Attached files
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 September 30, 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)
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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 x 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):
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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 of November 2, 2011, was 8,188,689.
TABLE OF CONTENTS
INTERNATIONAL MONETARY SYSTEMS, LTD.
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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 September 30, 2011
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Consolidated Balance Sheets –September 30, 2011 (Unaudited) and December 31, 2010
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3
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Unaudited Consolidated Statements of Operations – Three Months and Nine Months Ended September 30, 2011 and 2010
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4
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Unaudited Consolidated Statements of Cash Flows –Nine Months Ended September 30, 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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11
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Item 3 -
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Quantitative and Qualitative Disclosures about Market Risk
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13
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Item 4 -
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Controls and Procedures
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14
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Part II.
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Other Information
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14
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Item 1
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Legal Proceedings
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14
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Item 1A -
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Risk Factors
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14
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Item 2 -
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Unregistered Sales of Equity Securities and Use of Proceeds
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15
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Item 3.
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Defaults on Upon Senior Securities
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15
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Item 4 -
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Removed and Reserved
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15
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Item 5 -
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Other Information
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15
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Item 6 -
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Exhibits
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16
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2
INTERNATIONAL MONETARY SYSTEMS, LTD.
CONSOLIDATED BALANCE SHEETS
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September 30, 2011
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December 31, 2010
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|||||||
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(UNAUDITED)
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||||||||
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ASSETS
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||||||||
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Current assets
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||||||||
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Cash
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$
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997,593
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$
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804,108
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Restricted cash
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244,403
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41,829
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Marketable securities
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145,380
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157,014
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Accounts receivable, net
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937,989
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1,075,965
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Earned trade account
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168,211
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285,282
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Prepaid expenses
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192,833
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184,513
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Total current assets
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2,686,409
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2,548,711
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Other assets
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Property and equipment, net
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681,005
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727,549
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Membership lists and other intangibles, net
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6,103,644
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6,826,464
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Goodwill
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3,507,522
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3,435,479
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Assets held for investment
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183,382
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179,181
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Total non-current assets
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10,475,553
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11,168,673
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Total assets
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$
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13,161,962
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$
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13,717,384
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LIABILITIES
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Current liabilities
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Accounts payable and accrued expenses
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$
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933,019
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$
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1,294,213
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Credit lines, short term note, and current portion of long term debt
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1,240,401
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465,120
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Current portion of convertible notes payable, related parties
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70,000
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-
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Current portion of common stock subject to guarantee
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591,000
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640,000
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Total current liabilities
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2,834,420
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2,399,333
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Long-term liabilities
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Long term debt, net of current portion
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2,026,420
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1,491,377
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Convertible notes payable, related parties, net of current portion
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255,000
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120,000
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Common stock subject to guarantee, net of current portion
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-
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178,500
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Deferred compensation
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290,000
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290,000
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Deferred income taxes
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1,123,443
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1,336,904
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Total long-term liabilities
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3,694,863
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3,416,781
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Total liabilities
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6,529,283
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5,816,114
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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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-
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-
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Common stock, $.0001 par value 280,000,000 authorized, 8,298,189 and 10,544,800
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issued and outstanding September 30, 2011 and December 31, 2010, respectively
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847
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1,050
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Paid in capital
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9,398,350
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13,542,436
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Treasury stock, 170,851 and 904,049 shares respectively
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(267,986
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)
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(3,170,571
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)
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Accumulated other comprehensive income (loss)
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(8,900
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)
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16,118
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Accumulated deficit
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(2,489,632
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)
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(2,487,763
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)
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Total stockholders’ equity
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6,632,679
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7,901,270
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Total liabilities and stockholders’ equity
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$
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13,161,962
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$
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13,717,384
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See accompanying notes to consolidated financial statements.
