Attached files
| file | filename |
|---|---|
| EXCEL - IDEA: XBRL DOCUMENT - INTERNATIONAL MONETARY SYSTEMS LTD /WI/ | Financial_Report.xls |
| EX-32.1 - CERTIFICATION - INTERNATIONAL MONETARY SYSTEMS LTD /WI/ | f10q0614ex32i_ims.htm |
| EX-31.2 - CERTIFICATION - INTERNATIONAL MONETARY SYSTEMS LTD /WI/ | f10q0614ex31ii_ims.htm |
| EX-32.2 - CERTIFICATION - INTERNATIONAL MONETARY SYSTEMS LTD /WI/ | f10q0614ex32ii_ims.htm |
| EX-31.1 - CERTIFICATION - INTERNATIONAL MONETARY SYSTEMS LTD /WI/ | f10q0614ex31i_ims.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2014
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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|
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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16901 West Glendale Drive, New Berlin,
Wisconsin 53151
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(Address of principal executive offices)
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(262) 780-3640
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(Registrant’s telephone number, including area code)
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Indicate by check mark whether the registrant has (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One):
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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 August 5, 2014 was 599,425.
INTERNATIONAL MONETARY SYSTEMS, LTD.
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Page No.
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||
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Part I.
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FINANCIAL INFORMATION
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|
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Item 1 -
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Financial Statements June 30, 2014
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3
|
||
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4
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||
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5
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||
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7
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||
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10
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||
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12
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||
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12
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||
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Part II.
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OTHER INFORMATION
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|
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13
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||
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13
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||
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13
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||
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13
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13
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13
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14
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i
INTERNATIONAL MONETARY SYSTEMS, LTD.
(UNAUDITED)
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June 30,
2014
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December 31,
2013
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|||||||
| ASSETS | ||||||||
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Current assets
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||||||||
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Cash
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$
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702,437
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$
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1,035,493
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||||
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Marketable securities
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249,548
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240,712
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||||||
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Accounts receivable, net
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625,736
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778,541
|
||||||
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Earned trade account
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209,295
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7,575
|
||||||
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Prepaid expenses
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154,516
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158,442
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||||||
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Total current assets
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1,941,532
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2,220,763
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||||||
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Other assets
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||||||||
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Property and equipment, net
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433,027
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498,332
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||||||
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Membership lists and other intangibles, net
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2,632,978
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3,227,636
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||||||
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Goodwill
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3,482,522
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3,507,522
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||||||
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Assets held for investment
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86,874
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94,822
|
||||||
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Total non-current assets
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6,635,401
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7,328,312
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||||||
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Total assets
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$
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8,576,933
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$
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9,549,075
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||||
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Current liabilities
|
||||||||
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Accounts payable and accrued expenses
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$
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866,565
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$
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996,685
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||||
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Credit lines, short term notes, and current portion of long term debt
|
1,493,970
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1,024,586
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||||||
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Current portion of notes payable to related parties, including short term note
|
85,000
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70,000
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||||||
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Common stock subject to guarantee
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39,702
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39,702
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||||||
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Total current liabilities
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2,485,237
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2,130,973
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||||||
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Long-term liabilities
|
||||||||
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Long term debt, net of current portion
|
1,639,173
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1,026,205
|
||||||
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Notes payable related parties, net of current portion
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470,000
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505,000
|
||||||
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Deferred compensation
|
291,000
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291,000
|
||||||
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Deferred income taxes
|
190,843
|
375,517
|
||||||
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Total long-term liabilities
|
2,591,016
|
2,197,722
|
||||||
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Total liabilities
|
5,076,253
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4,328,695
|
||||||
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Commitments and Contingencies
|
||||||||
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Preferred stock, $.0001 par value, 2,000,000 authorized, -0- outstanding
|
-
|
-
|
||||||
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Common stock, $.0001 par value 28,000,000 authorized, and 599,425 and 739,546 issued and outstanding at June 30, 2014 and December 31, 2013, respectively
|
59
|
74
|
||||||
|
Paid in capital
|
6,002,081
|
7,631,317
|
||||||
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Treasury stock, 18,316 and 7,953 shares at June 30, 2014 and December 31, 2013, respectively
|
(169,119
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)
|
(78,640
|
)
|
||||
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Accumulated other comprehensive income
|
91,153
|
84,094
|
||||||
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Accumulated deficit
|
(2,423,494
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)
|
(2,416,465
|
)
|
||||
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Total stockholders’ equity
|
3,500,680
|
5,220,380
|
||||||
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Total liabilities and stockholders’ equity
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$
|
8,576,933
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$
|
9,549,075
|
||||
See accompanying notes to consolidated financial statements.
