 0 issued and outstanding | -- | -- | ||||||
| Common stock, $.0001 par value 28,000,000 authorized 587,652 and 614,176 issued and outstanding at December 31, 2015 and 2014, respectively | 58 | 61 | ||||||
| Paid in capital | 5,879,723 | 6,104,004 | ||||||
| Treasury stock, 966 and 24,709 shares, respectively | (8,709 | ) | (232,598 | ) | ||||
| Accumulated other comprehensive income | 84,417 | 102,564 | ||||||
| Accumulated deficit | (2,405,608 | ) | (2,436,954 | ) | ||||
| Total stockholders’ equity | 3,549,881 | 3,537,077 | ||||||
| Total liabilities and stockholders’ equity | $ | 7,245,830 | $ | 8,019,631 | ||||
See accompanying notes to consolidated financial statements.
| F-2 |
INTERNATIONAL MONETARY SYSTEMS, LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
Years Ended December 31, 2015 and 2014
| 2015 | 2014 | |||||||
| Gross revenue | $ | 12,338,152 | $ | 12,333,137 | ||||
| Operating Expenses | ||||||||
| Employee costs | 7,686,653 | 7,621,495 | ||||||
| Selling, general and administrative | 3,296,435 | 3,206,030 | ||||||
| Depreciation and amortization | 1,148,476 | 1,321,965 | ||||||
| Total operating expenses | 12,131,564 | 12,149,490 | ||||||
| Income from operations | 206,588 | 183,647 | ||||||
| Other income (expense) | ||||||||
| Gain (loss) on disposal of assets | (5,150 | ) | (5,080 | ) | ||||
| Interest income | 2,903 | 2,822 | ||||||
| Interest expense | (165,983 | ) | (216,293 | ) | ||||
| Total other income (expense) | (168,230 | ) | (218,551 | ) | ||||
| Income (loss) before income taxes | 38,358 | (34,904 | ) | |||||
| Income tax (expense) benefit | (7,012 | ) | 14,415 | |||||
| Net income (loss) | 31,346 | (20,489 | ) | |||||
| Components of comprehensive income (loss): | ||||||||
| Unrealized gain on available for sale investments | 2,841 | 26,514 | ||||||
| Foreign currency translation | (20,988 | ) | (8,044 | ) | ||||
| Comprehensive net income (loss) | $ | 13,199 | $ | (2,019 | ) | |||
| Net income (loss) per common share | ||||||||
| – basic | $ | .05 | $ | (.03 | ) | |||
| – dilutive | $ | .05 | $ | (.03 | ) | |||
| Weighted average common shares outstanding | ||||||||
| – basic | 613,026 | 651,990 | ||||||
| – dilutive | 613,026 | 651,990 | ||||||
See accompanying notes to consolidated financial statements.
| F-3 |
INTERNATIONAL MONETARY SYSTEMS, LTD.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Years Ended December 31, 2015 and 2014
| Preferred Stock | Common Stock | Paid in | Accumulated Comprehensive | Accumulated | Treasury Stock | Total Stockholders' | ||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Income | Deficit | Shares | Amount | Equity | |||||||||||||||||||||||||||||||
| Balance December 31, 2013 | - | $ | - | 739,547 | $ | 74 | $ | 7,631,317 | $ | 84,094 | $ | (2,416,465 | ) | (7,953 | ) | $ | (78,640 | ) | $ | 5,220,380 | ||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | - | (8,044 | ) | - | - | - | (8,044 | ) | ||||||||||||||||||||||||||||
| Unrealized gain on available for sale securities | - | - | - | - | - | 26,514 | - | - | - | 26,514 | ||||||||||||||||||||||||||||||
| Net income(loss) | - | - | - | - | - | - | (20,489 | ) | - | - | (20,489 | ) | ||||||||||||||||||||||||||||
| Total comprehensive income | - | - | - | - | - | - | - | - | - | (2,019 | ) | |||||||||||||||||||||||||||||
| Stock issued as executive officer compensation | - | - | 15,000 | 2 | 85,798 | - | - | - | - | 85,800 | ||||||||||||||||||||||||||||||
| Treasury stock purchases | - | - | (450 | ) | (2 | ) | (4,273 | ) | - | - | (156,077 | ) | (1,762,809 | ) | (1,767,084 | ) | ||||||||||||||||||||||||