3
INTERNATIONAL MONETARY SYSTEMS, LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
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Three Months Ended
September 30,
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Nine Months Ended
September 30,
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|||||||||||||||
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2011
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2010
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2011
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2010
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Net revenue
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$
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3,204,786
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$
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3,710,019
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$
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9,516,767
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$
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10,567,606
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Operating expenses
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||||||||||||||||
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Employee costs
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1,879,594
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1,918,628
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5,681,577
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5,660,553
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Selling, general and administrative
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725,981
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1,117,097
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2,457,189
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3,136,219
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Depreciation and amortization
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409,909
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407,835
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1,228,623
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1,218,853
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Unusual items – cost of legal settlement
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-
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69,181
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-
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177,148
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Total operating expenses
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3,015,484
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3,512,741
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9,367,389
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10,192,773
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Income from operations
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189,302
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197,278
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149,378
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374,833
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Other income (expense)
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||||||||||||||||
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Loss on disposal of assets
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(409
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)
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(2,274
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)
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(409
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)
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(2,274
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)
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Interest income
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43
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62
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184
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161
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||||||||||||
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Interest expense
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(63,348
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)
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(52,272
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)
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(160,971
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)
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(154,173
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)
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Total other income (expense)
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(63,714
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)
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(54,484
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)
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(161,196
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)
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(156,286
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)
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Income (loss) before income taxes
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125,588
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142,794
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(11,818
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)
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218,547
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|||||||||||
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Income tax (expense) benefit
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(20,098
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)
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(180,436
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)
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9,949
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(354,235
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)
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Net income (loss)
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$
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105,490
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$
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(37,642
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)
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$
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(1,869
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)
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$
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(135,688
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)
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Net income (loss) per
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||||||||||||||||
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common share – basic
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$
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0.01
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$
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(0.00)
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$
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(0.00
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)
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$
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(0.01
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)
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||||||
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- dilutive
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$
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0.01
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$
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(0.00)
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$
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(0.00
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)
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$
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(0.01
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)
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||||||
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Weighted average common
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||||||||||||||||
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shares outstanding – basic
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8,949,610
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10,529,191
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9,849,885
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10,434,718
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||||||||||||
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- dilutive
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10,273,087
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10,529,191
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9,849,885
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10,434,718
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||||||||||||
See accompanying notes to consolidated financial statements.
4
INTERNATIONAL MONETARY SYSTEMS, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
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Nine Months Ended September 30,
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||||||||
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2011
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2010
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CASH FLOWS FROM OPERATING ACTIVITIES:
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||||||||
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Net loss
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$
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(1,869
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)
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$
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(135,688
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)
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Adjustments to reconcile net loss to net cash
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||||||||
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provided by operating activities:
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||||||||
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Depreciation and amortization
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1,228,623
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1,218,853
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||||||
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Stock issued for services
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18,800
