PINX:ITNM Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

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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, 2012
 
o   TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
Commission file number 000-30853

INTERNATIONAL MONETARY SYSTEMS, LTD.
(Exact name of Registrant as specified in its charter)

Wisconsin
 
39-1924096
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
16901 West Glendale Drive, New Berlin, Wisconsin 53151
(Address of principal executive offices)
 
(262) 780-3640
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant has (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ý No o 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check One):

Large Accelerated Filer  o
Accelerated Filer  o
Non-Accelerated Filer  o
Smaller Reporting Company  T
   
(Do not check if a smaller reporting company)
 

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

The number of shares of Common Stock, $.0001 par value, outstanding as July 31, 2012, was 8,097,020.
 
 
 
 

 
 
INTERNATIONAL MONETARY SYSTEMS, LTD.
 
TABLE OF CONTENTS
 
     
   
Page No.
Part I.
FINANCIAL INFORMATION
 
     
Item 1 -
Financial Statements June 30, 2012
 
     
   
Consolidated Balance Sheets –June 30, 2012 (Unaudited) and December 31, 2011
3
     
   
Unaudited Consolidated Statements of Operations – Three and Six Months Ended June 30, 2012 and 2011
4
     
   
Unaudited Consolidated Statements of Cash Flows – Six Months Ended June 30, 2012 and 2011
5
     
   
Unaudited Notes to Consolidated Financial Statements
6
     
Item 2 -
Management’s Discussion and Analysis of Financial Condition and Results of Operations
11
     
Item 3 -
Quantitative and Qualitative Disclosures about Market Risk
14
     
Item 4 -
Controls and Procedures
14
     
Part II.
OTHER INFORMATION
15
     
Item 1
Legal Proceedings
15
     
Item 1A -
Risk Factors
15
     
Item 2 -
Unregistered Sales of Equity Securities and Use of Proceeds
15
     
Item 3 -
Defaults on Upon Senior Securities
15
     
Item 4 -
Specialized Matters
15
     
Item 5 -
Other Information
15
     
Item 6 -
Exhibits
16
 
 
 
 

 
 
INTERNATIONAL MONETARY SYSTEMS, LTD.
CONSOLIDATED BALANCE SHEETS

 
June 30,
2012
   
December 31,
2011
 
 
(UNAUDITED)
       
ASSETS
 
Current assets
 
    Cash
 
$
868,709
   
$
1,018,250
 
    Restricted cash
   
-
     
206,956
 
    Marketable securities
   
180,958
     
162,323
 
    Accounts receivable, net
   
827,538
     
1,006,278
 
    Earned trade account
   
388,244
     
210,582
 
    Prepaid expenses
   
169,100
     
188,715
 
       Total current assets
   
2,434,549
     
2,793,104
 
Other assets
               
   Property and equipment, net
   
690,186
     
651,118
 
   Membership lists and other intangibles, net
   
5,054,924
     
5,718,435
 
   Goodwill
   
3,507,522
     
  3,507,522
 
   Assets held for investment
   
171,861
     
169,031
 
       Total non-current assets
   
9,424,493
     
10,046,106
 
          Total assets
 
$
11,859,042
   
$
12,839,210
 
LIABILITIES
 
Current liabilities
         
    Accounts payable and accrued expenses
 
$
1,008,501
   
$
1,091,823
 
    Credit lines, short term notes, and current portion of long term debt
   
1,173,491
     
1,009,897
 
    Current portion of notes payable to related parties, including short term note
   
405,317
     
90,000
 
    Common stock subject to guarantee
   
89,975
     
418,495
 
         Total current liabilities
   
2,677,284
     
2,610,215
 
Long-term liabilities
               
    Long term debt, net of current portion
   
2,429,324
     
2,159,434
 
    Notes payable  related parties, net of current portion
   
230,765
     
275,000
 
    Deferred compensation
   
291,000
     
290,000
 
    Deferred income taxes
   
833,581
     
1,015,325
 
       Total long-term liabilities
   
3,784,670
     
3,739,759
 
          Total liabilities
   
6,461,954
     
6,349,974
 
 Commitments and Contingencies
               
STOCKHOLDERS’ EQUITY
 
Preferred stock, $.0001 par value, 20,000,000 authorized, 0 outstanding
   
-
     
-
 
Common stock, $.0001 par value 280,000,000 authorized, and 8,107,020 and
               
  8,097,020 issued and outstanding at June 30, 2012 and December 31, 2011 respectively
   