| Treasury Stock Retirements | - | - | (139,921 | ) | (13 | ) | (1,626,838 | ) | - | - | 139,921 | 1,626,851 | - | |||||||||||||||||||||||||||
| Repurchase of shares under common stock guarantee | - | - | - | - | 18,000 | - | - | (600 | ) | (18,000 | ) | - | ||||||||||||||||||||||||||||
| Balance December 31, 2014 | - | - | 614,176 | 61 | 6,104,004 | 102,564 | (2,436,954 | ) | (24,709 | ) | (232,598 | ) | 3,537,077 | |||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | - | (20,988 | ) | - | - | - | (20,988 | ) | ||||||||||||||||||||||||||||
| Unrealized gain on available for sale securities | - | - | - | - | - | 2,841 | - | - | - | 2,841 | ||||||||||||||||||||||||||||||
| Net income(loss) | - | - | - | - | - | - | 31,346 | - | - | 31,346 | ||||||||||||||||||||||||||||||
| Total comprehensive income | - | - | - | - | - | - | - | - | - | 13,199 | ||||||||||||||||||||||||||||||
| Stock issued as executive officer compensation | - | - | 12,000 | 1 | 95,999 | - | - | - | - | 96,000 | ||||||||||||||||||||||||||||||
| Treasury stock purchases | - | - | - | - | - | - | - | (14,781 | ) | (96,395 | ) | (96,395 | ) | |||||||||||||||||||||||||||
| Treasury Stock Retirements | - | - | (38,524 | ) | (4 | ) | (320,280 | ) | - | - | 38,524 | 320,284 | - | |||||||||||||||||||||||||||
| Balance December 31, 2015 | - | $ | - | 587,652 | $ | 58 | $ | 5,879,723 | $ | 84,417 | $ | (2,405,608 | ) | (966 | ) | $ | (8,709 | ) | $ | 3,549,881 | ||||||||||||||||||||
See accompanying notes to consolidated financial statements.
| F-4 |
INTERNATIONAL MONETARY SYSTEMS, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2015 and 2014
| 2015 | 2014 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net income (loss) | $ | 31,346 | $ | (20,489 | ) | |||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | 1,148,476 | 1,321,965 | ||||||
| Stock based compensation | 96,000 | 85,800 | ||||||
| Bad debt expense | 764 | 15,563 | ||||||
| Loss (gain) on disposal of assets | 5,150 | 5,080 | ||||||
| Amortization of note discount | 284 | 6,063 | ||||||
| Changes in assets and liabilities | ||||||||
| Accounts receivable | 80,173 | (23,871 | ) | |||||
| Earned trade account | (71,102 | ) | (66,217 | ) | ||||
| Prepaid expenses | (8,828 | ) | 34,390 | |||||
| Other long term assets | 5,000 | - | ||||||
| Accounts payable and accrued expenses | (65,688 | ) | 35,696 | |||||
| Deferred tax liability | (281,910 | ) | (348,227 | ) | ||||
| Net cash provided by operating activities | 939,665 | 1,045,753 | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Capital expenditures | (77,058 | ) | (10,131 | ) | ||||
| (Increase) in marketable securities and cash surrender value | (2,900 | ) | (2,770 | ) | ||||
| Net cash provided by (used for) investing activities | (79,958 | ) | (12,901 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from notes payable | 200,000 | 50,000 | ||||||
| Change in lines of credit | 30,000 | 32,000 | ||||||
| Payments on notes payable, convertible notes payable and related party notes | (923,910 | ) | (1,276,758 | ) | ||||
| Purchase of treasury stock | (96,395 | ) | (68,996 | ) | ||||
| Net cash used by financing activities | (790,305 | ) | (1,263,754 | ) | ||||
| Effect of exchange rate changes | (20,988 | ) | (8,044 | ) | ||||
| Net increase (decrease) in cash | 48,414 | (238,946 | ) | |||||
| Cash at beginning of period | 796,547 | 1,035,493 | ||||||
| Cash at end of period | $ | 844,961 | $ | 796,547 | ||||
See accompanying notes to consolidated financial statements.