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150,582
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Bad debt expense
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(12,385
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)
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58,772
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Loss on disposal of assets
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409
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2,274
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Deferred compensation
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-
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11,250
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Changes in assets and liabilities
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Accounts receivable
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206,829
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203,019
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Earned trade account
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(69,151
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)
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(774,233
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)
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Tax refund receivable
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-
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133,000
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Prepaid expenses
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137,991
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(66,478
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)
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|||||
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Accounts payable and accrued expenses
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(361,194
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)
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(136,197
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)
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Deferred tax liability
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(213,461
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)
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(260,629
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)
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Net cash provided by operating activities
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934,592
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404,525
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CASH FLOWS FROM INVESTING ACTIVITIES:
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||||||||
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(Increase) decrease in restricted cash
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(202,574
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)
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25,389
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|||||
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Capital expenditures
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(163,005
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)
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(4,117
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)
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||||
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(Increase) in marketable securities
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(6,684
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)
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(21,553
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)
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||||
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(Increase) in cash surrender value
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(4,201
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)
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(3,873
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)
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||||
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Net cash used by investing activities
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(376,464
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)
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(4,154
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)
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||||
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CASH FLOWS FROM FINANCING ACTIVITIES:
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||||||||
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Proceeds from convertible notes payable, related parties
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230,000
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20,000
|
||||||
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Proceeds from notes payable
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910,000
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-
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||||||
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Net proceeds from (payments on) credit lines
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18,084
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(11,401
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)
|
|||||
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Payments on notes payable and convertible notes payable
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(226,404
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)
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(280,398
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)
|
||||
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Purchase of treasury stock
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(1,289,623
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)
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(480,785
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)
|
||||
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Net cash used by financing activities
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(357,943
|
)
|
(752,584
|
)
|
||||
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Foreign currency translation adjustment
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(6,700
|
)
|
3,244
|
|||||
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Net increase (decrease) in cash
|
193,485
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(348,969
|
)
|
|||||
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Cash at beginning of period
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804,108
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894,396
|
||||||
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Cash at end of period
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$
|
997,593
|
$
|
545,427
|
||||
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SUPPLEMENTAL DISCLOSURES
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||||||||
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Cash paid for interest
|
$
|
157,061
|
$
|
135,741
|
||||
|
Cash paid for income taxes
|
$
|
277,586
|
$
|
422,761
|
||||
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SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
|
||||||||
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Unrealized net gain (loss) on marketable securities
|
$
|
(18,318
|
)
|
$
|
2,705
|
|||
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Notes issued for acquisition of assets
|
$
|
377,143
|
$
|
-
|
||||
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Notes issued for treasury stock
|
$
|
206,500
|
$
|
-
|
||||
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Treasury stock retired
|
$
|
4,423,709
|
$
|
-
|
||||
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Common stock issued for pre-paid services
|
$
|
33,120
|
$
|
68,680
|
||||
|
Release of common stock guarantees
|
$
|
227,500
|
$
|
440,500
|
||||
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Trade dollars exchanged for:
|
||||||||
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Capital expenditures
|
$
|
48,031
|
$
|
11,115
|
||||
|
Prepaid expenses
|
$
|
113,191
|
$
|
73,197
|
||||
|
Purchase of treasury stock
|
$
|
25,000
|
$
|
25,000
|
||||
See accompanying notes to consolidated financial statements.
5
INTERNATIONAL MONETARY SYSTEMS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 30, 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 and nine month periods ended September 30, 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.
Principles of Consolidation
The consolidated financial statements for 2011 and 2010 include the accounts of the International Monetary Systems, Ltd. (“IMS” or “the Company”) and its wholly owned subsidiaries Continental Trade Exchange, Ltd., National Trade Association, Inc., INLM CN Inc. and INLM Holdings, Inc. Significant intercompany accounts and transactions have been eliminated in consolidation.
Dilutive Earnings per Share
In computing dilutive earnings per share, the weighted average shares outstanding has been adjusted to assume that all outstanding convertible notes payable as of September 30, 2011, are converted to 1,323,477 shares of common stock, the maximum allowed under the various agreements. Additionally, net income is increased by $22,633, the after tax effect of the borrowing costs relative to the convertible notes.
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.
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.
6
Recent Accounting Pronouncements
Management does not anticipate that the recently issued but not yet effective accounting pronouncements will materially impact the Company’s financial condition.
NOTE 2 - CASH
For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents to the extent the funds are not being held for investment purposes. As of September 30, 2011, the Company has cash in excess of FDIC insurance of $445,121. No losses have been incurred related to this credit risk exposure.
NOTE 3 – DEBT
Acquisition Financing
On March 1, 2011, the Company issued a note in the amount of $20,443 as part of the acquisition of the assets of a trade exchange in Peterborough, Ontario. The note calls for monthly payments of $1,704.
On September 30, 2011, the Company issued a non-interest bearing note in the amount of $390,000 for the purchase of certain assets of a trade exchange in St. Louis, Missouri. The note calls for payments of $50,000 on January 5, 2012, $50,000 on January 5, 2013 and $50,000 on September 1, 2013, with the remaining payments of the note dependent on when the former owner ends his employment with IMS. A discount of $33,100 was recorded assuming a discount rate of 3.5%. The discount will be recognized as interest expense ratably over the life of the note.