811
     
810
 
Paid in capital
   
9,472,306
     
9,137,003
 
Treasury stock, 699,383 shares at June 30, 2012 and 172,703 shares at December 31, 2011
   
(1,840,074
)
   
(351,614
)
Accumulated other comprehensive income
   
25,851
     
18,615
 
Accumulated deficit
   
(2,261,806
)
   
(2,315,578
)
       Total stockholders’ equity
   
5,397,088
     
6,489,236
 
            Total liabilities and stockholders’ equity
 
$
11,859,042
   
$
12,839,210
 

See accompanying notes to consolidated financial statements.
 
 
3

 
 
INTERNATIONAL MONETARY SYSTEMS, LTD.
 
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
 
   
Three Months Ended
June 30,
   
Six Months Ended
June 30,
   
2012
   
2011
   
2012
   
2011
                       
 Net revenue
 
$
3,390,078
   
$
3,333,139
   
$
6,656,857
   
$
6,311,981
 
 Operating expenses:
                               
     Employee costs
   
2,000,061
     
1,875,275
     
3,997,141
     
3,801,983
 
    Selling, general and administrative
   
798,717
     
865,547
     
1,667,565
     
1,731,209
 
    Depreciation and amortization
   
390,200
     
409,905
     
778,878
     
818,714
 
         Total operating expenses
   
3,188,978
     
3,150,727
     
6,443,584
     
6,351,906
 
                                 
     Income (loss) from operations
   
201,100
     
182,412
     
213,273
     
(39,925)
 
                                 
   Other income (expense)
                               
     Interest income
   
94
     
23
     
674
     
142
 
     Gain on sales of assets
   
5,672
     
--
     
5,672
     
--
 
     Interest expense
   
(84,040
)
   
(52,505
)
   
(164,742
)
   
(97,623
)
          Total other income (expense)
   
(78,274
)
   
(52,482
)
   
(158,396
)
   
(97,481
)
                                 
     Income (loss) before income taxes
   
122,826
     
129,930
     
54,877
     
(137,406
)
     Income tax (expense) benefit
   
(24,179
)
   
(52,734
)
   
(1,105)
     
30,047
 
                                 
     Net income (loss)
   
98,647
     
77,196
     
53,772
     
(107,359
)
                                 
Components of comprehensive income (loss):
                               
    Foreign currency translation adjustment
   
(4,466)
     
1,802
     
(6,963)
     
6,567
 
    Unrealized gain on available for sale securities
   
(7,331)
     
(370
)
   
14,199
     
5,596
 
                                 
Comprehensive income (loss)
 
$
86,850
     
78,628
   
$
61,008
     
(95,196
)
                                 
     Net income (loss) per
                               
      common share – basic
 
$
.01
   
$
.01
   
$
.01
   
$
(.01
)
                   - dilutive
 
$
.01
   
$
.01
   
$
.01
   
$
(.01
)
 Weighted average common
                               
  shares outstanding – basic
   
8,097,240
     
10,072,775
     
8,097,130
     
10,307,484
 
                                - dilutive
   
8,865,501
     
10,072,775
     
9,514,820
     
10,307,484
 
                                 
 
See accompanying notes to consolidated financial statements.