3
INTERNATIONAL MONETARY SYSTEMS, LTD.
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Three Months Ended
June 30,
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Six Months Ended
June 30,
|
|||||||||||||||
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2014
|
2013
|
2014
|
2013
|
|||||||||||||
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Net revenue
|
$
|
3,086,448
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$
|
3,247,389
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$
|
5,895,644
|
$
|
6,229,215
|
||||||||
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Operating expenses:
|
||||||||||||||||
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Employee costs
|
1,847,624
|
1,935,190
|
3,667,494
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3,959,338
|
||||||||||||
|
Selling, general and administrative
|
759,107
|
774,601
|
1,474,250
|
1,562,441
|
||||||||||||
|
Depreciation and amortization
|
334,609
|
350,708
|
670,791
|
716,736
|
||||||||||||
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Total operating expenses
|
2,941,340
|
3,060,499
|
5,812,535
|
6,238,515
|
||||||||||||
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Income (loss) from operations
|
145,108
|
186,890
|
83,109
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(9,300
|
)
|
|||||||||||
|
Other income (expense)
|
||||||||||||||||
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Interest income
|
12
|
231
|
26
|
905
|
||||||||||||
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Gain (loss) on sales of assets
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-
|
903
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(4,075
|
)
|
903
|
|||||||||||
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Interest expense
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(63,078
|
)
|
(66,040
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)
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(112,997
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)
|
(135,781
|
)
|
||||||||
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Total other income (expense)
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(63,066
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)
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(64,906
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)
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(117,046
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)
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(133,973
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)
|
||||||||
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Income (loss) before income taxes
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82,042
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121,984
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(33,937
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)
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(143,273
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)
|
||||||||||
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Income tax (expense) benefit
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(46,035
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)
|
(33,421
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)
|
26,908
|
85,785
|
||||||||||
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Net income (loss)
|
36,007
|
88,563
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(7,029
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)
|
(57,488
|
)
|
||||||||||
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Components of comprehensive income (loss):
|
||||||||||||||||
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Foreign currency translation adjustment
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1,463
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(2,109
|
)
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(1,843
|
)
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(4,102
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)
|
|||||||||
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Unrealized gain on available for sale securities
|
5,979
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5,043
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8,902
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22,822
|
||||||||||||
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Comprehensive income (loss)
|
$
|
43,449
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$
|
91,497
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$
|
30
|
$
|
(38,768
|
)
|
|||||||
|
Net income (loss) per
|
||||||||||||||||
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common share – basic
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$
|
.05
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$
|
.12
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$
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(.01
|
)
|
$
|
(.08
|
)
|
||||||
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- dilutive
|
$
|
.05
|
$
|
.11
|
$
|
(.01
|
)
|
$
|
(.08
|
)
|
||||||
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Weighted average common
|
||||||||||||||||
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shares outstanding – basic
|
688,617
|
741,471
|
703,837
|
739,665
|
||||||||||||
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- dilutive
|
688,617
|
842,975
|
703,837
|
739,665
|
||||||||||||
See accompanying notes to consolidated financial statements.
4
INTERNATIONAL MONETARY SYSTEMS, LTD.