| F-5 |
INTERNATIONAL MONETARY SYSTEMS, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2015 and 2014
(Continued)
| 2015 | 2014 | |||||||
| SUPPLEMENTAL DISCLOSURES | ||||||||
| Cash paid for interest | $ | 166,307 | $ | 218,453 | ||||
| Cash paid for income taxes | $ | 305,079 | $ | 250,462 | ||||
| SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
| Unrealized net gain (loss) on equity investments | $ | 2,841 | $ | 26,514 | ||||
| Treasury stock retired | $ | 320,284 | $ | 1,626,851 | ||||
| Goodwill and note payable - purchase price adjustment | $ | - | $ | 25,000 | ||||
| Notes issued for treasury stock | $ | - | $ | 1,698,085 | ||||
| Release of common stock guarantees | $ | - | $ | 18,000 | ||||
| Trade dollars received for capital assets | $ | 5,800 | $ | 4,595 | ||||
| Trade dollars given for capital assets | $ | 36,752 | $ | 33,940 | ||||
| Trade dollars given for common stock | $ | - | $ | 18,000 | ||||
See accompanying notes to consolidated financial statements.
| F-6 |
INTERNATIONAL MONETARY SYSTEMS, LTD.
Notes to Consolidated Financial Statements
Years Ended December 31, 2015 and 2014
NOTE 1 - INFORMATION ABOUT THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
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 1099-B, 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.
Cash Equivalents
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 held for investment purposes.
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, 2015 because of their short-term natures.
Revenue Sources
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, and event fees.
Trade revenue is similarly generated through initial set-up 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.
| F-7 |
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.
Occasionally, the Company sells IMS trade dollars for US dollars. The cash received in these sales are included in gross revenue and the carrying value of the trade dollars sold up to the value of the cash received is netted against the sales proceeds. Any excess of carrying value over cash proceeds is included in operating expenses.
Principles of Consolidation
The consolidated financial statements for 2015 and 2014 include the accounts of the Company and its wholly owned subsidiaries Continental Trade Exchange, Ltd., National Trade Association, Inc., and INLM CN, Inc. All inter-company accounts and transactions have been eliminated in consolidation.
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.
Reclassifications
Certain amounts in the prior period financial statements have been reclassified to conform to the current period presentation.
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.
Fair Value Measurements
ASC 820 defines fair value, establishes a framework for measuring fair value and enhances disclosures about fair value measurements.
ASC 820 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. ASC 820 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.
| F-8 |
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. The allowance for bad debts was $167,550 and $198,056 as of December 31, 2015 and 2014, respectively.
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. No impairment was recorded in 2015 or 2014.
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. When property or equipment is sold or retired, the cost and related accumulated depreciation are removed from the balance sheet and the resulting gain or loss is included in the income statement. The costs of repair and maintenance are included in expense as incurred.
Long-Lived Assets
Impairment losses are recorded on long-lived assets used in operations when indicators of impairment are present and undiscounted cash flows estimated to be generated by those assets are less than assets’ carrying amount.
Software Development Costs
Extensive software has been developed to manage and track trade activity and member account balances and calculate fees in the Exchange. Qualifying costs are accounted for in accordance with ASC 350. Accordingly, costs incurred in the planning and post-implementation stages are expensed as incurred, and costs related to development have been capitalized. Qualifying software development costs are included in property and equipment in the consolidated balance sheets and are amortized over their estimated useful life of 60 months.
Goodwill and Membership Lists
Goodwill and membership lists are stated at cost and arise when additional trade exchanges are purchased. Membership lists are amortized over the estimated life of ten years.
The Company has adopted FASB ASC 350, which requires that goodwill and intangible assets with indefinite lives be tested annually for impairment. No impairment losses were recorded in 2015 or 2014.
