10QSB 1 ims09300610qsb4.txt IMS 10QSB 3RD QUARTER 2006 1 ims09300610qsb4.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE PERIOD ENDED SEPTEMBER 30, 2006 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD From to --------------------- ---------------- 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 (I.R.S. Employer incorporation or organization) Identification No.) 16901 West Glendale Drive New Berlin, Wisconsin 53151 --------------------------- (Address of principal executive offices) (Zip Code) (262) 780-3640 --------------------------------------------------------- (Registrant's telephone number, including area code) Not Applicable ------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods 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 --- --- APPLICABLE ONLY TO CORPORATE ISSUERS Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date. Common Stock, $.0001 Par Value -- 52,207,769 shares as of November 10, 2006. Transitional Small Business Disclosure Format Yes X No --- --- Indicate by check mark whether the registrant is a shell company as defined in rule 12b-2 of the exchange act. Yes No X --- ---
INDEX PAGE NO. -------- INTERNATIONAL MONETARY SYSTEMS, LTD. Part I. Financial Information Item 1. Financial Statements (September 30, 2006 - Unaudited) Condensed consolidated balance sheets - September 30, 2006 2 and December 31, 2005 Condensed consolidated statements of operations - Three months ended September 30, 2006 and 2005; Nine months ended September 30, 2006 and 2005 4 Condensed consolidated statements of cash flows - Nine months ended September 30, 2006 and 2005 5 Condensed consolidated statement of changes in stockholders equity - Nine months ended September 30, 2006 7 Notes to condensed consolidated financial statements - September 30, 2006 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 14 Item 3. Controls and Procedures 18 Part II. Other Information 19 Item 1. Legal Proceedings Item 2. Changes in Securities and Use of Proceeds Item 3. Defaults upon Senior Securities Item 4. Submission of Matters to a Vote of Security Holders Item 5. Other Information Item 6. Exhibits and Reports on Form 8-K Signatures
2 INTERNATIONAL MONETARY SYSTEMS, LTD. CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, December 31, 2006 2005 (UNAUDITED) ---------------- ---------------- ASSETS Current assets Cash $ 735,262 $ 80,496 Restricted cash - 363,400 Marketable securities 94,697 84,206 Accounts receivable, net 1,483,042 1,113,598 Earned trade account - 60,027 Prepaid expenses 108,213 79,417 Inventory 33,839 33,839 -------------- -------------- Total current assets 2,455,053 1,814,983 -------------- -------------- Net furniture and equipment 557,162 411,799 -------------- -------------- Other assets Membership lists & covenant 9,095,831 4,267,719 Goodwill 2,785,478 1,285,478 Purchase option 112,500 - Assets held for investment 99,298 99,298 Investment in real estate 31,000 31,000 Cash surrender value 31,909 27,709 -------------- -------------- Total other assets 12,156,016 5,711,204 -------------- -------------- Total assets $ 15,168,231 $ 7,937,986 ============== ==============
3 INTERNATIONAL MONETARY SYSTEMS, LTD. CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, December 31, 2006 2005 (UNAUDITED) ---------------- ---------------- LIABILITIES Current liabilities Accounts payable and accrued expenses $ 398,550 $ 510,048 Earned trade account (deficit) 372,910 - Current portion of notes payable 1,852,874 584,897 Current portion of notes payable, related party 144,000 99,506 Current portion of common stock subject to guarantee 358,500 925,000 -------------- -------------- Total current liabilities 3,126,834 2,119,451 -------------- -------------- Long-term liabilities Notes payable net, less current portion 2,268,709 1,825,015 Notes payable to related parties 109,179 192,171 Common stock subject to guarantee, less current portion 169,000 1,056,750 Deferred compensation 117,250 106,000 Deferred income taxes 2,065,000 554,000 -------------- -------------- Total long-term liabilities 4,729,138 3,733,936 -------------- -------------- Total liabilities 7,855,972 5,853,387 -------------- -------------- STOCKHOLDER EQUITY Preferred stock, $.0001 par value 20,000,000 authorized, 0 outstanding - - Common stock, $.0001 par value 280,000,000 authorized, 52,032,028 and 40,056,404 issued and outstanding September 30, 2006 and December 31, 2005 respectively 5,221 4,224 Paid in capital 8,599,975 3,002,114 Subscription receivable (46,343) (68,622) Deferred compensation - (2,043) Treasury stock (626,241) (423,090) Accumulated deficit (620,353) (427,984) -------------- -------------- Total stockholder equity 7,312,259 2,084,599 -------------- -------------- Total liabilities and stockholder equity $ 15,168,231 $ 7,937,986 ============== ============== See accompanying notes to condensed consolidated financial statements.
