Attached files
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EX-31.1 - CERTIFICATION - INTERNATIONAL MONETARY SYSTEMS LTD /WI/ | f10q0311ex31i_ims.htm |
EX-32.1 - CERTIFICATION - INTERNATIONAL MONETARY SYSTEMS LTD /WI/ | f10q0311ex32i_ims.htm |
EX-32.2 - CERFICATION - INTERNATIONAL MONETARY SYSTEMS LTD /WI/ | f10q0311ex32ii_ims.htm |
EX-31.2 - CERTIFICATION - INTERNATIONAL MONETARY SYSTEMS LTD /WI/ | f10q0311ex31ii_ims.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2011
o 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
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39-1924096
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer Identification No.)
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16901 West Glendale Drive, New Berlin, Wisconsin 53151
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(Address of principal executive offices)
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(262) 780-3640
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(Registrant’s telephone number, including area code)
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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 ý No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One):
Large Accelerated Filer o
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Accelerated Filer o
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Non-Accelerated Filer o
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Smaller Reporting Company T
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
The number of shares of Common Stock, $.0001 par value, outstanding as May 2,2011 was 10,559,800.
TABLE OF CONTENTS
INTERNATIONAL MONETARY SYSTEMS, LTD.
Page No.
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Part I.
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FINANCIAL INFORMATION
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Item 1 -
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Financial Statements March 31, 2011
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Consolidated Balance Sheets – March 31,2011 (Unaudited) and December 31, 2010
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3
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Unaudited Consolidated Statements of Operations – Three Months Ended March 31, 2011 and 2010
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4
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Unaudited Consolidated Statements of Cash Flows – Three Months Ended March 31, 2011 and 2010
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5
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Unaudited Notes to Consolidated Financial Statements
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6
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Item 2 -
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
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9
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Item 3 -
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Quantitative and Qualitative Disclosures about Market Risk
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11
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Item 4 -
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Controls and Procedures
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11
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Part II.
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Other Information
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12
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Item 1
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Legal Proceedings
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12
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Item 1A -
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Risk Factors
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12
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Item 2 -
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Unregistered Sales of Equity Securities and Use of Proceeds
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12
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Item 3.
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Defaults on Upon Senior Securities
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12
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Item 4 -
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Removed and Reserved
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12
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Item 5 -
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Other Information
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12
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Item 6 -
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Exhibits
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12
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2
INTERNATIONAL MONETARY SYSTEMS, LTD.
CONSOLIDATED BALANCE SHEETS
March 31, 2011
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December 31, 2010
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(UNAUDITED)
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ASSETS | ||||||||
Current assets
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Cash
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$ | 592,429 | $ | 804,108 | ||||
Restricted cash
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161,848 | 41,829 | ||||||
Marketable securities
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171,572 | 157,014 | ||||||
Accounts receivable, net
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903,386 | 1,075,965 | ||||||
Earned trade account
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210,974 | 285,282 | ||||||
Prepaid expenses
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168,742 | 184,513 | ||||||
Total current assets
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2,208,951 | 2,548,711 | ||||||
Other assets