|
Six Months Ended
June 30,
|
||||||||
|
2014
|
2013
|
|||||||
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
|
Net loss
|
$
|
(7,029
|
)
|
$
|
(57,488
|
)
|
||
|
Adjustments to reconcile net loss to net cash provided by operating activities:
|
||||||||
|
Depreciation and amortization
|
670,791
|
716,736
|
||||||
|
Bad debt expense (recovery)
|
1,323
|
|
(21,252
|
)
|
||||
|
Amortization of note discount
|
4,840
|
5,061
|
||||||
|
(Gain) loss on sales of assets
|
4,075
|
(903
|
) | |||||
|
Changes in assets and liabilities
|
||||||||
|
Accounts receivable
|
151,482
|
181,590
|
||||||
|
Earned trade account
|
(205,599
|
)
|
(233,357
|
)
|
||||
|
Prepaid expenses
|
4,738
|
|
4,251
|
|||||
|
Accounts payable and accrued expenses
|
(130,120
|
)
|
(70,545
|
)
|
||||
|
Deferred income taxes
|
(184,674
|
)
|
(194,581
|
)
|
||||
|
Net cash provided by operating activities
|
309,827
|
329,512
|
||||||
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
|
Capital expenditures
|
(3,826
|
)
|
(15,193
|
)
|
||||
|
(Increase) in marketable securities
|
-
|
(704
|
)
|
|||||
|
(Increase) decrease in cash surrender value
|
-
|
66,338
|
||||||
|
Net cash provided by (used in) investing activities
|
(3,826
|
)
|
50,441
|
|||||
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
|
Proceeds from notes payable related parties
|
50,000
|
505,000
|
||||||
|
Net change in credit lines
|
82,000
|
68,697
|
||||||
|
Payments on notes payable, convertible notes payable and related party notes
|
(747,570
|
)
|
(907,555
|
)
|
||||
|
Purchase of treasury stock
|
(21,644
|
)
|
(119,777
|
)
|
||||
|
Net cash used in financing activities
|
(637,214
|
)
|
(453,635
|
)
|
||||
|
Effect of exchange rate changes
|
(1,843
|
)
|
(4,102
|
)
|
||||
|
Net decrease in cash
|
(333,056
|
)
|
(77,784
|
)
|
||||
|
Cash at beginning of period
|
1,035,493
|
956,217
|
||||||
|
Cash at end of period
|
$
|
702,437
|
$
|
878,433
|
||||
5
INTERNATIONAL MONETARY SYSTEMS, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Continued
|
Six Months Ended
June 30,
|
||||||||
|
2014
|
2013
|
|||||||
|
SUPPLEMENTAL DISCLOSURES
|
||||||||
|
Cash paid for interest
|
$
|
112,711
|
$
|
138,964
|
||||
|
Cash paid for income taxes
|
$
|
181,134
|
$
|
121,381
|
||||
|
SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
|
||||||||
|
Unrealized net gain on marketable securities
|
$
|
8,902
|
$
|
22,808
|
||||
|
Notes issued for treasury stock
|
$
|
1,698,085
|
$
|
--
|
||||
|
Treasury stock retired
|
$
|
1,629,250
|
$
|
136,544
|
||||
|
Goodwill and note payable - purchase price adjustment
|
$
|
25,000
|
$
|
--
|
||||
|
Release of common stock guarantees
|
$
|
-
|
$
|
35,290
|
||||
|
Trade dollars exchanged for:
|
||||||||
|
Capital expenditures
|
$
|
7,754
|
$
|
14,774
|
||||
|
Purchase of treasury stock
|
$
|
-
|
$
|
15,000
|
||||
|
Trade dollars received for capital assets
|
$
|
3,875
|
$
|
--
|
||||
See accompanying notes to consolidated financial statements.
6
INTERNATIONAL MONETARY SYSTEMS, LTD.
(Unaudited)
June 30, 2014
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 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 six month periods ended June 30, 2014, are not necessarily indicative of the results that may be expected for the year ended December 31, 2014.
The Company's 10-K for the year ended December 31, 2013, filed on March 19, 2014, should be read in conjunction with this report.
Principles of Consolidation
The consolidated financial statements for 2014 and 2013 include the accounts of International Monetary Systems, Ltd. (“IMS” or “the Company”) and its’ wholly owned subsidiaries Continental Trade Exchange, Ltd., National Trade Association, Inc., INLM CN Inc. and INLM Holdings, Inc. Significant intercompany accounts and transactions have been eliminated in consolidation.
Revenue Sources and Cost of Revenue
The Company and its subsidiaries earn revenues in both traditional cash dollars and in IMS trade dollars.
Cash Revenue
Cash income is earned through fees assessed when a member joins, transaction fees generated when clients earn or spend their trade dollars, annual and monthly maintenance fees, finance charges on delinquent accounts receivable, and event fees.
Trade Dollar Revenue
Trade revenue is similarly generated through initial membership fees, monthly maintenance fees, transaction fees, finance charges on delinquent accounts, and event fees. Occasionally the Company will accept a favorable trade ratio in lieu of a cash fee.