Assets Held for Investment
Assets held for investment consist of various works of art and a parcel of undeveloped land, all valued at the lower of cost or fair market value.
| F-9 |
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.
Concentrations of Risk
Cash
Cash includes deposits at financial institutions with original 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, 2015 and 2014, respectively, the Company had approximately $503,000 and $477,000 in cash balances at financial institutions which were in excess of the FDIC insured limits of $250,000.
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 located throughout 20 states and in Canada. The Company routinely assesses the financial strength of its customers and, therefore, believes that its accounts receivable credit risk exposure is limited. No one customer represents a material volume of fee revenue or balance of accounts receivable.
Segment Reporting
The Company operates in one segment and, therefore, segment information is not presented.
Advertising
Advertising costs, which are principally included in selling expenses, are expensed as incurred. Advertising expense was $103,971 and $105,302 for the years ended December 31, 2015 and 2014, respectively.
Stock-Based Compensation
The Company measures and recognizes compensation expense for all share-based payment awards made to employees and directors based on estimated fair values, as required by FASB ASC 718. The Company recognized compensation expense related to stock grants of $96,000 and $85,800 in the years ended December 31, 2015 and 2014, respectively. No options were granted during 2015 or 2014.
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 FASB ASC 505. In accordance with ASC 505, 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.
| F-10 |
Comprehensive Income
FASB ASC 220 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.
Foreign Currency Translation
The financial statements of the Company's foreign subsidiary have been translated into U.S. dollars in accordance with FASB ASC 830. 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 losses of $20,988 and $8,044 resulting from the changes in exchange rates during 2015 and 2014, 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.
Earnings per Share
Basic and diluted net income or loss per common share is computed based upon the weighted average common shares outstanding as defined by FASB ASC 260. As of December 31, 2015 and 2014 there were 20,333 and 34,275 common share equivalents outstanding respectively, which consisted of shares issuable upon the conversion of notes payable.
These shares were not included in the computations of income per share in 2015 and 2014, because their effect was anti-dilutive.
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.
NOTE 2 - MARKETABLE SECURITIES
The Company has classified certain of its investments as trading securities which are reported at fair value, 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.
The cost of equity securities as shown in the accompanying balance sheets and their estimated market value at December 31, 2015 and 2014 are as follows:
| 2015 | 2014 | |||||||
| Available for sale securities: | ||||||||
| Cost | $ | 155,443 | $ | 152,686 | ||||
| Unrealized gain | 120,125 | 117,245 | ||||||
| Marketable equity securities classified as current | $ | 275,568 | $ | 269,931 | ||||
| F-11 |
NOTE 3 - INTANGIBLE ASSETS, NET
Intangible assets, net for the years ended December 31, 2015 and 2014 are as follows:
| 2015 | 2014 | |||||||
| Membership lists | $ | 13,614,353 | $ | 13,593,666 | ||||
| Non compete agreement | - | 48,000 | ||||||
| Accumulated amortization | (12,549,680 | ) | (11,587,911 | ) | ||||
| Net | $ | 1,064,673 | $ | 2,053,755 | ||||
| Goodwill | $ | 3,482,522 | $ | 3,482,522 | ||||
Aggregate amortization expense was $1,009,389 and $1,173,417 for the years ended December 31, 2015 and 2014, respectively.
Estimated future amortization expense is as follows:
| 2016 | $ | 747,062 | ||
| 2017 | 194,487 | |||
| 2018 | 58,312 | |||
| 2019 | 20,701 | |||
| 2020 | 20,701 | |||
| thereafter | 23,410 | |||
| $ | 1,064,673 |
NOTE 4 - PROPERTY AND EQUIPMENT, NET
Property and equipment, net consisted of the following as of December 31, 2015 and 2014:
| 2015 | 2014 | |||||||
| Office furniture, equipment, computers and software | $ | 1,784,473 | $ | 1,748,965 | ||||
| Leasehold improvements | 227,862 | 195,247 | ||||||
| 2,012,335 | 1,944,212 | |||||||
| Accumulated depreciation | (1,689,853 | ) | (1,550,766 | ) | ||||
| $ | 322,482 | $ | 393,446 | |||||
Depreciation expense during the years ended December 31, 2015 and 2014 was $139,087 and $148,548, respectively.