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Property and equipment, net
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713,761 | 727,549 | ||||||
Membership lists, net
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6,507,728 | 6,826,464 | ||||||
Goodwill
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3,455,722 | 3,435,479 | ||||||
Assets held for investment
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180,582 | 179,181 | ||||||
Total non-current assets
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10,857,793 | 11,168,673 | ||||||
Total assets
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$ | 13,066,744 | $ | 13,717,384 |
LIABILITIES
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Current liabilities
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Accounts payable and accrued expenses
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$ | 973,286 | $ | 1,294,213 | ||||
Credit lines and current portion of long term debt
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598,014 | 465,120 | ||||||
Current portion of common stock subject to guarantee
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640,000 | 640,000 | ||||||
Total current liabilities
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2,211,300 | 2,399,333 | ||||||
Long-term liabilities
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Long term debt, net of current portion
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1,325,087 | 1,491,377 | ||||||
Common stock subject to guarantee, less current portion
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163,500 | 178,500 | ||||||
Convertible notes payable, related parties, less current portion
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120,000 | 120,000 | ||||||
Deferred compensation
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290,000 | 290,000 | ||||||
Deferred income taxes
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1,265,751 | 1,336,904 | ||||||
Total long-term liabilities
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3,164,338 | 3,416,781 | ||||||
Total liabilities
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5,375,638 | 5,816,114 | ||||||
Commitments and Contingencies
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STOCKHOLDERS’ EQUITY
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Preferred stock, $.0001 par value, 20,000,000 authorized, 0 outstanding
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- | - | ||||||
Common stock, $.0001 par value 280,000,000 authorized, 10,544,800
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issued and outstanding March 31, 2011 and December 31, 2010
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1,050 | 1,050 | ||||||
Paid in capital
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13,557,436 | 13,542,436 | ||||||
Treasury stock, 961,516 and 904,049 shares respectively
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(3,221,911 | ) | (3,170,571 | ) | ||||
Accumulated other comprehensive income (loss)
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26,849 | 16,118 | ||||||
Accumulated deficit
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(2,672,318 | ) | (2,487,763 | ) | ||||
Total stockholders’ equity
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7,691,106 | 7,901,270 | ||||||
Total liabilities and stockholders’ equity
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$ | 13,066,744 | $ | 13,717,384 |
See accompanying notes to consolidated financial statements.
3
INTERNATIONAL MONETARY SYSTEMS, LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended March 31,
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2011
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2010
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Net revenue
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$ | 2,978,842 | $ | 3,219,732 | ||||
Operating Expenses
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Employee costs
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1,926,708 | 1,913,705 | ||||||
Selling, general and administrative
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865,661 | 1,101,248 | ||||||
Depreciation and amortization
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408,809 | 406,982 | ||||||
Unusual items cost of legal settlements
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- | 57,001 | ||||||
Total operating expenses
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3,201,178 | 3,478,936 | ||||||
Income (loss) from operations
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(222,336 | ) | (259,204 | ) | ||||
Other income (expense)
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Interest income
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118 | 38 | ||||||
Interest expense
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(45,118 | ) | (50,861 | ) | ||||
Total other income (expense)
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(45,000 | ) | (50,823 | ) | ||||
(Loss) before income taxes
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(267,336 | ) | (310,027 | ) | ||||
Income tax (expense) benefit
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82,781 | (10,735 | ) | |||||
Net (loss)
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$ | (184,555 | ) | $ | (320,762 | ) | ||
Net income (loss) per
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common share – basic
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$ | (.02 | ) | $ | (.03 | ) | ||
– dilutive
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$ | (.02 | ) | $ | (.03 | ) | ||
Weighted average common
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shares outstanding – basic
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10,544,800 | 10,370,078 | ||||||
– dilutive
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10,544,800 | 10,370,078 |
See accompanying notes to consolidated financial statements.