Revenue Recognition
All revenues are recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable, and collectability is reasonably assured.
Transaction fees are recognized upon receipt of transactional information accumulated by our systems or reported by our clients.
Membership fees, monthly maintenance fees, finance charges, and other fees are billed monthly to members' accounts, and are recognized in the month the revenue is earned.
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.
7
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 June 30, 2014, the Company has cash in excess of FDIC insurance of approximately $423,000. No losses have been incurred related to this credit risk exposure.
NOTE 3 – DEBT
In January 2014, the Company repurchased 96,860 shares of common stock from two private investors by issuing notes payable in the amount of $1,065,460. One note calls for 36 payments of $17,070 including interest at 3%, and 24 payments of $17,487, including interest at 6%. The second note calls for 36 payments of $3,462, including interest at 5%. The shares were placed in treasury.
In January 2014, the Company repaid a note to a private individual in the amount of $57,664. Up to $20,000 of the note was due. A related note in the amount of $242,336 was renewed and is now due in December 2017. Interest only at 7% is payable monthly until January 2015, at which time monthly payments of $10,850 including interest at 7% begin.
The note payable issued by the Company in 2011 in exchange for certain assets of a trade exchange in St. Louis, Missouri contained a clause that called for an adjustment of the final purchase price and note obligation at the time the former owner left employment with IMS. Based on the final calculations associated with this clause, in March 2014, the note obligation and the related discount were reduced by $25,000. The goodwill associated with the transaction was reduced by the same amount.
In April 2014, the Company repurchased 50,610 shares of common stock from a private investor by issuing a note payable in the amount of $632,625. The note calls for payments of interest only at 6% beginning May 10, 2014. Beginning May 10, 2015, the note calls for monthly payments of $19,246, including interest at 6%. The shares were placed in treasury.
In April 2014, a convertible note payable to a director totaling $50,000, due in April 2014, was renewed. The note was then repaid in June, 2014.
In May 2014, a convertible note payable to the CEO in the amount of $20,000 was repaid.
In May, 2014, the Company issued a $50,000 note payable to an officer for cash. The terms of the note call for quarterly interest payments at 8% for two years, after which the note is payable in full.
The Company’s indebtedness as of June 30, 2014 includes the following:
|
Lines of credit payable to financial institutions, due in 2014
|
$
|
145,000
|
||
|
Convertible notes payable to related parties, mature between 2014 and 2016, $60,000 in 2014
|
255,000
|
|||
|
Non-convertible notes payable to related parties, maturing in 2015
|
300,000
|
|||
|
Notes payable to third parties, $327,934 due in 2014
|
2,652,280
|
|||
|
Convertible notes payable, fixed conversion terms, all due in 2014
|
335,863
|
|||
|
Total indebtedness
|
3,688,143
|
|||
|
Less current maturities, including credit lines and short term debt
|
(1,578,970
|
)
|
||
|
Long term debt, net of current maturities
|
$
|
2,109,173
|
Additionally, the Company has lines of credit (including the one described above) with various financial institutions with unused borrowing capacity totaling approximately $400,000 as of June 30, 2014, which may be drawn as needed.
A financial institution has issued a $65,000 standby letter of credit to a landlord in lieu of a security deposit.
NOTE 4 – EQUITY
Reverse Split
At the annual meeting of the Company’s shareholders on May 7, 2013, a 1 for 10 reverse split of the Company’s preferred and common stock was approved. The effective date of the reverse split was August 1, 2013. There was no affect on the par value. All stock related information in these financial statements has been restated to reflect the split.
Common Stock Guarantee Repurchase
No repurchases were made in the first six months of 2014, under the remaining common stock guarantee agreement.
8
Share Buyback Program
In accordance with a board approved plan, the following stock buybacks were made in open market and private transactions:
In the first quarter of 2014, the Company purchased 98,730 shares, at a cost of $1,080,072.
In the second quarter of 2014, the Company purchased 51,754 shares at a cost of $639,657.
All repurchased shares were placed in treasury.
Treasury Stock Retirements
In the first quarter of 2014, the Company retired 200 shares of treasury stock which had been acquired at a cost of $2,400.
In the second quarter of 2014, the Company retired 139,921 shares of treasury stock which had been acquired at a cost of $1,626,850.
