INTERNATIONAL MONETARY SYSTEMS LTD /WI/ - FORM 10-Q

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EX-32.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002. - INTERNATIONAL MONETARY SYSTEMS LTD /WI/	f10q0912ex32i_imsltd.htm
EX-32.2 - CERTIFICATION OF PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002. - INTERNATIONAL MONETARY SYSTEMS LTD /WI/	f10q0912ex32ii_imsltd.htm
EX-31.2 - CERTIFICATION OF PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER PURSUANT TO RULE 13A-14(A) OF THE EXCHANGE ACT. - INTERNATIONAL MONETARY SYSTEMS LTD /WI/	f10q0912ex31ii_imsltd.htm
EX-31.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO RULE 13A-14(A) OF THE EXCHANGE ACT. - INTERNATIONAL MONETARY SYSTEMS LTD /WI/	f10q0912ex31i_imsltd.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 September 30, 2012

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		39-1924096
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

16901 West Glendale Drive, New Berlin, Wisconsin 53151

(Address of principal executive offices)

(262) 780-3640

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant has (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes 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	Accelerated Filer o	Non-Accelerated Filer o	Smaller Reporting Company T
		(Do not check if a smaller reporting company)

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

The number of shares of Common Stock, $.0001 par value, outstanding as of October 31, 2012, was 7,482,632.

INTERNATIONAL MONETARY SYSTEMS, LTD.

TABLE OF CONTENTS

			Page No.
Part I.	FINANCIAL INFORMATION

Item 1 -	Financial Statements September 30, 2012

		Consolidated Balance Sheets –September 30, 2012 (Unaudited) and December 31, 2011	3

		Unaudited Consolidated Statements of Operations – Three and Nine Months Ended September 30, 2012 and 2011	4

		Unaudited Consolidated Statements of Cash Flows – Nine Months Ended September 30, 2012 and 2011	5

		Unaudited Notes to Consolidated Financial Statements	7

Item 2 -	Management’s Discussion and Analysis of Financial Condition and Results of Operations		11

Item 3 -	Quantitative and Qualitative Disclosures about Market Risk		14

Item 4 -	Controls and Procedures		14

Part II.	OTHER INFORMATION		15

Item 1	Legal Proceedings		15

Item 1A -	Risk Factors		15

Item 2 -	Unregistered Sales of Equity Securities and Use of Proceeds		15

Item 3 -	Defaults on Upon Senior Securities		15

Item 4 -	Specialized Matters		15

Item 5 -	Other Information		15

Item 6 -	Exhibits		16

INTERNATIONAL MONETARY SYSTEMS, LTD.

CONSOLIDATED BALANCE SHEETS

	September 30, 2012				December 31, 2011
	(UNAUDITED)
ASSETS
Current assets
Cash		$	968,207		$	1,018,250
Restricted cash			-			206,956
Marketable securities			193,145			162,323
Accounts receivable, net			723,219			1,006,278
Earned trade account			388,577			210,582
Prepaid expenses			167,985			188,715
Total current assets			2,441,133			2,793,104
Other assets
Property and equipment, net			660,015			651,118
Membership lists and other intangibles, net			4,729,720			5,718,435
Goodwill			3,507,522			3,507,522
Assets held for investment			163,061			169,031
Total non-current assets			9,060,318			10,046,106
Total assets		$	11,501,451		$	12,839,210
LIABILITIES
Current liabilities
Accounts payable and accrued expenses		$	1,008,236		$	1,091,823
Credit lines, short term notes, and current portion of long term debt			1,396,894			1,009,897
Current portion of notes payable to related parties, including short term note			346,797			90,000
Common stock subject to guarantee			75,000			418,495
Total current liabilities			2,826,927			2,610,215
Long-term liabilities
Long term debt, net of current portion			1,982,223			2,159,434
Notes payable related parties, net of current portion			213,816			275,000
Deferred compensation			291,000			290,000
Deferred income taxes			768,748			1,015,325
Total long-term liabilities			3,255,787			3,739,759
Total liabilities			6,082,714			6,349,974
Commitments and Contingencies
STOCKHOLDERS’ EQUITY
Preferred stock, $.0001 par value, 20,000,000 authorized, 0 outstanding			-			-
Common stock, $.0001 par value 280,000,000 authorized, and 7,482,632 and 8,097,020 issued and outstanding at September 30, 2012 and December 31, 2011 respectively			749			810
Paid in capital			7,752,316			9,137,003
Treasury stock, 97,313 shares at September 30, 2012 and 172,703 shares at December 31, 2011			(134,594	)		(351,614	)
Accumulated other comprehensive income			36,776			18,615
Accumulated deficit			(2,236,510	)		(2,315,578	)
Total stockholders’ equity			5,418,737			6,489,236
Total liabilities and stockholders’ equity		$	11,501,451		$	12,839,210