4
INTERNATIONAL MONETARY SYSTEMS, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended March 31,
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2011
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2010
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CASH FLOWS FROM OPERATING ACTIVITIES:
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Net loss
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$ | (184,555 | ) | $ | (320,762 | ) | ||
Adjustments to reconcile net income (loss) to net cash
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provided by operating activities:
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Depreciation and amortization
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408,809 | 406,854 | ||||||
Stock issued for services
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- | 28,000 | ||||||
Bad debt expense
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11,734 | 28,471 | ||||||
Deferred compensation
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- | 3,750 | ||||||
Changes in assets and liabilities
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Accounts receivable
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160,845 | 208,579 | ||||||
Earned trade account
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74,308 | (125,766 | ) | |||||
Tax refund receivable
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- | 133,000 | ||||||
Prepaid expenses
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15,771 | (68,510 | ) | |||||
Accounts payable and accrued expenses
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(320,927 | ) | (239,159 | ) | ||||
Deferred tax liability
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(71,153 | ) | (88,265 | ) | ||||
Net cash provided (used) by operating activities
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94,832 | (33,808 | ) | |||||
CASH FLOWS FROM INVESTING ACTIVITIES:
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(Increase) decrease in restricted cash
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(120,019 | ) | 67,467 | |||||
Capital expenditures
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(76,529 | ) | (2,078 | ) | ||||
(Increase) in marketable securities
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(8,592 | ) | (2,883 | ) | ||||
(Increase) in cash surrender value
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(1,400 | ) | (1,722 | ) | ||||
Net cash provided (used) by investing activities
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(206,540 | ) | 60,784 | |||||
CASH FLOWS FROM FINANCING ACTIVITIES:
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Payments on credit lines
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(20,000 | ) | (10,998 | ) | ||||
Payments on notes payable
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(33,396 | ) | (106,835 | ) | ||||
Purchase of treasury stock
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(51,340 | ) | (211,273 | ) | ||||
Net cash used by financing activities
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(104,736 | ) | (329,106 | ) | ||||
Foreign currency translation adjustment
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4,765 | 70 | ||||||
Net increase (decrease) in cash
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(211,679 | ) | (302,060 | ) | ||||
Cash at beginning of period
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804,108 | 894,396 | ||||||
Cash at end of period
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$ | 592,429 | $ | 592,336 |
SUPPLEMENTAL DISCLOSURES
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Cash paid for interest
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$ | 46,226 | $ | 39,502 | ||||
Cash paid for income taxes
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$ | 165,319 | $ | 257,000 | ||||
SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
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Unrealized net gain (loss) on equity investments
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$ | 5,966 | $ | 8,281 | ||||
Note given for acquisition of assets
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$ | 20,443 | $ | - | ||||
Release of common stock guarantees
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$ | 15,000 | $ | 192,500 |
See accompanying notes to consolidated financial statements.
5
INTERNATIONAL MONETARY SYSTEMS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
March 31, 2011
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 10 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 month period ended March 31, 2011, are not necessarily indicative of the results that may be expected for the year ended December 31, 2011.
The Company's 10-K for the year ended December 31, 2010, filed on March 11, 2011, should be read in conjunction with this report.
Revenue Sources and Cost of Revenue
The Company and its subsidiaries earn revenues in both traditional cash dollars and in IMS trade dollars.
Cash income is earned through fees assessed when a member joins, transaction fees generated when clients earn or spend their trade dollars, monthly maintenance fees, finance charges on delinquent accounts receivable, and event fees.
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. The Company uses earned trade dollars to purchase various goods and services required in its operations. All barter transactions are reported at the estimated fair value of the products or services received. Revenues are recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable, and collectability is reasonably assured.
Transaction fees are recognized upon receipt of transactional information accumulated by our systems or reported by our clients. Membership fees, monthly maintenance fees, finance charges, and other fees are billed monthly to members' accounts, and are recognized in the month the revenue is earned.
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.
Principles of Consolidation
The consolidated financial statements for 2011 and 2010 include the accounts of 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.
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.
6
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 March 31, 2011, the Company has cash in excess of FDIC insurance of $323,698. No losses have been incurred related to this credit risk exposure.
NOTE 3 – DEBT
On March 1, 2011, the company issued a note in the amount of $20,443 as part of the acquisition of a trade exchange in Peterborough, Ontario. The note calls for monthly payments of $1,704.
The Company’s indebtedness as of March 31, 2011 includes the following:
Lines of credit payable to financial institutions, due in 2011 and 2012
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$ | 205,784 | ||
Convertible notes payable to related parties, $0 due in 2011, matures in 2012 and 2013
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120,000 | |||
Notes payable to third parties, $78,592 due in 2011
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108,592 | |||
Convertible notes payable, fixed conversion terms, $313,639 matures in 2011
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1,608,725 | |||
Total indebtedness
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2,043,101 | |||
Less current maturities
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598,014 | |||
Long term debt, net of current maturities
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$ | 1,445,087 |
Additionally, the Company has letters of credit with various financial institutions with unused borrowing capacity totaling approximately $450,000 as of March 31, 2011, which may be drawn as needed.