Stock Repurchase Financing
To help fund the planned increase in the stock repurchase plan described in Note 4, the Company issued the following notes payable during the nine months ended September 30, 2011:
Unsecured notes payable issued to individuals totaling $530,000. The notes call for monthly payments totaling $21,405, including interest at rates of 8-10%. The notes are due at dates ranging from May, 2012 to January, 2014.
Unsecured convertible notes payable issued to related parties totaling $230,000. The notes call for quarterly interest payments at 8% and allow for conversion to IMS common stock at fixed prices from $.75 to $1.00 per share. The notes are due at dates ranging from May, 2012 to June, 2013.
Unsecured convertible notes payable issued to individuals totaling $380,000. The notes contain payment terms ranging from quarterly interest payments to monthly payments with interest generally at 8%. Provisions of the notes allow for conversion of the outstanding balance of the notes to IMS common stock at a $1.00 per share. The notes are due at dates ranging from April, 2012 to August, 2014.
Unsecured notes payable totaling $206,500 issued to individuals in exchange for outstanding shares of the company stock. The notes call for monthly payments totaling $11,650 including interest at rates from 8-10%, and are due between September, 2012 and August, 2014.
On July 11, 2011, the Company repaid $25,000 of a note from a related party. The terms on the outstanding balance of $25,000 remain unchanged.
On July 15, 2011, a note payable to an individual in the amount of $100,000 was renewed. The new note calls for monthly payments of $4,614, including interest at 10%, for two years.
The Company’s indebtedness as of September 30, 2011 includes the following:
|
Lines of credit payable to financial institutions, due in 2012
|
$
|
243,866
|
||
|
Convertible notes payable to related parties, mature in 2012 and 2013
|
325,000
|
|||
|
Notes payable to third parties, $110,984 due in 2011
|
1,484,817
|
|||
|
Convertible notes payable, fixed conversion terms, $38,595 mature in 2011
|
1,538,138
|
|||
|
Total indebtedness
|
3,591,821
|
|||
|
Less current maturities, including credit lines and short term debt
|
1,310,401
|
|||
|
Long term debt, net of current maturities
|
$
|
2,281,420
|
7
Additionally, the Company has letters of credit with various financial institutions with unused borrowing capacity totaling approximately $420,000 as of September 30, 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 September 30, 2011 totaled $591,000, all of which is current based on the scheduled redemption allowances as provided for in the underlying agreements. $456,000 of the total is payable to a director of the Company.
NOTE 4 – EQUITY
Common Stock Guarantee Repurchase
In each of the first three quarters of 2011, IMS repurchased 5,000 shares of common stock at $3.00 per share, thereby releasing a total of $45,000 of common stock guarantee.
In April, 2011, IMS repurchased 35,000 shares of common stock at $4.50 per share, thereby releasing $157,500 of common stock guarantee.
In June, 2011, IMS repurchased 8,333 shares of common stock at $3.00 per share using 25,000 trade dollars, thereby releasing $25,000 of common stock guarantee.
Share Buyback Program
On April 26, and again on June 14, 2011, the Company’s board of directors approved expansions of the previously authorized stock repurchase plan. Management is now authorized to repurchase up to 2,000,000 shares of the outstanding stock of the Company.
In accordance with the plan, the Company has repurchased 1,528,078 shares at a cost of $1,293,623 during the first nine months of 2011. Of these purchases, 817,395 shares at a cost of $781,884 were completed during the third quarter of 2011. All shares were purchased in various open market and private transactions and placed in treasury at the time of purchase.
Treasury Stock Retirements
During the second quarter of 2011, the Company retired 1,648,064 shares of treasury stock which had been acquired at a cost of $3,831,458. The carrying values of the retired shares were reclassified to common stock par value and paid in capital.
During the third quarter of 2011, the Company retired 671,547 shares of treasury stock which had been acquired at a cost of $592,251. The carrying values of the retired shares were reclassified to common stock par value and paid in capital.
Stock Issued as Compensation
In April 2011, the Company issued 15,000 shares to a consulting firm for services rendered. The fair value of the stock was $9,000.