See accompanying notes to consolidated financial statements.

INTERNATIONAL MONETARY SYSTEMS, LTD.

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011

Net revenue	$	3,256,392		$	3,204,786		$	9,913,249		$	9,516,767
Operating expenses:
Employee costs		1,943,879			1,879,594			5,940,971			5,681,577
Selling, general and administrative		819,126			725,981			2,486,693			2,457,189
Depreciation and amortization		371,977			409,909			1,150,855			1,228,623
Total operating expenses		3,134,982			3,015,484			9,578,519			9,367,389

Income from operations		121,410			189,302			334,730			149,378

Other income (expense)
Interest income		137			43			802			184
Gain (Loss) on sales of assets		(2,600	)		(409	)		3,072			(409	)
Interest expense		(82,253	)		(63,348	)		(246,994	)		(160,971	)
Total other income (expense)		(84,716	)		(63,714	)		(243,120	)		(161,196	)

Income (loss) before income taxes		36,694			125,588			91,610			(11,818	)
Income tax (expense) benefit		(11,438	)		(20,098	)		(12,542	)		9,949

Net income (loss)		25,256			105,490			79,068			(1,869	)

Components of comprehensive income (loss):
Foreign currency translation adjustment		989			(13,267	)		(5,974	)		(6,700	)
Unrealized gain on available for sale securities		9,937			(23,914	)		24,136			(18,318	)

Comprehensive income (loss)	$	36,182		$	68,309		$	97,230		$	(26,887	)

Net income (loss) per
common share – basic	$	.00		$	.01		$	.01		$	(.00	)
- dilutive	$	.00		$	.01		$	.01		$	(.00	)
Weighted average common
shares outstanding – basic		7,721,790			8,949,610			7,971,030			9,849,885
- dilutive		7,721,790			10,273,087			7,971,030			9,849,885

See accompanying notes to consolidated financial statements.

INTERNATIONAL MONETARY SYSTEMS, LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	Nine Months Ended September 30,
	2012			2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	79,068		$	(1,869	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		1,150,855			1,228,623
Stock issued for services		6,800			18,800
Bad debt expense		(18,050)			(12,385	)
Gain (loss) on sales of assets		(3,072)			409
Amortization of note discount		9,096			-
Changes in assets and liabilities
Accounts receivable		301,109			206,829
Earned trade account		(357,825	)		(69,151	)
Prepaid expenses		148,011			137,991
Accounts payable and accrued expenses		(82,587	)		(361,194	)
Deferred tax liability		(246,577	)		(213,461	)
Net cash provided by operating activities		986,828			934,592
CASH FLOWS FROM INVESTING ACTIVITIES:
(Increase) decrease in restricted cash		206,956			(202,574	)
Capital expenditures		(104,685	)		(163,005	)
(Increase) in marketable securities		(6,750	)		(6,684	)
(Increase) in cash surrender value		(4,705	)		(4,201	)
Net cash provided by (used in) investing activities		90,816			(376,464	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from convertible notes payable, related parties		-			230,000
Proceeds from notes payable		450,000			910,000
Net repayments on credit lines		(111,260	)		18,084
Payments on notes payable, convertible notes payable, and related party notes		(651,206	)		(226,404	)
Purchase of treasury stock		(809,247	)		(1,289,623	)
Net cash used in financing activities		(1,121,713	)		(357,943	)
Foreign currency translation adjustment		(5,974	)		(6,700	)