4 INTERNATIONAL MONETARY SYSTEMS, LTD. CONDENSED CONSOLIDATED STATEMENTS OF OPERATION (UNAUDITED)
Three Months Ended Nine Months Ended September 30, September 30, -------------------------- --------------------------- 2006 2005 2006 2005 ------------ ------------ ------------ ------------- Gross revenue $ 1,687,573 $ 1,674,125 $ 5,240,400 $ 4,413,101 ------------ ------------ ------------ ------------- Expenses Payroll, related taxes and employee benefits 1,081,819 931,458 3,189,814 2,490,844 General and administrative 232,456 221,024 701,276 584,711 Occupancy 166,813 166,077 488,358 405,568 Selling 84,566 104,110 205,761 244,211 Depreciation 38,264 41,954 112,008 116,811 Amortization 150,583 80,873 432,688 174,610 Provision for bad debt 48,765 14,247 111,310 74,800 ------------ ------------ ------------ ------------- Total expenses 1,803,266 1,559,723 5,241,215 4,091,555 ------------ ------------ ------------ ------------- Net income (loss) from operations (115,693) 114,382 (815) 321,546 ------------ ------------ ------------ ------------- Other income (expense) Interest income 33,223 401 58,544 2,064 Interest expense (72,728) (78,685) (239,098) (162,754) ------------ ------------ ------------ ------------- Total other income (expense) (39,505) (78,284) (180,544) (160,690) ------------ ------------ ------------ ------------- - Income (loss) before income taxes (155,198) 36,098 (181,369) 160,856 Income tax expense (benefit) (35,000) 9,000 11,000 40,200 ------------ ------------ ------------ ------------- Net income (loss) $ (120,198) $ 27,098 $ (192,369) $ 120,656 ============ ============ ============ ============= Net income per common share - basic $ (.002) $ .001 $ (.004) $ .003 - dilutive $ (.002) $ .001 $ (.004) $ .003 Weighted average common shares outstanding - basic 50,376,803 40,474,621 45,807,076 39,279,548 - dilutive 52,005,302 43,202,219 47,522,030 41,033,225 See accompanying notes to condensed consolidated financial statements.
5 INTERNATIONAL MONETARY SYSTEMS, LTD. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended ----------------------------------- September 30, September 30, 2006 2005 -------------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ (192,369) $ 120,656 Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 544,697 291,421 Provision for bad debts 111,310 - Stock issued in exchange for services 32,050 126,953 Accretion notes payable discount 41,894 - Deferred compensation 11,250 - Disposal of fixed assets 4,901 - Amortization of deferred compensation 2,043 - Changes in assets and liabilities Accounts receivable 65,137 (44,680) Earned trade account (15,429) (46,964) Prepaid expense (8,797) (11,470) Deferred income taxes 11,000 36,204 Other assets - (17,463) Notes receivable - 24,398 Accounts payable (21,064) 1,281 Accrued compensation & payroll taxes (73,818) 14,676 Accrued sales tax (27,320) - Accrued income taxes (9,622) - ------------- -------------- Net cash provided by operating activities $ 475,863 $ 495,012 ------------- -------------- CASH FLOWS FROM INVESTING ACTIVITIES: (Increase) decrease in restricted cash 363,400 (539) Capital expenditures (97,273) (88,108) (Increase) decrease in marketable securities (10,490) - Cash payments on business acquisitions (5,440,000) (965,000) Trade payments on business acquisitions (15,000) - Increase in cash surrender value (4,200) - Covenant - (89,300) ------------- -------------- Net cash provided by (used in) investing activities 5,203,563 (1,142,947) ------------- --------------
6 INTERNATIONAL MONETARY SYSTEMS, LTD. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) continued
Nine Months Ended ----------------------------------- September 30, September 30, 2006 2005 -------------- -------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from notes payable to related parties 20,000 4,028 Payments on notes payable to related parties (58,499) - Proceeds from notes payable 2,629,855 1,015,167 Payments on notes payable (923,302) (108,790) Purchase of treasury stock (412,700) (332,047) Proceeds from subscription receivable 22,279 - Proceeds related to issuance of stock, net 4,107,833 84,833 ------------- -------------- Net cash provided by (used in) financing activities 5,382,466 663,191 ------------- -------------- Net increase (decrease) in cash 654,766 15,256 Cash at beginning of period 80,496 83,669 ------------- -------------- Cash at end of period $ 735,262 $ 98,925 ============= ============== SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES: Business acquisitions Fair value of assets acquired $ 7,739,191 2,637,000 Less: Liabilities assumed (20,324) (19,500) Barter paid (598,367) (20,000) Stock issued (180,500) (1,320,000) Note payable - (312,500) Deferred tax liability (1,500,000) - ------------- -------------- Net cash paid for acquisitions $ 5,440,000 $ 965,000 ============= ============== Release of stock guarantees $ 1,454,250 ============= Payment of note payable with stock $ 33,775 ============= See accompanying notes to condensed consolidated financial statements.