A financial institution has issued a $75,000 standby letter of credit to a landlord in lieu of a security deposit.
Common Shares Subject to Guarantees
As part of various prior acquisition agreements which included stock consideration by the Company, the Company guaranteed the stock price of the stock consideration based on the fair market value of the stock at the time of the applicable acquisition agreements. Accordingly, the guaranteed values of the shares are recorded as a liability on the accompanying financial statements.
The Company’s obligation under common stock price guarantees as of March 31, 2011 totaled $803,500 of which $640,000 is classified as current based on the scheduled redemption allowances as provided for in the underlying agreements. Additionally, $613,500 of the total and $480,000 of the current portion are payable to a director of the company.
NOTE 4 – EQUITY
Common Stock Guarantee Repurchase
In the first quarter of 2011, IMS repurchased 5,000 shares of common stock at $3.00 per share, thereby releasing $15,000 of common stock guarantee.
Share Buyback Program
In accordance with a stock buyback plan originally approved by the board of directors in 2005 and reconfirmed on October 29, 2009, the Company purchased 52,467 shares at a cost of $36,340 in the first quarter of 2011. The shares were placed in treasury.
Stock Options
The Company 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. Final exercise date is any time prior to the five-year anniversary of the first exercise date. During the first three months of 2011, there were no outstanding options.
Stock Warrants
As of March 31, 2011, there were 366,667 warrants outstanding. The warrants can be used to buy shares of the Company’s common stock at $3.30 per share. The warrants expire May 31, 2011. No warrants were issued in the current period.
7
NOTE 5 – INCOME TAXES
The difference between the combined Federal and state statutory rate and the effective rate for the three months ended March 31, 2011 relates to the difference in timing of deduction for certain expenses, primarily bad debts, amortization of acquired membership lists, and a legal settlement.
NOTE 6 – COMPREHENSIVE INCOME (LOSS)
ASC 220 establishes rules for reporting and displaying of comprehensive income and its components. Comprehensive income (loss) is the sum of the net income (loss) as reported in the consolidated statements of operations and other comprehensive income transactions. Other comprehensive income transactions that currently apply to the Company result from changes in exchange rates used in translating the financial statements of its wholly owned subsidiary in Ontario, Canada.
Comprehensive income (loss) consisted of the following for the three months ended March 31, 2011 and 2010:
Three Months Ended
March 31, 2011
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Three Months Ended
March 31, 2010
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Net (loss)
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$ | (184,555 | ) | $ | (320,762 | ) | ||
Foreign currency translation adjustment
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4,765 | 70 | ||||||
Unrealized gain on available for sale securities
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5,966 | 8,281 | ||||||
Comprehensive (loss)
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$ | (173,824 | ) | $ | (312,411 | ) |
NOTE 7 – 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.
In March, 2011, the Company was notified of two separate complaints filed with the EEOC by two former employees, one alleging retaliation and the other discrimination. The Company feels that both complaints are without merit and intends to vigorously defend its interests.
NOTE 8 – ACQUISITION
On March 1, 2011, the Canadian subsidiary of the Company purchased selected assets of Nationwide Barter of Peterborough Ontario for $61,325. IMS paid $20,440 in cash, $20,442 in trade dollars and issued a note for $20,443. Of the total purchase price, $33,218 was allocated to intangibles ($12,975 to the membership list and $20,243 to goodwill).
NOTE 9 – SUBSEQUENT EVENTS
On April 26, 2011, the board of directors approved an expansion of the stock repurchase plan. Management is now authorized to repurchase up to 10% of the outstanding stock of the Company.
To fund the planned increase in the stock repurchase plan, on April 26, 2011, the Company issued an unsecured note payable in the amount of $300,000 to an individual. The note calls for monthly payments of $13,843, including interest at 10%.