As part of the board of directors’ compensation package for the board year July 1, 2011 to June 30, 2012, 8,000 shares of stock were issued to each of the six independent directors on July 25, 2011. The fair value of the shares was $33,120.
In August 2011, the Company issued 10,000 shares to a consulting firm for services rendered. The fair value of the stock was $9,800.
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 nine months of 2011, there were no outstanding options.
8
Stock Warrants
No warrants were issued in the current period.
366,667 warrants, which could have been used to buy shares of the Company’s common stock at $3.30 per share, expired May 31, 2011.
There are no warrants outstanding as of September 30, 2011.
NOTE 5 – INCOME TAXES
The difference between the combined Federal and state statutory rate and the effective rate for the three months and nine months ended September 30, 2011 relates to the difference in timing of deduction for certain expenses, primarily bad debt, 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 and nine months ended September 30, 2011 and 2010:
|
Three Months Ended September 30, 2011
|
Three Months Ended September 30, 2010
|
Nine Months Ended September 30, 2011
|
Nine Months Ended September 30, 2010
|
|||||||||||||
|
Net income (loss)
|
$
|
105,490
|
$
|
(37,642
|
)
|
$
|
(1,869
|
)
|
$
|
(135,688
|
)
|
|||||
|
Foreign currency translation adjustment
|
(13,267
|
)
|
3,362
|
(6,700
|
)
|
3,244
|
||||||||||
|
Unrealized gain (loss) on available for sale securities
|
(23,914
|
)
|
14,957
|
(18,318
|
)
|
2,705
|
||||||||||
|
Comprehensive income (loss)
|
$
|
68,309
|
$
|
(19,323
|
)
|
$
|
(26,887
|
)
|
$
|
(129,739
|
)
|
|||||
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 alleges retaliation, and the other discrimination. The Company feels that both complaints are without merit and intends to vigorously defend its interests. Accordingly, no accrual for future loss is deemed necessary by management.
NOTE 8 – ACQUISITIONS
On March 1, 2011, the Canadian subsidiary of the Company purchased selected assets of Nationwide Barter of Peterborough Ontario for $61,325. This purchase was deemed by management to be a business combination under ASC 805. 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).
On September 30, 2011, the Company purchased selected assets of NCE, Inc. which operated a trade exchange in St. Louis, Missouri. This purchase was deemed by management to be a business combination under ASC 805. IMS paid $10,000 in cash and issued a note for $356,900, net of interest discount of $33,100. Assets acquired and values assigned, based on the estimated fair values of the assets, were: accounts receivable $56,467, furniture and equipment $7,500, membership list $203,133, non-compete agreement $48,000, and goodwill $51,800.
The future cash flows of the St. Louis exchange may negatively or positively impact the final purchase price. Management does not expect any adjustment to the purchase price based on this contingency.
9
NOTE 9 – SUBSEQUENT EVENTS
On October 19, 2011, the board of directors approved an expansion of the stock repurchase plan to authorize repurchase of such additional shares of Company stock as management deems appropriate at prices not to exceed $4.00 per share.
Subsequent to quarter end, the company repurchased approximately 108,000 shares at an approximate cost of $ 200,000 in accordance with the stock repurchase plan described above.
On November 2, 2011, the Company issued an unsecured note payable to an officer for $40,000. The note calls for quarterly interest payments at a rate of 10%. The note is due in November, 2013.
10
INTERNATIONAL MONETARY SYSTEMS, LTD.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In addition to current and historical information, this Quarterly Report on Form 10-Q contains forward-looking statements. These statements relate to our future operations, prospects, potential products, services, developments, business strategies or our future financial performance. These statements can generally be identified by the use of terms such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “future,” “intend,” “may,” “plan,” “potential,” “predict,” “seek,” “should,” “target,” “will” or the negative of these terms or other similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual events or results may differ materially. We undertake no obligation to update or revise publicly any forward-looking statement after the date of this report, whether as a result of new information, future events or otherwise.