Net increase (decrease) in cash		(50,043)			193,485

Cash at beginning of period		1,018,250			804,108

Cash at end of period	$	968,207		$	997,593

INTERNATIONAL MONETARY SYSTEMS, LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

Continued

	Nine Months Ended September 30,
	2012		2011
SUPPLEMENTAL DISCLOSURES
Cash paid for interest	$	247,307	$	157,061
Cash paid for income taxes	$	309,960	$	277,586

SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Unrealized net gain on marketable securities	$	24,136	$	(18,318	)
Notes issued for acquisition of assets	$	-	$	377,143
Notes issued for treasury stock	$	616,769	$	206,500
Notes issued to related parties for treasury stock	$	292,000	$	-
Treasury stock retired	$	1,735,053	$	4,423,709
Release of common stock guarantees	$	343,500	$	227,500
Common stock issued for conversion of note payable	$	200,000	$	-
Trade dollars exchanged for:
Capital expenditures	$	73,233	$	48,031
Prepaid expenses paid	$	127,281	$	113,191
Purchase of treasury stock	$	-	$	25,000
Trade dollars received for capital assets	$	20,684	$	-

See accompanying notes to consolidated financial statements.

INTERNATIONAL MONETARY SYSTEMS, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

September 30, 2012

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, 2012, are not necessarily indicative of the results that may be expected for the year ended December 31, 2012.

The Company's 10-K for the year ended December 31, 2011, filed on March 9, 2012, should be read in conjunction with this report.

Principles of Consolidation

The consolidated financial statements for 2012 and 2011 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.

Revenue Sources and Cost of Revenue

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

Cash Revenue

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

Trade Dollar Revenue

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

Revenue Recognition

All revenues are recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable, and collectability is reasonably assured.

Transaction fees are recognized upon receipt of transactional information accumulated by our systems or reported by our clients.

Membership fees, monthly maintenance fees, finance charges, and other fees are billed monthly to members' accounts, and are recognized in the month the revenue is earned.

Use of Trade Dollars

The Company uses earned trade dollars to purchase various goods and services required in its operations. All barter transactions are reported at the estimated fair value of the products or services received.

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

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Reclassifications

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

Recent Accounting Pronouncements

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

NOTE 2 - CASH

For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents to the extent the funds are not being held for investment purposes. As of September 30, 2012, the Company has cash in excess of FDIC insurance of approximately $600,000. No losses have been incurred related to this credit risk exposure.

NOTE 3 – DEBT

Stock Repurchase Financing

In January 2012, in exchange for 143,129 shares of the Company’s common stock, the Company paid $58,115 and issued a note payable to an individual for $256,769. The note is payable in 48 monthly installments of $6,268, including interest at 8%.

In February 2012, in exchange for 60,000 shares of the Company’s common stock, the Company issued a note payable to a director of the Company for $132,000. The note is payable in 24 monthly installments of $5,850, including interest at 6%.

In April 2012, the Company issued a $100,000 note payable to a private party. The terms of the note call for quarterly interest payments at 10% for two years, after which the note is payable in 24 monthly installments of $4,614, including interest at 10%.

On May 1, 2012, the Company issued a $460,000 note payable to a private party in exchange for the repurchase of 200,000 shares at $1.80 per share and repayment of an additional advance of $100,000. The note is payable in 36 monthly installments of $13,994, including interest at 6%.

On June 18, 2012, the Company issued notes payable totaling $160,000 to repurchase 133,335 shares of common stock from the retiring Company secretary and 3 retiring directors. The terms of the notes call for an initial payment of $10,000 each on July 1, 2012 and 12 monthly payments of $2,581 thereafter, including interest at 6%.