 
4

 
 
INTERNATIONAL MONETARY SYSTEMS, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

   
Six Months Ended
 June 30,
 
   
2012
   
2011
 
CASH FLOWS FROM OPERATING ACTIVITIES:
           
    Net income (loss)
 
$
53,772
   
$
(107,359
)
    Adjustments to reconcile net loss to net cash
               
      provided by operating activities:
               
        Depreciation and amortization
   
778,878
     
818,714
 
        Stock issued for services
   
6,800
     
9,000
 
        Bad debt expense
   
(15,068)
     
25,481
 
        Gain on sales of assets
   
(5,672)
     
-
 
    Changes in assets and liabilities
               
        Accounts receivable
   
193,808
     
174,007
 
        Earned trade account
   
(308,791
)
   
(19,998
)
        Prepaid expenses
   
103,028
     
115,369
 
        Accounts payable and accrued expenses
   
(82,321
)
   
(304,962
)
        Deferred tax liability
   
(181,744
)
   
(142,306
)
                        Net cash provided by operating activities
   
542,690
     
567,946
 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
    (Increase) decrease in restricted cash
   
206,956
     
(82,535
)
    Capital expenditures
   
(97,977
)
   
(116,209
)
    (Increase) in marketable securities
   
(4,500
)
   
(4,435
)
    (Increase) in cash surrender value
   
(3,305
)
   
(2,800
)
                        Net cash provided by (used in) investing activities
   
101,174
     
(205,979
)
CASH FLOWS FROM FINANCING ACTIVITIES:
               
   Proceeds from convertible notes payable, related parties
   
--
     
230,000
 
   Proceeds from notes payable
   
400,000
     
330,000
 
   Net repayments on credit lines
   
(36,599
)
   
(86,916
)
   Payments on notes payable, convertible notes payable, and related party notes
   
(370,142
)
   
(98,664
)
   Purchase of treasury stock
   
(779,701
)
   
(699,239
)
                        Net cash used in financing activities
   
(786,442
)
   
(324,819
)
Foreign currency translation adjustment
   
(6,963
)
   
6,567
 
                 
 Net increase (decrease) in cash
   
(149,541)
     
43,715
 
                 
Cash at beginning of period
   
1,018,250
     
804,108
 
                 
Cash at end of period
 
$
868,709
   
$
847,823
 
 
 
 
5

 
 
INTERNATIONAL MONETARY SYSTEMS, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Continued
 
    Six Months Ended
June 30,
 
    2012     2011  
SUPPLEMENTAL DISCLOSURES
           
  Cash paid for interest
 
$
161,173
   
$
95,420
 
  Cash paid for income taxes
 
$
259,960
   
$
165,329
 
                 
SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
               
  Unrealized net gain on marketable securities
 
$
14,199
   
$
5,596
 
  Notes issued for acquisition of assets
 
$
-
   
$
20,443
 
  Notes issued for treasury stock
 
$
616,769
   
$
-
 
  Notes issued to related parties for treasury stock
 
$
292,000
   
$
-
 
  Treasury stock retired
 
$
-
   
$
3,831,458
 
  Release of common stock guarantees
 
$
328,500
   
$
212,500
 
  Common stock issued for conversion of note payable
 
$
200,000
   
$
-
 
  Trade dollars exchanged for:
               
    Capital expenditures
 
$
60,800
   
$
36,083
 
    Prepaid expenses paid
 
$
83,413
   
$
88,679
 
    Purchase of treasury stock
 
$
-
   
$
25,000
 
  Trade dollars received for capital assets
 
$
13,084
   
$
-
 
                 

See accompanying notes to consolidated financial statements.
 
 
6

 

INTERNATIONAL MONETARY SYSTEMS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 2012

NOTE 1 - BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six month periods ended June 30, 2012, are not necessarily indicative of the results that may be expected for the year ended December 31, 2012.

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

Principles of Consolidation

The consolidated financial statements for 2012 and 2011 include the accounts of the International Monetary Systems, Ltd. (“IMS” or “the Company”) and its’ wholly owned subsidiaries Continental Trade Exchange, Ltd., National Trade Association, Inc., INLM CN Inc. and INLM Holdings, Inc. Significant intercompany accounts and transactions have been eliminated in consolidation.