7 INTERNATIONAL MONETARY SYSTEMS, LTD. CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED) -------------------------------------------------------------------------------
Preferred Stock Common Stock Treasury Stock --------------------------------- ----------------------- Total Par Par Paid in Sub. Def. Accum. Par Stockholder Shares Value Shares Value Capital Rec. Comp. (Deficit) Shares Value Equity ------ ----- ---------- ------ ---------- ------- ------- --------- ----------- ---------- ----------- Balances at December 31, 2005 - - 41,925,558 $4,224 $3,002,114 $(68,622) $(2,043) $(427,984) (1,244,904) $(423,090) $2,084,599 Net Loss 9 months ending Sept. 30, 2006 - - - - - - - (192,369) - - (192,369) Treasure stock purchases - - - - - - - - (960,750) (462,701) (462,701) Stock issued for services - - 15,000 2 2,998 - - - 80,000 29,050 32,050 Shares issued in conjunction with the acquisition of businesses - - - - - - - - 346,667 180,500 180,500 Reclassification of shares issued at guaranteed prices to liabilities - - - - 1,454,250 - - - - - 1,454,250 Stock issued as collateral, redeemed upon payment of debt - - 67,555 - - - - - (67,555) - - Payment of debt with stock - - 67,550 - 33,775 - - - - - 33,775 Amortization of deferred comp. - - - - - - 2,043 - - - 2,043 Beneficial conversion on notes payable - - - - 39,833 - - - - - 39,833 Private placements - - 10,036,365 1,003 4,066,997 - - - 200,000 50,000 4,118,000 Stock cancelled - - (80,000) (8) 8 - - - 80,000 - - Subscription receivable - - - - - 22,279 - - - - 22,279 ----------------------------------------------------------------------------------------------------------------- Balance, Sept. 30, 2006 - - 52,032,028 $5,221 $8,599,975 $(46,343) $ - $ (620,353) (1,566,542) $(626,241) $7,312,259 ================================================================================================================= See accompanying notes to condensed consolidated financial statements.
8 INTERNATIONAL MONETARY SYSTEMS, LTD. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) September 30, 2006 NOTE 1 - BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB 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 nine month period ended September 30, 2006, are not necessarily indicative of the results that may be expected for the year ended December 31, 2006. The balance sheet at December 31, 2005, has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in the company's 10KSB/A for the year ended December 31, 2005 and filed on June 26, 2006. Principles of Consolidation The consolidated financial statements include the accounts of the company and its subsidiary. Significant intercompany accounts and transactions have been eliminated in consolidation. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Earnings Per Share The computation of earnings per share of common stock is based on the weighted average number of shares outstanding at the date of the financial statements. The assumed exercise of 2,082,000 and 3,282,000 stock options as of September 30, 2006 and 2005 respectively, is not included in the diluted loss per share as the effect is anti-dilutive. Business Segments The Company operates in one segment and therefore segment information is not presented. Stock-Based Compensation Effective January 1, 2006, the Company adopted Statement No. 123R, Share-Based Payment ("SFAS 123R"), which requires companies to measure and recognize compensation expense for all share-based payment awards made to employees and directors based on estimated fair values. SFAS 123R is being applied on the modified prospective basis. Prior to the adoption of SFAS 123R, the Company accounted for its stock-based compensation plans under the recognition and measurement principles of Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, as provided by SFAS 123. Accounting for Stock based compensation ("SFAS 123") and accordingly, recognized no compensation expense related to the stock-based plans as stock options granted to employees and directors were equal to the fair market value of the underlying stock at the date of grant. In March 2005, the SEC issued Staff Accounting Bulletin No. 107 ("SAB 107") relating to SFAS 123R. The Company has applied the provisions of SAB 107 in its adoption of SFAS 123R. 9 INTERNATIONAL MONETARY SYSTEMS, LTD. Recent Accounting Pronouncements SFAS 155, Accounting for Certain Hybrid Financial Instruments and SFAS 156, Accounting for Servicing of Financial Assets were recently issued. SFAS 155 and 156 have no current applicability to the Company and have no effect on the financial statements. Note 2 - CASH AND EQUIVALENTS For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents to the extent the funds are not being held for investment purposes. Note 3 - EARNED TRADE ACCOUNT As part of the operations of the subsidiaries, trade dollars are earned which can be and are used to purchase goods and services. This account is increased principally for service, membership and transaction fees, and is decreased by the company's purchase of goods and services for trade dollars. An impairment loss is recognized if it becomes apparent that the fair value of the trade dollars in the account is less than the carrying amount or if it is probable that the company will not use all of its trade dollars. As a result of the acquisition of National Trade Association, the trade account is currently a liability. Note 4 - REVENUE SOURCES AND