Other Debt Transactions

In January 2012, the Company issued a note payable to a private individual which combined several notes with outstanding balances of $457,364 and added $200,000 in borrowings. The new note is payable in 24 monthly installments of $30,334, including interest at 10%, beginning February, 2012.

In April 2012, a convertible note payable to a director in the amount of $50,000, with a due date in May 2012, was renewed. The new due date is April 30, 2013. No other terms of the note were modified.

In June 2012, a convertible note payable to an officer in the amount of $20,000, with a due date in June 2012, was renewed. The new due date is June 7, 2013. No other terms of the note were modified.

In June 2012, a convertible note payable to an officer in the amount of $20,000, with a due date in November, 2012, was renewed. The new due date is October 28, 2013. No other terms of the note were modified.

In June 2012, the holder of a convertible note with an outstanding balance of $200,000 exercised the conversion option and exchanged the note for 266,667 shares, issued from treasury, of the Company’s common stock.

In July 2012, the Company issued a note payable to a private individual in the amount of $50,000. The terms of the note call for quarterly interest payments at 10% for two years, after which the note is payable in 24 monthly installments of $2,307, including interest at 10%.

In August, 2012, the Company reached agreement on a line of credit facility with a new financial institution, replacing one that expired at the same time. The new line of credit has a maximum borrowing capacity of $500,000, with an interest rate which varies based on a bank defined index. The rate is initially 4%. As security for the loan, the Company granted a security interest in substantially all its assets. Additionally, Three of the executive officers of the Company have personally guaranteed the line of credit.

On September 27, 2012, the Company renewed a convertible note payable to a private individual with a current outstanding balance of $864,651. The note will continue to be paid under the original terms of the note with monthly payments of $15,858 until April 29, 2013, when monthly payments will increase to $37,453, including interest at 10%, until the balance is paid in full.

The Company’s indebtedness as of September 30, 2012, includes the following:

Lines of credit payable to financial institutions, due in 2013	$	87,606
Convertible notes payable to related parties, mature in 2013 and 2014, $16,206 due in 2012		325,000
Non-convertible notes payable to related parties, maturing in 2013 and 2014		235,614
Notes payable to third parties, $154,912 due in 2012		2,013,630
Convertible notes payable, fixed conversion terms, $42,420 due in 2012		1,277,880
Total indebtedness		3,939,730
Less current maturities, including credit lines and short term debt		1,743,691
Long term debt, net of current maturities	$	2,196,039

Additionally, the Company has lines of credit (including the one described above) with various financial institutions with unused borrowing capacity totaling approximately $534,000 as of September 30, 2012, which may be drawn as needed.

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

Common Shares Subject to Guarantees

As part of various prior acquisition agreements, which included stock consideration by the Company, IMS 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, 2012 totaled approximately $75,000, all of which is current based on the scheduled redemption allowances as provided for in the underlying agreements. The entire $75,000 is payable in trade dollars.

NOTE 4 – EQUITY

Common Stock Guarantee Repurchase

In the first three quarters of 2012, IMS repurchased 15,000 shares of common stock at $3.00 per share, thereby releasing a total of $45,000 of common stock guarantee. This constituted the final payments for this particular guarantee.

In the first quarter of 2012, IMS repurchased 66,333 shares of common stock at $4.50 per share, thereby releasing $298,500 of common stock guarantee. This constituted the final payments for this particular guarantee. Satisfaction of this repayment obligation also completed the Company’s use of the restricted cash account.

Share Buyback Program

In accordance with a stock buyback plan originally approved by the board of directors in 2005 and updated several times between 2009 and 2011, the Company made the following purchases in 2012:

First quarter:

72,614 shares at a cost of $218,381 in open market transactions

143,129 shares at a cost of $314,884 in a private transaction from an unrelated party

60,000 shares at a cost of $132,000 in a private transaction from a director of the Company

Second quarter:

107,940 shares at a cost of $174,685 in open market transactions

200,000 shares at a cost of $360,000 in a private transaction from an unrelated party

133,335 shares at a cost of $160,000 in private transactions from 4 retiring members of the board of directors of the Company

Third quarter:

17,317 shares at a cost of $14,572 in open market transactions

Treasury Stock Retirements

In August, 2012, the Company retired 624,385 shares of treasury stock which had been acquired at a cost of $1,735,053. The carrying values of the retired shares were reclassified to common stock par value and paid in capital.