NOTE 5 - DEBT
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 $241,836 was renewed and is now due in December 2016. Interest only at 7% is payable monthly until January 2015, at which time monthly payments of $10,850 including interest at 7% began.
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.
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In 2014, convertible notes payable to an officer and an independent director totaling $45,000 were repaid.
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.
During 2014 and 2015, the Company issued notes payable totaling $50,000 and $200,000 respectively, to an officer for cash. The terms of the note call for quarterly interest payments at 8% until maturity dates in 2017, at which time the notes are payable in full.
A summary of the Company’s debt as of December 31, 2015 and 2014:
| 2015 | 2014 | |||||||
| Credit Lines | ||||||||
| The Company has credit lines totaling $622,000 with two financial institutions. One of the lines matures in September 2016 and the second has no maturity date. The lines carry interest rates ranging from Bank index plus .75%, currently 4%, (the largest and main line) to 11.25%. The main line has been personally guaranteed by the Chairman, a security interest in the Company’s headquarters building owned by the Chairman, CEO and President of the Company, and a security interest in all the assets of the Company. The smaller credit line is unsecured. | $ | 125,000 | $ | 95,000 | ||||
| Purchase Notes Payable | ||||||||
| Non-interest bearing note payable issued for the purchase of certain assets of a trade exchange in St. Louis, Missouri. A discount of $33,100 was recorded assuming a discount rate of 3.5%. The discount was recognized as interest expense ratably over the life of the note. | - | 37,059 | ||||||
| Convertible Notes Payable | ||||||||
| Note payable to a private investor, monthly payments of $37,453 including interest of 10% per annum until fully paid in March 2015. | - | 110,514 | ||||||
| Other Notes Payable | ||||||||
| Notes issued to individuals in May and November, 2011, originally due in 2013, one note was repaid in 2015 and one note was renewed until December 2016, with interest at 8%, payable quarterly. | 50,000 | 80,000 | ||||||
| Note issued to an individual investor in March 2013, due March 2016. Interest only at 4% due quarterly until March 2015, when monthly payments of $5,960 including interest began. | 11,862 | 70,000 | ||||||
| Notes issued to individuals in February 2013, due February 2017, interest only payable quarterly at 9% for two years, then principal repayment to be negotiated. | 275,000 | 275,000 | ||||||
| Notes issued to private individuals for repurchase of shares of Company common stock, with maturity dates ranging from May 2015 to December 2018, monthly payments beginning at $87,369 and decreasing to $52,207 per month during 2015, including interest ranging from 2-10% | 1,159,797 | 1,670,772 | ||||||
| Note payable for release of the stock guarantee on, and the return of, shares of IMS stock. In January 2014, an agreement was reached to pay interest only for the year 2014, with monthly payments of $10,850, including interest at 7%, beginning January 2015. | 124,895 | 241,837 | ||||||
| Total notes payable and long-term debt | 1,746,554 | 2,580,182 | ||||||
| Less current portion | 800,052 | 1,008,636 | ||||||
| Notes payable and long-term debt, net of current portion | $ | 946,502 | $ | 1,571,546 | ||||
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Related Party Notes Payable
| 2015 | 2014 | |||||||
| Interest-only convertible note issued in May 2011, to a relative of the chairman of the board, interest only payable quarterly at 8% per annum, due May 2015. The note was repaid at maturity. | $ | - | $ | 60,000 | ||||
| Notes payable to executive officers issued March 2009 through November 2011, due between July, 2016 and November 2017. The notes require quarterly interest payments at 8-10% per annum. At the option of the officers, notes with a value of $170,000 may be converted to shares of the Company’s common stock at fixed rates ranging from $6.00 to $10.00 per share, the price on the origination date of the note. | 670,000 | 470,000 | ||||||
| Total related party notes payable | 670,000 | 530,000 | ||||||
| Less: Current portion | 20,000 | 60,000 | ||||||
| Notes payable and long-term debt, net of current portion | $ | 650,000 | $ | 470,000 | ||||
Common Shares Subject to Guarantees | ||||||||
| Stock price guarantee issued as part of an acquisition agreement in 2002, redeemable in trade dollars at $30.00 per share at the discretion of the guarantee holder. | $ | 21,702 | $ | 21,702 | ||||
Aggregate Maturities
| 2016 | $ | 820,052 | ||
| 2017 | 1,336,664 | |||
| 2018 | 259,838 | |||
| $ | 2,416,554 |
As of December 31, 2015, $170,000 of debt can be converted to 20,333 shares of the Company’s common stock, under the various related party conversion privileges noted above.