On May 1, 2011, the Company issued unsecured notes payable to two officers for a total of $80,000 to further fund the stock repurchase plans. The notes call for interest of 8% paid quarterly and contain a warrant to allow for purchase of up to 40,000 shares of the Company’s common stock at $1.00 per share.
On April 12, 2011, IMS repurchased 35,000 shares of common stock at $4.50 per share using restricted cash of $157,500, thereby releasing $157,500 of common stock guarantee.
On April 15, 2011, IMS repurchased 1,667 shares of common stock at $3.00 per share, thereby releasing $5,000 of common stock guarantee.
In accordance with the stock buyback plan described above, during April 2011, the Company purchased 394,000 shares at a cost of $ 267,950. The shares were placed in treasury.
On April 28, 2011, the company issued 15,000 shares to a consulting firm for services rendered. The value of the stock was $9,300.
8
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.
RESULTS OF OPERATIONS
HIGHLIGHTS
During the three months ended March 31, 2011, International Monetary Systems (IMS) offset a slowing of revenue with the benefits of the substantial reductions in overhead that the Company had worked so hard to achieve over the past year. Some highlights are:
·
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The Company completed the purchase of a trade exchange in Peterborough Ontario at a cost of $61,325, adding approximately 450 members. It is expected that the added office will be immediately accretive.
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·
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Selling, general and administrative costs were reduced by $292,588, or 25.3%. This decrease includes the $57,001of unusual legal costs as well as lower occupancy costs and other professional fees incurred in 2010 which did not recur in 2011.
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·
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At its February 10, 2011 meeting, the board of directors approved the repurchase of an additional 4% of the company’s outstanding shares.
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·
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57,467 shares of the Company’s stock were repurchased during the quarter and placed in treasury.
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·
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A number of markets, including New York City, Wichita Kansas, and Columbus, Ohio, have shown double digit percentage growth in cash fee revenue so far in 2011.
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·
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Since December 31, 2010, total liabilities were reduced by $440,476.
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CURRENT QUARTER
During the quarter ended March 31, 2011 International Monetary Systems generated revenues of $2,978,842, a decrease of $240,890 or 7.5%, compared to the first quarter of 2010. Only $10,000 of this decrease is in cash revenue. The remaining $230,000 decrease is in trade dollar revenue, with $100,000 of that decrease due to a large non-recurring 2010 transaction in our media/corporate barter division.
Operating expenses in the quarter were $3,201,178, a decrease of $277,758 or 7.9% compared to the first quarter of 2010. This decrease is primarily due to decreased occupancy, professional fees, and investor relations costs.
The net operating loss was $222,336 for the quarter, compared to a net operating loss of $259,204 in the first quarter of 2010. After adjusting for interest and income taxes, there was a net loss for the current period of $184,555 compared to a net loss of $320,762 in the first quarter of 2010.
EBITDA for the quarters ended March 31, 2011 and 2010 were as follows:
Adjustments to Reconcile GAAP Net (Loss) to EBITDA
2011
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2010
|
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Net (loss)
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$ | (184,555 | ) | $ | (320,762 | ) | ||
Interest expense
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45,118 | 50,861 | ||||||
Income tax expense (benefit)
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(82,781 | ) | 10,735 | |||||
Depreciation
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77,663 | 73,013 | ||||||
Amortization
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331,146 | 333,969 | ||||||
EBITDA
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$ | 186,591 | $ | 147,816 |
9
LIQUIDITY, SOURCES OF CAPITAL AND LINES OF CREDIT
On March 31, 2011, there was a working capital deficit of $2,349.
The Company’s Chicago office was moved in January 2011 resulting in a cash flow savings of approximately $20,000 per month.
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 letters of credit with various financial institutions with unused borrowing capacity totaling approximately $400,000 which may be drawn as needed.
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 income is earned through fees assessed when a member joins, transaction fees generated when clients earn or spend their trade dollars, monthly maintenance fees, finance charges on delinquent accounts receivable, and event fees.