Stock Issued for Services

On June 28, 2012, the Company issued 10,000 shares of common stock for consulting services. The value of the stock at the time of issuance was $6,800, based on a market value of $.68 on the date of issuance.

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.

There are no options outstanding at September 30, 2012.

Stock Warrants

No warrants were issued in the current period.

There are no warrants outstanding as of September 30, 2012.

NOTE 5 – INCOME TAXES

The difference between the combined Federal and state statutory rate and the effective rate for the nine months ended September 30, 2012 relates to the difference in timing of deduction for certain expenses, primarily bad debts, amortization of acquired membership lists, and depreciation of property and equipment.

NOTE 6 – CONTINGENT LIABILITIES

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

NOTE 7 – SUBSEQUENT EVENTS

In October, 2012, the Company repurchased 24,558 shares of common stock in open market transactions in accordance with the above described stock buyback plan , at a cost of $22,326. The shares were placed in treasury.

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

Revenue increased 4.2% in the first three quarters of 2012 compared to the same period in 2011.

Income from operations increased to $334,730 in the first three quarters of 2012 compared to an operating income of $149,378 in the first three quarters of 2011.

The Company has completed the sale of two franchise territories during the year, with a third sale to be completed in the fourth quarter. They are not expected to materially affect the Company’s results of operations for the next twelve months.

Return to Shareholders

During the nine months ended September 30, 2012, 815,668 shares of the Company’s stock have been repurchased under the Company’s stock buyback plan and stock buyback guarantees.

During the nine months ended September 30, 2012, 624,385 shares of treasury stock were retired.

CURRENT QUARTER

During the quarter ended September 30, 2012 International Monetary Systems (“IMS” or “the Company”) generated revenues of $3,256,392, an increase of $51,606 or 1.6%, compared to the third quarter of 2011.

Operating expenses in the quarter were $3,134,982 an increase of $119,498 or 3.9% compared to the third quarter of 2011. This increase is primarily due to increased employee costs, including staff costs in offices acquired in 2011, higher variable compensation tied to higher revenue, and expansion of the Company’s tele-selling staff.

The Company generated operating income of $121,410 for the third quarter, compared to $189,302 in 2011. After adjusting for interest and income taxes, the net income for the quarter was $25,256 compared to net income of $105,490 in the third quarter of 2011. Interest expense has increased as the Company services the increased debt load taken on strategically to fund the stock buyback program expanded in 2011.

EBITDA for the three months ended September 30, 2012 and 2011 were as follows:

Adjustments to Reconcile GAAP Net Income to EBITDA

	2012		2011
Net income	$	25,256	$	105,490
Interest expense		82,253		63,348
Income tax expense		11,438		20,098
Depreciation and amortization		371,977		409,909
EBITDA	$	490,924	$	598,845

YEAR TO DATE

During the nine months ended September 30, 2012 International Monetary Systems (“IMS” or “the Company”) generated revenues of $9,913,249, an increase of $396,482 or 4.2%, compared to the first nine months of 2011. This is the result of a 3.6% increase in transactions processed, attributable in part to our 2011 acquisitions.

Operating expenses for the first nine months were $9,578,519 an increase of $211,130 or 2.2% compared to first nine months of 2011. This increase is primarily due to increased employee costs, including staff costs in offices acquired in 2011, higher variable compensation tied to higher revenue, and expansion of the Company’s tele-selling staff.

The Company generated operating income of $334,730 year to date, compared to operating income of $149,378 in 2011. After adjusting for interest and income taxes, the net income for the first nine months of 2012 was $79,068 compared to a net loss of $1,869 for the same period in 2011. Interest expense has increased as the Company services the increased debt load taken on strategically to fund the stock buyback program expanded in 2011.