REVENUE RECOGNITION The Company and its subsidiary earn revenues in both traditional dollars (cash income) and in trade dollars. Cash income is earned through fees assessed when a member joins, through transaction fees generated when clients earn or spend their trade dollars, through 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 collectibility 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. NOTE 5 - INVENTORY Inventory consists primarily of jewelry and other merchandise held for sale by the Company. Inventory is carried at the lower of actual cost of acquisition or fair value. NOTE 6 - BUSINESS ACQUISITIONS On March 31, 2006, IMS purchased from Southern Barter Exchange the membership list of their clients located in Memphis, TN. for $25,000. The amount was paid in cash. Purchase price $ 25,000 ========== Accounts receivable (net) $ 1,200 Furniture and fixtures - Membership list 23,800 ---------- Total assets acquired $ 25,000 ========== 10 INTERNATIONAL MONETARY SYSTEMS, LTD. On March 31, 2006, IMS purchased selected assets of Master Trade of Los Gatos, CA for $75,000. Terms of the acquisition included a down payment of $40,000. IMS issued 70,000 shares of its common stock guaranteed to a value of $35,000 ($.50 per share). Purchase price $ 75,000 ========== Accounts receivable (net) $ 10,000 Furniture and fixtures 2,000 Membership list 63,000 ---------- Total assets acquired $ 75,000 ========== On April 7, 2006, IMS purchased selected assets of Trade Exchange of the Rockies of Golden, CO for $720,000. Terms of the acquisition included a down payment of $500,000 and a note payable for $100,000. The note was paid in full in the current quarter. IMS issued 240,000 shares of its common stock guaranteed to a value of $120,000 ($.50 per share). The purchase price included scrip and showroom merchandise that was sold to the membership. Purchase price $ 720,000 ========== Accounts receivable (net) $ 11,000 Furniture and fixtures 60,000 Scrip and showroom merchandise at fair value 135,000 Membership list 514,000 ---------- Total assets acquired $ 720,000 ========== On June 1, 2006, IMS purchased selected assets of Barter Indiana Group of Indianapolis, IN. for $103,000. Terms of the acquisition included a down payment of $75,000 and $15,000 in trade dollars. IMS issued 20,000 shares of its common stock valued at $13,000 based on the bid price on the transaction date. Purchase price $ 103,000 ========== Accounts receivable (net) $ 3,000 Furniture and fixtures 3,000 Membership list 97,000 ---------- Total assets acquired $ 103,000 ========== On September 29, 2006, IMS entered into a Share-Exchange Agreement for the acquisition of all outstanding shares of National Trade Association, Inc. (d.b.a. Illinois Trade Association), a Illinois Corporation. The purchase price was $4,600,000 cash. Purchase price $4,600,000 ========== Accounts receivable (net) $ 520,691 Furniture and fixtures 100,000 Other Assets 20,000 Trade Account (583,367) Misc liabilities (20,324) Membership list 4,563,000 ---------- Net assets acquired $4,600,000 ========== 11 INTERNATIONAL MONETARY SYSTEMS, LTD. The table below summarizes the unaudited pro forma information of the results of operations as though the acquisitions had been completed as of January 1, 2006: Gross revenue $ 8,631,400 Total expenses (8,309,158) ------------ Net income before taxes $ 322,242 ============ Earnings per share $ 0.006 ============ On August 9, 2006 IMS acquired an option to purchase the assets of New York Commerce Group (formerly known as Barter Advantage). During the option period, the companies will operate under a revenue-sharing arrangement. The term of the option is 2 years. Initial payment was $112,500 of which $100,000 was paid in cash. The remaining $12,500 will be paid in the form of 16,667 shares of common stock of IMS guaranteed to a price $.75 per share. The balance of the payment will be due in two years and will be based on the gross revenue being generated at that time. NOTE 7 - NOTES PAYABLE On March 20, 2006 International Monetary Systems, Ltd. (IMS) received $65,000 from a private investor secured by a promissory note issued by IMS. The terms are for two years, interest only, paid quarterly at an annual rate of 10%, starting June 20, 2006. At the expiration of the note, IMS shall pay the investor the sum of $65,000. At the option of the investor and in lieu of cash payments IMS shall transfer 216,667 shares of IMS $.0001 par value common stock to the investor ($65,000 at $.30 per share). The investor may also elect a combination of cash and stock with a combined value of $65,000. The value of the convertible feature on this note was calculated to be $6,500 and treated as a discount to the note which is being amortized over the life of the note. As of September 30, 2006 the discounted balance of the note was $60,245. On April 3, 2006 International Monetary Systems, Ltd. (IMS) received $500,000 from a private investor secured by a promissory note issued by IMS. The terms are for two years, interest only, paid quarterly at an annual rate of 10%, starting July 3, 2006. At the expiration of the note, IMS shall pay the investor the sum of $500,000. At the option of the investor and in lieu of cash payments IMS shall transfer 1,666,667 shares of IMS $.0001 par value common stock to the investor ($500,000 at $.30 per share). The investor may also elect a combination of cash and stock with a combined