The Company has an outstanding stand-by letter of credit with a financial institution in the amount of $65,000 related to an office lease security deposit. This letter of credit expires on August 31, 2016.
NOTE 6 - DEFERRED COMPENSATION
As part of an acquisition, the Company assumed a deferred compensation liability of $2,500 per month for 120 months, payable to a key employee after retirement.
The value of future payments required under the agreement was charged to operations over the period of expected active employment until the employee reached her expected retirement date.
NOTE 7 - INCOME TAXES
Income tax expense (benefit) for the years ended December 31, 2015 and 2014 reflect a higher or lower effective tax rate due to certain expenses that are not deductible for tax purposes, such as 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 bad debts, charitable contributions and depreciation, as well as the effects of different financial accounting and tax bases of certain assets.
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Income tax expense (benefit) consists of the following components:
| Years Ending December 31 | ||||||||
| 2015 | 2014 | |||||||
| Federal | ||||||||
| Current | $ | 235,370 | $ | 261,443 | ||||
| Deferred | (224,620 | ) | (278,928 | ) | ||||
| State and Local | ||||||||
| Current | 53,550 | 72,369 | ||||||
| Deferred | (57,288 | ) | (69,299 | ) | ||||
| $ | 7,012 | $ | (14,415 | ) | ||||
The following table reconciles the reported income taxes and the income taxes that would be computed by applying the Company’s normal tax rate to income before taxes for the years ended December 31:
| Years Ended December 31 | ||||||||
| 2015 | 2014 | |||||||
| Statutory rate applied to earnings before income taxes | $ | 15,343 | $ | (13,962 | ) | |||
| Increase (decrease) in income taxes resulting from: | ||||||||
| Deductibility of business meals | 4,093 | 5,003 | ||||||
| State tax credits, net | (3,000 | ) | - | |||||
| Foreign tax credits | (3,292 | ) | (6,497 | ) | ||||
| Other, net | (6,132 | ) | 1,041 | |||||
| Tax expense (benefit) | $ | 7,012 | $ | (14,415 | ) | |||
The tax effects of temporary differences that gave rise to significant portions of deferred tax liabilities are as follows:
| December 31 | ||||||||
| 2015 | 2014 | |||||||
| Deferred tax assets | ||||||||
| Difference in tax bases of membership lists | $ | 321,451 | $ | 73,123 | ||||
| Deferred income tax liabilities: | ||||||||
| Temporary differences relating to timing of deductions, depreciation and bad debts | 66,831 | 100,413 | ||||||
| Net deferred tax asset (liability) | $ | 254,620 | $ | (27,290 | ) | |||
NOTE 8 - STOCKHOLDERS’ EQUITY
Purchase-Related Transactions
In July 2014, IMS repurchased 600 shares of common stock at $30.00 per share using $18,000 of trade dollars (earned trade account receivable), thereby releasing $18,000 of the common stock guarantee. The shares were placed in treasury.
Stock Issued as Compensation
In December 2015 and 2014, the board of directors awarded 4,000 shares and 5,000 shares each respectively, to the Chairman, CEO and President of the Company. The shares were valued at $8.00 and $5.72 per share, the market price at the time of the award.