RESULTS OF OPERATIONS
HIGHLIGHTS
Operations
Cash provided by operations was $934,592 in 2011 compared to $404,525 in the first nine months of 2010, a 131% increase.
|
·
|
During the current year, the Company completed the purchase of two trade exchanges, one in Peterborough, Ontario and one in St. Louis, Missouri, adding approximately 900 members. It is expected that the additional offices will be immediately accretive.
|
|
·
|
During the current year, selling, general and administrative costs were reduced by $679,030, or 20.3%.
|
|
|
The Company has begun the process of registering in a number of states to offer IMS franchises.
|
Return to Shareholders
|
|
Management and the board of directors feel that the stock of the Company is significantly undervalued and presents an attractive opportunity to reinvest. In the first nine months of 2011, the following steps were taken to position the Company to take advantage of this opportunity:
|
|
|
|
The board of directors approved increases in the amount of stock that is authorized to be repurchased, granting management discretion to buy back the Company’s stock at up to $4.00 per share.
|
|
|
|
Financing was secured at attractive, flexible terms to allow for repurchase of shares without hindering operating cash flow.
|
|
|
|
1,528,078 shares of the Company’s stock have been repurchased so far this year under the Company’s stock repurchase back plan.
|
|
|
|
2,319,611 shares of Treasury stock have been retired through September 30, 2011, reducing the number of outstanding shares to 8,298,189.
|
CURRENT QUARTER
During the quarter ended September 30, 2011 International Monetary Systems (“IMS” or “the Company) generated revenues of $3,204,786, a decrease of $505,233 or 13.6%, compared to the third quarter of 2010. This decrease is almost entirely due to decreased trade dollar revenue, including a large non-recurring transaction in our media/corporate barter division which provided approximately $240,000 in trade dollar revenue in 2010.
Operating expenses in the quarter were $3,015,484 a decrease of $497,257 or 14.2% compared to the third quarter of 2010. This decrease is comprised of $95,000 of decreased occupancy expenses, a decrease of $160,000 in legal and professional fees, $42,000 less provision for uncollectable accounts and $50,000 less investor relations costs.
The net operating income was $189,302 for the quarter, compared to net operating income of $197,278 in the third quarter of 2010. After adjusting for interest and income taxes, net income for the current period was $105,490 compared to a net loss of $(37,642) in the third quarter of 2010.
11
EBITDA for the quarters ended September 30, 2011 and 2010 were as follows:
Adjustments to Reconcile GAAP Net Income to EBITDA
|
2011
|
2010
|
|||||||
|
Net income (loss)
|
$
|
105,490
|
$
|
(37,642
|
)
|
|||
|
Interest expense
|
63,348
|
52,272
|
||||||
|
Income tax expense (benefit)
|
20,098
|
180,436
|
||||||
|
Depreciation and amortization
|
409,909
|
407,835
|
||||||
|
EBITDA
|
$
|
598,845
|
$
|
602,901
|
||||
YEAR TO DATE
During the nine months ended September 30, 2011 IMS generated revenues of $9,516,767, a decrease of $1,050,839 or 9.9%, compared to the nine months ended September 30, 2010. The decrease is due to lower trade dollar revenue, including approximately $650,000 in large non-recurring transactions in our media/corporate barter division in 2010.
Operating expenses were $9,367,389, a decrease of $825,384 or 8.10%, compared to the nine months ended September 30, 2010.
This decrease is primarily due to decreased occupancy costs of $169,000, $390,000 less legal and professional fees expense, and $136,000 less in investor relations costs. These savings are partially offset by higher employee costs arising from higher health insurance and unemployment insurance costs as well as continued investment in our tele-selling model.
The net operating income was $149,378 for the nine months ended September 30, 2011, compared to a net operating profit of $374,833 in the same period of 2010. After adjusting for interest and income taxes, there was a net loss for the first nine months of 2011, of $(1,869) compared to a net loss of $(135,688) in the first nine months of 2010. The differences are the large non- recurring transactions described above offset by reductions in operating costs and income tax expense.