value of $500,000. The value of the convertible feature on this note was calculated to be $33,333 and treated as a discount to the note which is being amortized over the life of the note. As of September 30, 2006 the discounted balance of the note was $474,932. On September 26, 2006 International Monetary Systems, Ltd. (IMS) received $635,000 from a private investor secured by a promissory note issued by IMS. The terms are for two years, interest only, paid quarterly at an annual rate of 10%, starting December 26, 2006. At the expiration of the note, IMS shall pay the investor the sum of $635,000. At the option of the investor and in lieu of cash payments IMS shall transfer 1,024,194 shares of IMS $.0001 par value common stock to the investor ($635,000 at $.62 per share). The investor may also elect a combination of cash and stock with a combined value of $635,000. No convertible value was calculated on this note since the conversion price is less than the fair market price of the stock on the date of the note. The funds were used forthe acquisition of National Trade Association. On September 26, 2006 International Monetary Systems, Ltd. (IMS) received $1,465,000 from a private investor secured by a promissory note issued by IMS. The terms are $45,000 per month, including interest at an annual rate of 10%, for 38 months. The funds were used for the acquisition of National Trade Association. 12 INTERNATIONAL MONETARY SYSTEMS, LTD. NOTE 8 - 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. SFAS 123R defines a fair value based method of accounting for employee stock option or similar equity instruments. Under the fair value based method, compensation cost is measured at the grant date based on the fair value of the award using an option-pricing model that takes into account the stock price at the grant date, the exercise price, the expected life of the option, the volatility of the underlying stock, expected dividends, and the risk-free interest rate over the expected life of the option. The resulting compensation cost is recognized over the service period, which is usually the vesting period. A summary of the status of Company's fixed stock option plan as of September 30, 2006 and the changes during the quarter then ended is presented below:
September 30, 2006 --------------------------- Weighted Average Fixed Options Shares Exercise Price ------------------------------ ---------- ----------------- Outstanding at beginning of period 3,282,000 $ 0.39 Granted 0 $ - Forfeited 0 $ - Expired (1,200,000) $ 0.50 ----------- ----------------- Outstanding at end of period 2,082,000 $ 0.33 =========== =================
Options exercisable at period end 2,082,000 =========== Weighted average fair value of options granted to employees during the year $ - =========== As of September 30, 2006 there were 2,082,000 options outstanding and exercisable, with a weighted average remaining contractual life of 1.4 years, and a weighted average exercise price of $0.33. All options had vested prior to January 1, 2006. B). STOCK ISSUANCES 15,000 shares of Common Stock and 30,000 shares of Treasury Stock of IMS with a combined fair value of $10,050 were issued to investor relation firms in the first nine months of 2006. 50,000 shares of Treasury Stock of IMS with a fair value of $22,0000 were issued to the outside members of the Board of Directors. 16,667 shares of Treasury Stock of IMS with a fair value of $12,500 were issued as part of the purchase option for New York Commerce Exchange. 960,750 shares of IMS Treasury Stock were purchased by the Company in the first nine months of 2006 for $462,701. 13 INTERNATIONAL MONETARY SYSTEMS, LTD. 330,000 shares of Treasury Stock was issued as part of the purchase price of three of the trade exchange acquisitions. The fair value was $168,000. 27,020 shares of Common Stock were issued after the contract terms were met. The note payable was reduced by $13,510. On April 5, 2006 80,000 shares of common stock, par value $0.0001 per share, were returned by a private party. These shares were cancelled and retired. On February 21, 2006 the Company completed a private placement of 236,635 shares of common stock, par value $0.001 per share, with a private investor Gross proceeds were $50,000. On April 11, 2006 the Company completed a private placement of 2,700,000 shares of common stock, par value $0.001 per share, with an institutional investor. Gross proceeds were $1,000,000. After legal fees of $15,000 the net proceeds were $985,000. On May 11, 2006 the Company completed a private placement of 7,000,000 shares of common stock, par value $0.001 per share, with an institutional investor. Gross proceeds were $3,000,000. After legal fees of $12,000 the net proceeds were $2,988,000. On May 25, 2006 the Company completed a private placement of 100,000 shares of common stock, par value $0.001 per share, with an institutional investor. Gross proceeds were $45,000. On July 19, 2006 a private investor exercised 200,000 warrants for common stock of IMS. IMS received cash in the amount of $50,000 ($.25 per share) for the shares. The stock guarantee liability was reduced by a net $1,454,250 during the first nine months of 2006. This was a result of the terms being met on three of the asset purchase agreements, payments made to redeem shares, and releases given by other holders of the guaranteed stock. Included in the amount was an increase in the guarantee of $155,000 for two acquisitions made in April of 2006. The gross amount ot the decrease was $1,602,250. NOTE 9 - INCOME TAXES The Company accounts for income taxes under Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("Statement 109"). Under Statement 109, 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 Statement 109, 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. As of June 30, 2006, the Company has a federal net operating loss carryforward of approximately $250,000 available to offset future taxable income, $230,000 of which expires in 2023, and $20,000 of which expires in 2025. NOTE 10 - RECLASSIFICATIONS Certain amounts from prior periods have been reclassified to conform to the current year presentation. NOTE 11 - SUBSEQUENT EVENTS There are no material subsequent events to report. 