Revenue Sources and Cost of Revenue

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

Cash 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 revenue is similarly generated through initial membership fees, monthly maintenance fees, transaction fees and event fees. Occasionally the Company will accept a favorable trade ratio in lieu of a cash fee. The Company uses earned trade dollars to purchase various goods and services required in its operations. All barter transactions are reported at the estimated fair value of the products or services received. Revenues are recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable, and collectability is reasonably assured.

Transaction fees are recognized upon receipt of transactional information accumulated by our systems or reported by our clients. Membership fees, monthly maintenance fees, finance charges, and other fees are billed monthly to members' accounts, and are recognized in the month the revenue is earned.

Occasionally, the Company sells IMS trade dollars for US dollars. The cash received in these sales is included in gross revenue and the carrying value of the trade dollars up to the value of the cash received is netted against revenue, with any excess cost included in selling, general and administrative expenses.
 
 
7

 
 
Use of Estimates

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

Reclassifications

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

Management does not anticipate that the recently issued but not yet effective accounting pronouncements will materially impact the Company’s financial condition.
  
NOTE 2 - CASH

For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents to the extent the funds are not being held for investment purposes. As of June 30, 2012, the Company has cash in excess of FDIC insurance of approximately $500,000. No losses have been incurred related to this credit risk exposure.

NOTE 3 – DEBT
 
Stock Repurchase Financing

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

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

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

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

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

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

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

In June 2012, a convertible note payable to an officer in the amount of $20,000, with a due date in June 2012, was renewed. The new due date is June 7, 2013. No other terms of the note were modified.
 
8

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

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

The Company’s indebtedness as of June 30, 2012, includes the following:
 
Lines of credit payable to financial institutions, due in 2012
 
$
162,267
 
Convertible notes payable to related parties, mature in 2013 and 2014, $32,170 due in 2012
   
485,000
 
Non-convertible notes payable to related parties, maturing in 2013 and 2014
   
151,082
 
Notes payable to third parties, $315,494 due in 2012
   
2,021,211
 
Convertible notes payable, fixed conversion terms, $83,876 due in 2012
   
1,419,337
 
Total indebtedness
   
4,238,897
 
Less current maturities, including credit lines and short term debt
   
1,578,808
 
Long  term debt, net of current maturities
 
$
2,660,089
 

Additionally, the Company has letters of credit with various financial institutions with unused borrowing capacity totaling approximately $500,000 as of June 30, 2012, which may be drawn as needed.

A financial institution has issued a $75,000 standby letter of credit to a landlord in lieu of a security deposit.

Common Shares Subject to Guarantees

As part of various prior acquisition agreements which included stock consideration by the Company, the Company guaranteed the stock price of the stock consideration based on the fair market value of the stock at the time of the applicable acquisition agreements.  Accordingly, the guaranteed values of the shares are recorded as a liability on the accompanying financial statements.
  
The Company’s obligation under common stock price guarantees as of June 30, 2012 totaled approximately $90,000, all of which is current based on the scheduled redemption allowances as provided for in the underlying agreements. $75,000 of the total is payable in trade dollars.

 NOTE 4 – EQUITY

Common Stock Guarantee Repurchase

In the first and second quarters of 2012, IMS repurchased 10,000 shares of common stock at $3.00 per share, thereby releasing a total of $30,000 of common stock guarantee.

In the first quarter of 2012, IMS repurchased 66,333 shares of common stock at $4.50 per share, thereby releasing $298,500 of common stock guarantee. This constituted the final payments for this particular guarantee. Satisfaction of this repayment obligation also completed the Company’s use of the restricted cash account.
 