EBITDA for the nine months ended September 30, 2012 and 2011 were as follows:

Adjustments to Reconcile GAAP Net Income to EBITDA

	2012		2011
Net income (loss)	$	79,068	$	(1,869	)
Interest expense		246,994		160,971
Income tax expense (benefit)		12,542		(9,949	)
Depreciation and amortization		1,150,855		1,228,623
EBITDA	$	1,489,459	$	1,377,776

LIQUIDITY, SOURCES OF CAPITAL AND LINES OF CREDIT

On September 30, 2012, there was a working capital deficit of $385,794, which is common at this juncture in the Company’s fiscal year. However, it is expected that most, if not all, of $405,000 of notes maturing in the next twelve months, which contain a balloon payment at maturity, can be successfully renewed and/or refinanced under favorable terms, which should allow for a systematic, monthly repayment. $135,000 of the deficit relates to future liabilities for time off earned by employees, but not yet taken. This liability would not be paid at one time, but rather over the course of future operations, and at least partially funded by a corresponding reduction in future payroll expense paid.

We believe that current cash needs can be met with the present 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 in excess of $500,000, 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 Revenue

Trade Dollar Revenue

Revenue Recognition

Transaction fees are recognized upon receipt of transactional information accumulated by our systems or reported by our clients.

Membership fees, monthly maintenance fees, finance charges, and other fees are billed monthly to members' accounts, and are recognized in the month the revenue is earned.

Use of Trade Dollars

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.

In 2002 the Company adopted FASB ASC 350, which requires that goodwill and intangible assets be tested at least annually for impairment, or when facts and circumstances indicate impairment is probable. It is the Company’s policy to test impairment at the end of each year. Therefore, no impairment of goodwill or membership lists was recorded in the first nine months of 2012.

INCOME TAXES

The Company accounts for income taxes in accordance with FASB ASC 740. Under ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under ASC 740, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

RECENT ACCOUNTING PRONOUNCEMENTS

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

OFF BALANCE SHEET ARRANGEMENTS

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

ITEM 3

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not required by Smaller Reporting Companies.

ITEM 4

CONTROLS AND PROCEDURES

Management's Report on Internal Control over Financial Reporting

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

Based on our evaluation under the framework in Internal Control — Integrated Framework issued by COSO, our management concluded that our internal control over financial reporting was effective as of September 30, 2012, in providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Changes in Internal Control over Financial Reporting

There was no change in internal control over financial reporting (as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) during our third fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control 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. There are currently no open litigation matters which the Company feels will result in a material loss.

Item 1A Risk Factors

Not applicable for Smaller Reporting Companies.

Item 2 Unregistered Sales of Equity Securities and Use of Proceeds

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, 2012		1,667	$	3.00
August 1 to August 31, 2012		1,667	$	3.00
September 1 to September 31 ,2012		1,667	$	3.00	25,000

Board Authorized repurchase plan
August 1 to August 31, 2012		9,167	$	.81
September 1 to September 30, 2012		8,150	$	.88

Item 3

Defaults Upon Senior Securities

None

Item 4

Specialized Matters

No applicable items for disclosure.

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.

101.INS		XBRL Instance Document***

101.SCH		XBRL Taxonomy Extension Schema Document ***

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document ***

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document ***

101.LAB		XBRL Taxonomy Extension Label Linkbase Document ***

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document ***

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

(b) Reports on Form 8-K

INTERNATIONAL MONETARY SYSTEMS, LTD.

Signatures

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

International Monetary Systems, Ltd. (Registrant)

/s/ John E. Strabley
John E. Strabley, Chief Executive Officer
(Principal Executive Officer)

November 6, 2012

/s/ David A. Powell
David A. Powell, Chief Financial Officer
(Principal Accounting and Financial Officer)

November 6, 2012

Attached files

INTERNATIONAL MONETARY SYSTEMS LTD /WI/ Reports

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