14 INTERNATIONAL MONETARY SYSTEMS, LTD. ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations In the quarter ending September 30, 2006, International Monetary Systems, Ltd. made an investment in its infrastructure, and also renewed its commitment to organic growth, by hiring additional sales people who achieved record numbers of new-client enrollments for the period. Though this was a strong investment in the Company's future, it substantially reduced profits for the quarter. On September 29, 2006, International Monetary Systems purchased National Trade Association and its subsidiary, Illinois Trade Association, for $4.6 million in cash. No revenue or expenses from the acquired company are included in the third-quarter financial statements. However, this acquisition is expected to have a significant effect on the fourth-quarter figures. For the three months ending on September 30, 2006, the Company's gross revenue increased to $1,687,573, compared to $1,674,125 for the third quarter of 2005. The Company's total expenses during the third quarter of 2006 increased from $1,559,723 in the third quarter of 2005 to $1,803,266 in the 3rd quarter of 2006. The increased expenses were attributed to the acquisitions of four trade exchanges earlier this year, additional interest charges for the funding of those transactions, the expansion of our outside sales force, and other non-cash charges for depreciation and amortization. The Company's year-to-date consolidated gross revenue for the nine-month period ending September 30, 2006 totaled $5,240,400 compared to $4,413,101 for the same period in 2005, an increase of 19%. Total expenses for the nine-months ending September 2006 were $5,241,215, compared to $4,091,555 for the same period last year, an increase of 28%. Year-to-date loss for the first nine months of 2006 was $192,369, compared to a profit of $120,656 for the same period ending September 30, 2005. During the nine months ending on September 30, 2006, International Monetary Systems' total assets have grown to $15,168,231, from $7,937,986 at the end of 2005, an increase of 96%. For the third quarter of 2006, International Monetary Systems, Ltd. had a net loss of $120,198, compared to a net profit of $27,098 for the same period in 2005. Earnings before interest, taxes, depreciation and amortization (EBITDA) totaled $106,377 for the current quarter. This compares to an EBITDA of $237,610 for the same period last year. EBITDA for the first nine-months of 2006 totaled $602,425. This compares to an EBITDA for the same period of 2005 totaling $615,031, a decrease of 2%. Nine Months Nine Months Ended Ended Sept. 30, 2006 Sept. 30, 2005 -------------- -------------- Net income (loss) $(192,369) $120,656 Interest expense 239,098 162,754 Income taxes 11,000 40,200 Depreciation 112,008 116,811 Amortization 432,688 174,610 ------------- ------------- $602,425 $615,031 ============= ============= Liquidity and Sources of Capital On September 30, 2006, the Company's cash balance was $735,262 compared to $80,496 at the end of 2005. Much of the increase is attributed to equity investments received in April and May of this year. The current cash balance will be use to fund future internal growth. Some of the funds may be used for down payments on future acquisitions. Since a large portion of our debt was paid earlier this year with the equity funding, future cash flows, in the short term, should be greatly improved. The major portion of the short term debt currently on the balance sheet may be reduced without the use of cash if the company's stock maintains its current value. $1,020,000 of the current portion of long term debt is convertible to shares of IMS stock at $.30 per share. We believe that current cash needs can be met with the current cash balance and from working capital generated over the next 12 months. 