Share Buyback Program
 
In accordance with a stock buyback plan originally approved by the board of directors in 2005 and updated several times between 2009 and 2011, the Company made the following purchases in 2012:
 
First quarter:
72,614 shares at a cost of $218,381 in open market transactions
143,129 shares at a cost of $314,884 in a private transaction from an unrelated party
60,000 shares at a cost of $132,000 in a private transaction from a director of the Company
 
 
9

 
 
Second quarter:
107,940 shares at a cost of $174,685 in open market transactions
200,000 shares at a cost of $360,000 in a private transaction from an unrelated party
133,335 shares at a cost of $160,000 in private transactions from 4 retiring members of the board of directors of the Company

Stock Issued for Services

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

Stock Options

The Company adopted an incentive stock option plan under which certain officers, key employees, or prospective employees may purchase shares of the Company's stock at an established exercise price, which shall not be less than the fair market value at the time the option is granted. Final exercise date is any time prior to the five-year anniversary of the first exercise date.

There are no options outstanding at June 30, 2012.

Stock Warrants

No warrants were issued in the current period. 

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

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, 2012 relates to the difference in timing of deduction for certain expenses, primarily bad debts, amortization of acquired membership lists, and depreciation of property and equipment.
 
NOTE 6 – CONTINGENT LIABILITIES

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

NOTE 7 – SUBSEQUENT EVENTS

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

In July and August, 2012, the Company retired 624,385 shares of treasury stock, acquired at a cost of $1,735,083. 
 
 
10

 

INTERNATIONAL MONETARY SYSTEMS, LTD.

ITEM 2 -
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

In addition to current and historical information, this Quarterly Report on Form 10-Q contains forward-looking statements.  These statements relate to our future operations, prospects, potential products, services, developments, business strategies or our future financial performance.  These statements can generally be identified by the use of terms such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “future,” “intend,” “may,” “plan,” “potential,” “predict,” “seek,” “should,” “target,” “will” or the negative of these terms or other similar expressions.  Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties.  Actual events or results may differ materially.  We undertake no obligation to update or revise publicly any forward-looking statement after the date of this report, whether as a result of new information, future events or otherwise.
 
RESULTS OF OPERATIONS

HIGHLIGHTS

Operations

Revenue increased 5.5% in the first two quarters of 2012 compared to the same period in 2011.

Income from operations increased to $213,273 in the first half of 2012 compared to an operating loss of $(39,925) in the first half of 2011.

The Company has completed the sale of two franchise territories during the year. They are not expected to have a material affect on the Company’s results of operations for the next twelve months.

Return to Shareholders

During the six months ended June 30, 2012, 793,351 shares of the Company’s stock have been repurchased under the Company’s stock buyback plan and stock buyback guarantees.  
 
CURRENT QUARTER

During the quarter ended June 30, 2012 International Monetary Systems (“IMS” or “the Company”) generated revenues of $3,390,078, an increase of $56,939 or 1.7%, compared to the second quarter of 2011.

Operating expenses in the quarter were $3,188,978 an increase of $ 38,251 or 1.2% compared to the second quarter of 2011. This increase is primarily due to increased employee costs, including staff costs in offices acquired in 2011, higher variable compensation tied to higher revenue, and expansion of the Company’s tele-selling staff.

The Company generated operating income of $201,100 for the second quarter, compared to $182,412 in 2011.  After adjusting for interest and income taxes, the net income for the quarter was $98,647 compared to net income of $77,196 in the second quarter of 2012.  Interest expense has increased as the Company services the increased debt load taken on strategically to fund the stock buyback program expanded in 2011.
 
 
11

 
 
EBITDA for the three months ended June 30, 2012 and 2011 were as follows:
 
Adjustments to Reconcile GAAP Net Income to EBITDA
 
   
2012
   
2011
 
Net (loss)
 
$
98,647
   
$
77,196
 
Interest expense
   
84,040
     
52,505
 
Income tax expense (benefit)
   
24,179
     
52,734
 
Depreciation and amortization
   
390,200
     
409,905
 
 EBITDA
 
$
597,066
   
$
592,340
 
 
YEAR TO DATE

During the six months ended June 30, 2012 International Monetary Systems (“IMS” or “the Company”) generated revenues of $6,656,857, an increase of $344,876 or 5.5%, compared to the first six months of 2011. This is the result of a 6% increase in transactions processed, attributable in part to our 2011 acquisitions.