Stock Issued for Services
No stock has been issued for services in 2014.
Stock Options
The Company has adopted an incentive stock option plan under which certain officers, key employees, or prospective employees may purchase shares of the Company's stock at an established exercise price, which shall not be less than the fair market value at the time the option is granted. The final exercise date is any time prior to the five-year anniversary of the first exercise date.
There are no options outstanding at June 30, 2014.
Stock Warrants
No warrants were issued in the current period.
There are no warrants outstanding as of June 30, 2014.
NOTE 5 – INCOME TAXES
The difference between the combined Federal and state statutory rate and the effective rate for the six months ended June 30, 2014 relates to the difference in timing of deduction for certain expenses, primarily bad debts, amortization of acquired membership lists, and depreciation of property and equipment, and the rates at which deferred taxes were originally established.
NOTE 6 – CONTINGENT LIABILITIES
In the ordinary course of business, the Company is occasionally involved in litigation, both as plaintiff and defendant. Management either litigates or settles claims after evaluating the merits of the actions and weighing the costs of settling vs. litigating. There are currently no open litigation matters which the Company feels will result in a material loss.
NOTE 7– SUBSEQUENT EVENTS
In July 2014, the Company repurchased 600 shares of stock at a cost of T$18,000 (trade dollars) in accordance with the terms of the one remaining outstanding stock guarantee agreement. The repurchased shares were placed in treasury.
9
INTERNATIONAL MONETARY SYSTEMS, LTD.
In addition to current and historical information, this Quarterly Report on Form 10-Q contains forward-looking statements. These statements relate to our future operations, prospects, potential products, services, developments, business strategies or our future financial performance. These statements can generally be identified by the use of terms such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “future,” “intend,” “may,” “plan,” “potential,” “predict,” “seek,” “should,” “target,” “will” or the negative of these terms or other similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual events or results may differ materially. We undertake no obligation to update or revise publicly any forward-looking statement after the date of this report, whether as a result of new information, future events or otherwise.
HIGHLIGHTS
Operations
The operating loss in the second quarter of 2014 was smaller than past second quarters.
The Company was able to reduce operating costs in the first six months of 2014 through continued review and evaluation.
Return to Shareholders
During the six months ended June 30, 2014, 150,484 shares of the Company’s stock have been repurchased under the Company’s stock buyback plan.
RESULTS OF OPERATIONS
SECOND QUARTER RESULTS
Revenue
Revenue decreased 5.0% in the second quarter of 2014 compared to the same period in 2013, as we continue to see the residual affects of uncertain economic and regulatory climates on the Company’s primary members, small businesses.
Expenses
Operating expenses in the quarter ended June 30, 2014 were $2,941,340, a decrease of $119,159 or 3.9% compared to the second quarter of 2013. This decrease is primarily due to decreased employee, occupancy and administrative costs as a result of continued review and evaluation of operations.
The Company generated operating income of $145,108 for the quarter, compared to operating income of $186,890 in 2013. After adjusting for interest and income taxes, there was a net income for the quarter of $36,007 compared to a net income of $88,563 in the second quarter of 2013. Interest expense has decreased as the Company has replaced debt carrying higher interest rates with lower interest rate debt.
EBITDA for the three months ended June 30, 2014 and 2013 are as follows:
Adjustments to Reconcile GAAP Net Income to EBITDA
|
2014
|
2013
|
|||||||
|
Net income
|
$
|
36,007
|
$
|
88,563
|
||||
|
Interest expense
|
63,078
|
66,040
|
||||||
|
Income taxes
|
46,035
|
33,421
|
||||||
|
Depreciation and amortization
|
334,609
|
350,708
|
||||||
|
EBITDA
|
$
|
479,729
|
$
|
538,732
|
||||
10
YEAR TO DATE
Revenue
Revenue decreased 5.4% in the first six months of 2014 compared to the same period in 2013, as we continue to see the residual affects of uncertain economic and tax climates.
Expenses
Operating expenses for the six months ended June 30, 2014 were $5,812,535, a decrease of $425,980, or 6.8% compared to the first half of 2013. This decrease is primarily due to decreased employee and administrative costs, as a result of continued review and evaluation of operations.