15 INTERNATIONAL MONETARY SYSTEMS, LTD. RECENT ACCOUNTING PRONOUNCEMENTS In January 2003, the Financial Accounting Standards Board ("FASB") issued Interpretation ("FIN") No. 46, "Consolidation of Variable Interest Entities (VIE)," (revised December 2003 by FIN No. 46R), which addresses how a business enterprise should evaluate whether it has a controlling financial interest in an entity through means other than voting rights and accordingly should consolidate the entity. For variable interests in VIEs created before January 1, 2004, the Interpretation will be applied beginning on January 1, 2005. For any VIEs that must be consolidated under FIN No. 46R that were created before January 1, 2004, the assets, liabilities and non-controlling interests of the VIE initially would be measured at their carrying amounts with any difference between the net amount added to the balance sheet and any previously recognized interest being recognized as the cumulative effect of an accounting change. If determining the carrying amounts is not practicable, fair value at the date FIN No. 46R first applies may be used to measure the assets, liabilities and non-controlling interest of the VIE. The adoption of FIN No. 46R did not have a material impact on the Company's financial position, results of operations or cash flows as the Company does not have any VIEs. In December 2004, the FASB issued SFAS No. 123R "Share-Based Payment" ("SFAS 123R"), a revision to SFAS No. 123 "Accounting for Stock-Based Compensation" ("SFAS 123"), and superseding APB Opinion No. 25 "Accounting for Stock Issued to Employees" and its related implementation guidance. SFAS 123R establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services, including obtaining employee services in share-based payment transactions. SFAS 123R applies to all awards granted after the required effective date and to awards modified, repurchased, or cancelled after that date. Adoption of the provisions of SFAS 123R is effective as of the beginning of the first interim or annual reporting period that begins after June 15, 2005. The Company has adopted SFAS 123R, and there is no impact on the financial statements. In November 2004, the FASB issued SFAS No. 151, "Inventory Costs - an amendment of ARB No. 43, Chapter 4"("SFAS 151"). This statement clarifies the criteria of "abnormal amounts" of freight, handling costs, and spoilage that are required to be expensed as current period charges rather than deferred in inventory. In addition, this statement requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. SFAS 151 is effective for the Company July 1, 2005, and there is no impact of this statement on the Company's financial statements. In December 2004, the FASB issued SFAS no. 153, Exchanges of Non- monetary Assets an amendment of APB Opinion No. 29. This Statement addresses the measurement of exchanges of non-monetary assets. It eliminates the exception from fair value measurement for non- monetary exchanges of similar productive assets in paragraph 21(b) of APB Opinion No. 29, Accounting for Non-monetary Transactions, and replaces it with an exception for exchanges that do not have commercial substance. This Statement specifies that a non-monetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. The Company has adopted SFAS 153, and there is no impact on the financial statements. 16 INTERNATIONAL MONETARY SYSTEMS, LTD. In December 2004, the FASB issued SFAS No. 152, Accounting for Real Estate Time-Sharing Transactions an amendment of FASB Statements No. 66 and 67. This Statement amends FASB Statement No. 66, Accounting for Sales of Real Estate, to reference the financial accounting and reporting guidance for real estate time- sharing transactions that is provided in AICPA Statement of Position (SOP) 04-2, Accounting for Real Estate Time-Sharing Transactions. This Statement also amends FASB Statement No. 67, Accounting for Costs and Initial Rental Operations of Real Estate Projects, to state that the guidance for (a) incidental operations and (b) costs incurred to sell real estate projects does not apply to real estate time-sharing transactions. This Statement is effective for financial statements for fiscal years beginning after June 15, 2005. The guidelines of this statement are not applicable to the Company. SFAS No. 154 ("SFAS 154"), Accounting Changes and Error Corrections, was issued in May 2005 and replaces APB Opinion No. 20 and SFAS No. 3 ("SFAS 3"). SFAS No. 154 requires retrospective application for voluntary changes in accounting principle in most instances and is required to be applied to all accounting changes made in fiscal years beginning after December 15, 2005. The Company's expected April 1, 2006 adoption of SFAS No. 154 is not expected to have a material impact on the Company's consolidated financial condition or results of operations. 17 INTERNATIONAL MONETARY SYSTEMS, LTD. 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, revenue and expenses. These estimates and assumptions are affected by management's applications of accounting policies. Critical accounting policies for our company include the following: REVENUE SOURCES AND REVENUE RECOGNITION The Company and its subsidiary earn revenues in both traditional dollars (cash income) and in trade dollars. Cash income is earned through fees assessed when a member joins, through transaction fees generated when clients earn or spend their trade dollars, through 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 collectibility is reasonably assured. Transaction fees are recognized upon receipt of transactional information accumulated by our systems or reported by our clients. Membership fees, monthly maintenance fees, finance charges, and other fees are billed monthly to members' accounts, and are recognized in the month the revenue is earned. RECEIVABLES AND ALLOWANCE FOR DOUBTFUL ACCOUNTS Accounts receivable are stated at face value, net of the allowance for bad debts. Finance charges on receivables are calculated using the simple interest method on the amount outstanding. The allowance for bad debts is maintained at a level that is management's best estimate of probable bad debts incurred as of the balance sheet date. Management's