Operating expenses in the quarter were $6,443,584 an increase of $91,678 or 1.4% compared to the second quarter of 2011. This increase is primarily due to increased employee costs, including staff costs in offices acquired in 2011, higher variable compensation tied to higher revenue, and expansion of the Company’s tele-selling staff.

The Company generated operating income of $213,273 year to date, compared to an operating loss of $(39,925) in 2011.  After adjusting for interest and income taxes, the net income for the first six months of 2012 was $53,772 compared to a loss of $(107,359) for the same period in 2011. Interest expense has increased as the Company services the increased debt load taken on strategically to fund the stock buyback program expanded in 2011.
 
EBITDA for the six months ended June 30, 2012 and 2011 were as follows:
 
Adjustments to Reconcile GAAP Net Income to EBITDA
 
   
2012
   
2011
 
Net income (loss)
 
$
53,772
   
$
(107,359
)
Interest expense
   
164,742
     
97,623
 
Income tax expense (benefit)
   
1,105
     
(30,047
)
Depreciation and amortization
   
778,878
     
818,714
 
 EBITDA
 
$
998,497
   
$
778,931
 
 
LIQUIDITY, SOURCES OF CAPITAL AND LINES OF CREDIT
 
On June 30, 2012, there was a working capital deficit of $242,735, which is common at this juncture in the Company’s fiscal year.  However, it is expected that most, if not all, of $200,000 of notes maturing in 2012, which contain a balloon payment at maturity, can be successfully renewed and/or refinanced under favorable terms, which may allow for a systematic, monthly repayment.

We believe that current cash needs can be met with the current cash balance and from working capital generated over the next 12 months. Additionally, the Company has letters of credit with various financial institutions with unused borrowing capacity totaling approximately $500,000, which may be drawn as needed.

 
12

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

Trade revenue is similarly generated through initial membership fees, monthly maintenance fees, transaction fees and event fees. Occasionally the Company will accept a favorable trade ratio in lieu of a cash fee. The Company uses earned trade dollars to purchase various goods and services required in its operations. All barter transactions are reported at the estimated fair value of the products or services received. Revenues are recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable, and collectability is reasonably assured.

Transaction fees are recognized upon receipt of transactional information accumulated by our systems or reported by our clients. Membership fees, monthly maintenance fees, finance charges, and other fees are billed monthly to members' accounts, and are recognized in the month the revenue is earned.

RECEIVABLES AND ALLOWANCE FOR DOUBTFUL ACCOUNTS

Accounts receivable are stated at face value, net of the allowance for bad debts. Finance charges on receivables are calculated using the simple interest method on the amount outstanding.

The allowance for bad debts is maintained at a level that is management's best estimate of probable bad debts incurred as of the balance sheet date. Management's determination of the adequacy of the allowance is based on an evaluation of the accounts receivable, past collection experience, current economic conditions, volume, growth and composition of the accounts receivable, and other relevant factors. Actual results may differ from these estimates. The allowance is increased by provisions for bad debts charged against income and decreased by accounts written off as uncollectable.

GOODWILL AND MEMBERSHIP LISTS

Goodwill and membership lists are stated at cost and arise when IMS acquires another company or the assets of another trade exchange. Membership lists are amortized over the estimated life of ten years.

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

INCOME TAXES

The Company accounts for income taxes in accordance with FASB ASC 740. Under ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.  Under ASC 740, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
 
 
13

 
 
RECENT ACCOUNTING PRONOUNCEMENTS

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

OFF BALANCE SHEET ARRANGEMENTS

We do not have any off balance sheet arrangements or other relationships with unconsolidated entities.
 