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Other Treasury Stock Transactions
In January 2014, the Company repurchased 96,860 shares of common stock by issuing two notes payable, one for $949,960, and the other for $115,500. The first note calls for 36 monthly payments of $17,070, including interest at 3%, followed by 24 monthly payments of $17,487, including interest at 6%. The second note calls for 36 monthly payments of $3,462, including interest at 5%.
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.
Share Buyback Program
In addition to the above noted transactions, in accordance with a stock buyback plan originally approved by the board of directors in 2005 and updated several times between 2009 and 2011, the Company purchased 14,781 shares at a cost of $96,395 during 2015, and 9,057 shares at a cost of $68,996 in 2014, via both open market and private transactions.
Share retirements
During 2015 and 2014, the Company retired 38,524 and 140,371 shares respectively, acquired at a cost of $320,284 and $1,631,125 respectively.
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.
As of December 31, 2015 and 2014, there were no options outstanding.
Warrants
No warrants were issued in the current year.
No warrants were outstanding as of December 31, 2015.
Stock Guarantee Liability
The stock guarantee liability was reduced by $18,000 during 2014, through treasury stock buy backs and open market sales, as described above.
Other Comprehensive Income (Loss)
ASC 220 establishes rules for reporting and displaying of comprehensive income (loss) and its components. Comprehensive income (loss) is the sum of the net income (loss) as reported in the consolidated statements of operations and other comprehensive income (loss) transactions. Other comprehensive income (loss) 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 in Toronto, Canada. The total of these various items was $(18,147) and $18,470 in 2015 and 2014, respectively.
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NOTE 9 - 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 triple net lease was renewed for a term of 3 years beginning October 31, 2013 and calls for monthly rent of $10,229, with annual increases of 3%, plus operating costs. In December, 2015, additional space in the same facility was leased, adding $2,128 in monthly rent expense to the agreement. The Company believes that the rental payments required and other terms of the lease are comparable to those available for similar space from unaffiliated, third-party lessors in the area. Total payments in 2015 and 2014 were $129,104 and $122,748, respectively.
The Company currently leases office space in Rochester, New York, from a member of the board of directors of the Company. The triple net lease called for monthly payments of $5,908 through February, 2015, at which time the lease was renewed through 2018, for a less space, at rent of $3,596 per month. The Company believes that the rental payments required and other terms of the lease are comparable to those available for similar space from unaffiliated, third-party lessors in the area. Total payments were $60,984 and $70,896 in 2015 and 2014, respectively.
See Note 5 for a discussion of related party debt.
NOTE 10 - 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 2020. Total rent expense for all operating leases for 2015 and 2014, is summarized as follows:
| 2015 | 2014 | |||||||
| Related party leases | $ | 190,088 | $ | 193,644 | ||||
| Office leases | 401,046 | 416,087 | ||||||
| Vehicle leases | 6,672 | 17,544 | ||||||
| $ | 597,806 | $ | 627,275 | |||||
Minimum future lease commitments as of December 31, 2015, are summarized as follows:
| Year ending December 31 | Office Facilities | Vehicles | ||||||
| 2016 | $ | 446,649 | $ | 6,672 | ||||
| 2017 | 308,485 | 3,892 | ||||||
| 2018 | 133,417 | - | ||||||
| 2019 | 69,556 | - | ||||||
| 2020 | 26,923 | - | ||||||
| Thereafter | - | - | ||||||
| $ | 985,030 | $ | 10,564 | |||||
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Employment Agreements
On February 28, 2011, the Compensation Committee of the board finalized employment agreements with the executive officers of the Company, effective March 1, 2011 and renewing automatically each year. Key components of these agreements include involuntary termination clauses calling for payment of two years’ salary plus $300,000 to $400,000 per covered officer and change of control provisions calling for payments of one to two years’ salary and additional lump sum payments of $150,000 to $300,000, depending on the officer. These agreements automatically renewed in January 2016 and 2015.
Legal Matters
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 11 - SUBSEQUENT EVENTS
In January, 2016, IMS repurchased 723 shares of common stock at $30.00 per share using $21,702 of trade dollars (earned trade account receivable), thereby releasing the final $21,702 of the common stock guarantee. The shares were retired to authorized and unissued.
F-18