determination of the adequacy of the allowance is based on an evaluation of the accounts receivable, past collection experience, current economic conditions, volume, growth and composition of the accounts receivable, and other relevant factors. Actual results may differ from these estimates. The allowance is increased by provisions for bad debts charged against income. GOODWILL AND MEMBERSHIP LISTS Goodwill and membership lists are stated at cost and arise when additional exchanges are purchased. Membership lists are amortized over the estimated life of ten years. In 2002 the Company adopted Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangibles," which requires that goodwill and intangible assets with indefinite lives be tested annually for impairment. There was no impairment of goodwill in the second quarter of 2006 or in 2005. 18 INTERNATIONAL MONETARY SYSTEMS, LTD. INCOME TAXES The Company accounts for income taxes under the Statement of Financial' Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). Under SFAS 109, 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 SFAS 109, 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 SFAS No. 154 ("SFAS 154"), Accounting Changes and Error Corrections, was issued in May 2005 and replaces APB Opinion No. 20 and SFAS No. 3 ("SFAS 3"). SFAS No. 154 requires retrospective application for voluntary changes in accounting principle in most instances and is required to be applied to all accounting changes made in fiscal years beginning after December 15, 2005. The Company's expected April 1, 2006 adoption of SFAS No. 154 is not expected to have a material impact on the Company's consolidated financial condition or results of operations. The effect of this new standard on the company's financial position and results of operations is not expected to be material upon and after adoption. SFAS 155, Accounting for Certain Hybrid Financial Instruments and SFAS 156, Accounting for Servicing of Financial Assets were recently issued. SFAS 155 and 156 have no current applicability to the Company and have no effect on the financial statements. ITEM 3. CONTROLS AND PRODCECURES Members of our management, including Don F Mardak, our Chief Executive Officer, Danny W Weibling, our Chief Financial Officer, have evaluated the effectiveness of our disclosure controls and procedures, as September 30, 2006, the end of the period covered by this report. Based upon that evaluation, Mr. Mardak and Mr. Weibling concluded that our disclosure controls and procedures are effective. INTERNAL CONTROL OVER FINANCIAL REPORTING There were no changes in our internal control over financial reporting or in other factors identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during the quarter ended September 30, 2006 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 19 INTERNATIONAL MONETARY SYSTEMS, LTD. Part II. Other Information Item 1. Legal Proceedings - None Item 2. Changes in Securities On April 5, 2006 80,000 shares of common stock, par value $0.0001 per share, were returned by a private party. These shares were cancelled and retired. On April 11, 2006 the Company completed a private placement of 2,700,000 shares of common stock, par value $0.001 per share, with an institutional investor. Gross proceeds were $1,000,000. On May 11, 2006 the Company completed a private placement of 7,000,000 shares of common stock, par value $0.001 per share, with an institutional investor. Gross proceeds were $3,000,000. The Company also issued warrants to purchase an additional 3,500,000 shares at $.55 each, which expire May 31, 2011. On May 25, 2006 the Company completed a private placement of 100,000 shares of common stock, par value $0.001 per share, with an institutional investor. Gross proceeds were $45,000. On July 19, 2006 a private investor exercised 200,000 warrants for common stock of IMS. IMS received cash in the amount of $50,000 ($.25 per share) for the shares. Item 3. Defaults upon Senior Securities - None Item 4. Submission of Matters to a Vote of Security Holders - None 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 A Form 8-K was filed on April 12, 2006 reporting the receipt of $565,000 in funds from private investors. A Form 8-K was filed on April 13, 2006 reporting the acquisition of selected assets of the Trade Exchange of the Rockies. 20 INTERNATIONAL MONETARY SYSTEMS, LTD. A Form 8-K was filed on April 17, 2006 reporting the receipt of $1,000,000 in funds from a private placement of 2,700,000 shares of IMS stock. A Form 8-K was filed on May 11, 2006 reporting the receipt of $3,000,000 in funds from a private placement of 7,000,000 shares of IMS stock. A From 8-K was filed on May 25, 2006 reporting the receipt of $45,000 in funds from a private placement of 100,000 shares of IMS stock. A Form 8-K was filed on August 30, 2006 reporting the share-exchange agreement for the acquisition of National Trade Association, Inc. A Form 8-K was filed on September 29, 2006 reporting the receipt of $2,100,000 in funds from a private investor. 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) ---------- Date November 10, 2006 /s/ Donald F. Mardak ---------------------- --------------------------------------------- Donald F. Mardak, President (Principal Executive Officer) Date November 10, 2006 /s/ Danny W Weibling ---------------------- --------------------------------------------- Danny W Weibling, CPA, Treasurer (Chief Financial Officer)