ITEM 3      QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
Not required by Smaller Reporting Companies.
 
ITEM 4      CONTROLS AND PROCEDURES

Members of our management, including John E Strabley, our Chief Executive Officer, and David A. Powell, our Chief Financial Officer, have evaluated the effectiveness of our disclosure controls and procedures, as of June 30, 2012, the end of the period covered by this report. Based upon that evaluation, Mr. Strabley and Mr. Powell concluded that our disclosure controls and procedures are effective.
 
INTERNAL CONTROL OVER FINANCIAL REPORTING

The management of International Monetary Systems, Ltd. (the “Company”) is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Management conducted an evaluation of the effectiveness of the internal controls over financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of the Company’s internal control over financial reporting as of June 30, 2012. Based on management’s assessment and those criteria, management believes that the internal controls over financial reporting, including disclosure controls and procedures, as of June 30, 2012, were effective.

Changes in Internal Controls
 
In our Annual Report filed on March 9, 2012, we reported that management believed that the internal control over financial reporting as of December 31, 2011, was effective with regards to controls over financial reporting.
  
There were no changes (including corrective actions with regard to significant deficiencies or material weaknesses) in our internal controls over financial reporting that occurred during the current quarter that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

 
14

 
 
PART II OTHER INFORMATION
 
Item 1        Legal Proceedings
 
In the ordinary course of business, the Company is occasionally involved in litigation, both as plaintiff and defendant. Management either litigates or settles claims after evaluating the merits of the actions and weighing the costs of settling vs. litigating. There are currently no open litigation matters which the Company feels will result in a material loss.

Item 1A     Risk Factors

Not applicable for Smaller Reporting Companies.
 
Item 2        Unregistered Sales of Equity Securities and Use of Proceeds

There were no unregistered sales of equity securities.
 
Repurchases were as follows:
 
             
Maximum
             
Number of Shares
   
Total Number
   
Average
 
That May Yet
   
of Shares
   
Price Paid
 
be Purchased
Period
 
Purchased
   
Per Share
 
Under the Plans
Purchase related stock buyback guarantees
         
    April 1 to April 30, 2012
   
1,667
   
$
3.00
   
    May 1 to May 31, 2012
   
1,667
   
$
3.00
   
    June 1 to June 30 ,2012
   
1,667
   
$
3.00
 
30,000
                   
Board Authorized repurchase plan
                 
    April 1 to April 30, 2012
   
33,600
   
$
2.60
   
    May 1 to May 31, 2012
   
217,989
   
$
1.85
   
    June 1 to June 30 ,2012
   
189,686
   
$
1.07
 
No maximum
 
Item 3         Defaults Upon Senior Securities

None
 
Item 4        Specialized Matters

No applicable items for disclosure.

Item 5        Other Information

None
  
 
15

 


Item 6        Exhibits and Reports on Form 8-K
 
 (a)   Exhibits
 
31.1 Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) of the Exchange Act.

31.2 Certification of Principal Financial and Accounting Officer Pursuant to Rule 13a-14(a) of the Exchange Act.

32.1 Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2 Certification of Principal Financial and Accounting Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
101.INS
 
XBRL Instance Document***
     
101.SCH
 
XBRL Taxonomy Extension Schema Document ***
     
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document ***
     
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document ***
     
101.LAB
 
XBRL Taxonomy Extension Label Linkbase Document ***
     
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document ***
 
 ***Furnished herewith. Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of any registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, and otherwise are not subject to liability under those sections.
 
 (b)   Reports on Form 8-K
 
 
 
16

 
 
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 8, 2012
 
 
/s/ David A. Powell    
 
David A. Powell, Chief Financial Officer
 
(Principal Accounting and Financial Officer)
 
   
August 8, 2012
 
 
 
17

PINX:ITNM Quarterly Report 10-Q Filling

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PINX:ITNM Quarterly Report 10-Q Filing - 6/30/2012
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