Cash flow from operations improved from $404,525 in the first nine months of 2010 to $934,592 in the first nine months of 2011, an increase of 231%. This is primarily due to increased utilization of trade dollars earned.
EBITDA for the nine months ended September 30, 2011 and 2010 were as follows:
Adjustments to Reconcile GAAP Net (Loss) to EBITDA
|
2011
|
2010
|
|||||||
|
Net (loss)
|
$
|
(1,869
|
)
|
$
|
(135,688
|
)
|
||
|
Interest expense
|
160,971
|
154,173
|
||||||
|
Income tax expense (benefit)
|
(9,949
|
)
|
354,235
|
|||||
|
Depreciation and amortization
|
1,228,623
|
1,218,853
|
||||||
|
EBITDA
|
$
|
1,377,776
|
$
|
1,591,573
|
||||
LIQUIDITY, SOURCES OF CAPITAL AND LINES OF CREDIT
On September 30, 2011, there was a working capital deficit of $148,011.
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 from operations over the next 12 months. Additionally, the Company has letters of credit with various financial institutions with unused borrowing capacity totaling approximately $420,000, 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:
12
REVENUE SOURCES AND REVENUE RECOGNITION
The Company and its subsidiaries earn revenue 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 and annual maintenance fees, finance charges on delinquent accounts receivable, and event fees.
Trade revenue is similarly generated through initial membership fees, monthly and annual 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 and decreased by accounts written off as uncollectable.
GOODWILL AND MEMBERSHIP LISTS
Goodwill and membership lists are stated at cost and arise when IMS acquires another company or the assets of another trade exchange. Membership lists are amortized over the estimated life of ten years.
The Company accounts for goodwill and other intangibles in accordance with FASB ASC 350, which requires that goodwill and intangible assets with indefinite lives be tested annually for impairment, or whenever evidence suggests 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 2011.
INCOME TAXES
The Company accounts for income taxes in accordance with FASB ASC 740. Under ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under ASC 740, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
RECENT ACCOUNTING PRONOUNCEMENTS
Management does not anticipate that any recently issued, but not yet effective, accounting pronouncements will materially impact the Company’s financial condition.
OFF BALANCE SHEET ARRANGEMENTS
We do not have any off balance sheet arrangements or other relationships with unconsolidated entities.
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not required by Smaller Reporting Companies.
13
ITEM 4 CONTROLS AND PROCEDURES
Members of our management, including John E Strabley, our Chief Executive Officer, and David A. Powell, our Chief Financial Officer, have evaluated the effectiveness of our disclosure controls and procedures, as of September 30, 2011, the end of the period covered by this report. Based upon that evaluation, Mr. Strabley 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 September 30, 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 September 30, 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.
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 alleging 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.
14
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
|
||||||||||||
|
July 1 to July 31, 2011
|
1,667
|
$
|
3.00
|
149,667
|
|
|||||||
|
August 1 to August 31, 2011
|
1,667
|
$
|
3.00
|
148,000
|
||||||||
|
September 1 to September 30, 2011
|
1,667
|
$
|
3.00
|
146,333
|
||||||||
|
Board Authorized repurchase plan
|
||||||||||||
|
July 1 to July 31, 2011
|
339,437
|
$
|
.69
|
|||||||||
|
August 1 to August 31, 2011
|
212,291
|
$
|
.89
|
|||||||||
|
September 1 to September 30, 2011
|
265,667
|
$
|
1.35
|
no maximum | ||||||||
Item 3. Defaults Upon Senior Securities – None
Item 4. Removed and Reserved
Item 5. Other Information
None
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
15
INTERNATIONAL MONETARY SYSTEMS, LTD.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
International Monetary Systems, Ltd. (Registrant)
/s/ John E. Strabley
John E. Strabley, Chief Executive Officer
(Principal Executive Officer)
November 7, 2011
/s/ David A. Powell
David A. Powell, Chief Financial Officer
(Principal Accounting and Financial Officer)
November 7, 2011
16