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. The Company uses earned trade dollars to purchase various goods and services required in its operations. All barter transactions are reported at the estimated fair value of the products or services received. Revenues are recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable, and collectability is reasonably assured.
Transaction fees are recognized upon receipt of transactional information accumulated by our systems or reported by our clients. Membership fees, monthly maintenance fees, finance charges, and other fees are billed monthly to members' accounts, and are recognized in the month the revenue is earned.
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.
GOODWILL AND MEMBERSHIP LISTS
Goodwill and membership lists are stated at cost and arise when IMS acquires another Company. Membership lists are amortized over the estimated life of ten years.
In 2002 the Company adopted FASB ASC 350, relative to goodwill and other intangibles, which requires that goodwill and intangible assets with indefinite lives be tested annually for impairment. 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 2010.
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.
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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.
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
Members of our management, including Donald F. Mardak, our Chief Executive Officer, and David A. Powell, our Chief Financial Officer, have evaluated the effectiveness of our disclosure controls and procedures, as of March 31, 2011, the end of the period covered by this report. Based upon that evaluation, Mr. Mardak and Mr. Powell concluded that our disclosure controls and procedures are effective.
INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of International Monetary Systems, Ltd. (the “Company”) is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
Management conducted an evaluation of the effectiveness of the internal controls over financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of March 31, 2011. Based on management’s assessment and those criteria, management believes that the internal controls over financial reporting, including disclosure controls and procedures, as of March 31, 2011, were effective.
Changes in Internal Controls
In our Annual Report filed on March 11, 2011, we reported that management believed that the internal control over financial reporting as of December 31, 2010, was effective with regards to controls over financial reporting.
There were no changes (including corrective actions with regard to significant deficiencies or material weaknesses) in our internal controls over financial reporting that occurred during the current quarter that have materially affected, or are 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.
In December, 2010, the Company agreed to a settlement in a lawsuit against the Company in Superior Court of California, filed by the former CFO. The settlement agreement required a lump sum payment of $100,000 in December, 2010 and monthly installment payments of $20,000 from February through December, 2011.
In March, 2011, the company was notified of two separate complaints filed with the EEOC by two former employees, one alleges discrimination and one alleging retaliation. The company feels that both complaints are without merit and intends to vigorously defend its interests.
There are no other material legal actions pending against the Company.
Item 1A Risk Factors – Not applicable for Smaller Reporting Companies.
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
There were no unregistered sales of equity securities
Repurchases were as follows:
Maximum
|
||||||||||||
Number of Shares
|
||||||||||||
Total Number
|
Average
|
That May Yet
|
||||||||||
of Shares
|
Price Paid
|
be Purchased
|
||||||||||
Period
|
Purchased
|
Per Share
|
Under the Plans
|
|||||||||
Purchase related stock buyback guarantees
|
||||||||||||
January 1 to January 31, 2011
|
1,666 | 3.00 | 203,000 | |||||||||
February 1 to February 28, 2011
|
1,667 | 3.00 | 201,334 | |||||||||
March 1 to March 31, 2011
|
1,667 | 3.00 | 199,667 | |||||||||
Board Authorized repurchase plan
|
||||||||||||
January 1 to January 31, 2011
|
- | - | - | |||||||||
February 1 to February 28, 2011
|
50,000 | 0.69 | 327,003 | |||||||||
March 1 to March 31, 2011
|
2,467 | 0.71 | 324,536 |
Item 3. Defaults Upon Senior Securities – None
Item 4. Removed and Reserved
Item 5. Other Information
In the 10-K filed March 11, 2011 the company disclosed that a number of form 4s had been filed late. Additionally, a director of the company has not filed form 4s for any stock acquired by him. The company is working with the director to complete the required filings.
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.
(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/ Donald F. Mardak
Donald F. Mardak, President
(Principal Executive Officer)
May 6, 2011
/s/ David A. Powell
David A. Powell, CFO
(Principal Accounting and Financial Officer)
May 6, 2011
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