The Company has generated operating income of $83,109 for year to date, compared to an operating loss of $9,300 in 2013. After adjusting for interest and income taxes, the net loss for the first six months of 2014 was $7,029 compared to a net loss of $57,488 in the comparable period in 2013. Interest expense has decreased as the Company has replaced debt carrying higher interest rates with lower interest rate debt.
EBITDA for the six months ended June 30, 2014 and 2013 are as follows:
Adjustments to Reconcile GAAP Net Loss to EBITDA
|
2014
|
2013
|
|||||||
|
Net loss
|
$
|
(7,029
|
)
|
$
|
(57,488
|
)
|
||
|
Interest expense
|
112,997
|
135,781
|
||||||
|
Income tax (benefit)
|
(26,908
|
)
|
(85,785
|
)
|
||||
|
Depreciation and amortization
|
670,791
|
716,736
|
||||||
|
EBITDA
|
$
|
749,851
|
$
|
709,244
|
||||
LIQUIDITY, SOURCES OF CAPITAL AND LINES OF CREDIT
On June 30, 2014, there was a working capital deficit of approximately $544,000, compared to a surplus of approximately $90,000 at December 31, 2013. Working capital deficits are not unusual in the first six months of the year due to the somewhat seasonal nature of the business. We believe that current cash needs can be met with the present cash and investments balances and from working capital generated from operations over the next 12 months. Additionally, the Company has letters of credit with various financial institutions with unused borrowing capacity of approximately $400,000, which may be drawn as needed.
CRITICAL ACCOUNTING POLICIES
Our financial statements and accompanying notes are prepared in accordance with generally accepted accounting principles in the United States. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. These estimates and assumptions are affected by management's applications of accounting policies. Critical accounting policies for IMS include the following:
REVENUE SOURCES AND REVENUE RECOGNITION
The Company and its subsidiaries earn revenues in both traditional cash dollars and in IMS trade dollars.
Cash 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.
11
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 tests goodwill and intangible assets at least annually for impairment, or when facts and circumstances indicate impairment is probable. It is the Company’s policy to test impairment at the end of each year. Therefore, no impairment of goodwill or membership lists was recorded in the first six months of 2014.
INCOME TAXES
The Company accounts for income taxes in accordance with FASB ASC 740. Under ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under ASC 740, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
RECENT ACCOUNTING PRONOUNCEMENTS
Management does not anticipate that any recently issued, but not yet effective, accounting pronouncements will materially impact the Company’s financial condition.
OFF BALANCE SHEET ARRANGEMENTS
We do not have any off balance sheet arrangements or other relationships with unconsolidated entities.
Not required by Smaller Reporting Companies.
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 June 30, 2014, in providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
12
Changes in Internal Control over Financial Reporting
There was no change in internal control over financial reporting (as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) during our first fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting .
PART II OTHER INFORMATION
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.
Not applicable for Smaller Reporting Companies.
(a) and (b) There were no unregistered sales of equity securities.
(c) Repurchases were as follows:
|
Maximum
|
||||||||||||
|
Total
|
Number
of Shares
|
|||||||||||
|
Number
|
Average
|
That May Yet
|
||||||||||
|
of Shares
|
Price Paid
|
be Purchased
|
||||||||||
|
Period
|
Purchased
|
Per Share
|
Under the Plans
|
|||||||||
|
Purchase related stock buyback guarantees
|
||||||||||||
|
April 1 to April 30, 2014
|
-
|
$
|
-
|
|||||||||
|
May 1 to May 31, 2014
|
-
|
$
|
-
|
|||||||||
|
June 1 to June 30, 2014
|
-
|
$
|
-
|
1,323
|
||||||||
|
Board Authorized repurchase plan
|
||||||||||||
|
April 1 to April 30, 2014
|
51,161
|
$
|
12.43
|
|||||||||
|
May 1 to May 31, 2014
|
108
|
$
|
5.81
|
|||||||||
|
June 1 to June 30, 2014
|
485
|
$
|
6.46
|
unlimited
|
||||||||
None
No applicable items for disclosure.
None
13
(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
14
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)
|
|
|
August 5, 2014
|
|
|
/s/ David A. Powell
|
|
|
David A. Powell, Chief Financial Officer
|
|
|
(Principal Accounting and Financial Officer)
|
|
|
August 5, 2014
|
15