ITEM 1 - DESCRIPTION OF BUSINESS
Introduction
International Monetary Systems, Ltd. was incorporated in 1989 under the laws of the State of Wisconsin. The Company owns, manages and operates trade exchanges and other related businesses.
Trade exchanges, or barter networks, are financial service firms which permit companies and individuals to exchange goods and services utilizing an electronic currency known as "trade dollars", the use of which is described below. Currently, IMS services more than 16,000 barter customers. We have continually expanded our customer base, principally through enrolling new members in our existing markets, acquiring other barter exchanges, and by encouraging our members to increase their trade volume.
Our corporate headquarters mailing address is 16901 West Glendale Drive, New Berlin, Wisconsin 53151, and our telephone numbers are (800) 559-8515 and (262) 780-3640; the telephone number for our primary facsimile line is (262) 780-3655. Our Internet addresses are www.internationalmonetary.com and www.imsbarter.com.
The Modern Barter Industry
The modern barter industry took shape in its current form in 1969 with the creation of the first retail barter exchange in North America. Currently there are an estimated 250 barter system firms - including several with multiple licensees - operating in the United States and Canada. These exchanges provide services that involve an estimated 200,000 member companies.
Retail trade exchanges range in size from those operated by a single person from a small office to large firms operating out of multiple offices located over a wide area. The 35 largest commercial exchange firms handle approximately 50% of the estimated $700 million in transactions that flow through the barter system annually. Most trade exchanges are private companies that make extensive use of computers to track their members, match transactions, and provide necessary accounting.
The National Association of Trade Exchanges and the International Reciprocal Trade Association are the two professional associations most active in the industry.
How Barter Works
In a typical barter transaction, a member offers to sell products or services in return for the exchange's trade dollars, typically referenced as "T$", which are paid to the member by the purchaser in the transaction. For example, T$100 refers to $100 worth of trade dollars that are used to acquire a product or service priced at $100 in U.S. currency. If the purchase price is greater than the amount of earned trade dollars in the buyer's account, the exchange may grant a trade dollar line of credit to the buyer. Periodically, each member has to account for any deficit in its trade account just as it would with a conventional loan or other credit facility.
As compensation for providing its services, the trade exchange generally charges a one-time membership fee, monthly maintenance fees and/or a percentage of the price of each transaction (usually 10% to 15%). These fees are typically paid by the member to the trade exchange in cash and trade dollars.
Barter transactions which represent sales revenue are taxable as ordinary income to the recipient of the trade dollars in the conventional dollar amount of the trade dollars received, and conversely are deductible as ordinary expense by a purchaser in the conventional dollar amount of the trade dollars paid. Members' barter sales are reportable by the trade exchange to the Internal Revenue Service on Form 1099-B.
Advantages and Disadvantages
Barter offers a number of advantages to those who utilize it. A principle advantage to trade exchange members is referred to as "barter leverage". This refers to the fact that the typical barter exchange member is purchasing a product or service in exchange for its own product or service. Consequently, each purchase results in a potential sale. And since the actual cash cost of producing the product or service is typically less than its retail sale price, a person utilizing barter is actually purchasing for a real cash cost that is only a fraction of the price of the product or service purchased. In effect, the barter exchange member buys at wholesale, but sells its own goods or services at retail. Frequently, the member will charge a higher price for barter than for cash to cover the charges due to the trade exchange. However, the benefit to the person bartering for the product or service is still significant as a result of the purchase being accomplished through barter.
For example, a trade exchange member may incur a $1,000 cash cost to produce a product or to purchase it at wholesale. If the member then barters this product for a good or service priced at $1,500, representing the retail price at which it is normally sold, the member has effectively bought the good or service for a cost of only $1,000 in cash. Barter leverage is particularly effective in the case of products that have become hard to sell. Rather than write down their value, the producer may be able to secure full value by bartering them through the trade exchange. Barter leverage works most effectively when trading for something that is perishable, such as hotel rooms or airline tickets. Once the hotel room lies vacant or the airline seat is unfilled for a flight, its value is lost forever. In those cases, exchange of the room or seat in barter offers an effective way to gain value from something that would otherwise have been rendered worthless. Due to barter leverage, the value of barter to exchange members will more than likely offset the fees charged by the barter exchange.
Barter also provides an effective means by which a member may enter new markets, gain trial usage by potential customers, or increase market share. The member may well find that he can reach a customer who would not otherwise have tried his product or service if the full price had to be paid in cash, but who will try his goods or services, sometimes in large amounts or on extended terms, when the price is being paid in goods or services of the purchaser in the form of trade dollars. Because of the need to clear trade dollars over time, barter exchanges become affinity marketing networks, in which members seek out opportunities to do business with one another.
The principal disadvantage of barter is that, in comparison to the general cash-based economy, a more limited supply of products and services is available.
International Monetary Systems, Ltd. (ITNM) is a holding company that currently has three operating subsidiaries: Continental Trade Exchange, Ltd., doing business as International Monetary Systems (IMS), National Trade Association, Inc. (NTA), and INLM CN Inc. (Canada). All are part of the IMS barter system which operates in the United States and Canada.
The IMS Barter Network
As a leader in the barter industry, IMS has created a network of more than 15,000 barter clients who trade their goods and services with each other. Through their participation in our barter program, these companies and individuals are provided with an effective revenue management tool which enables them to identify and capture incremental income, move surplus inventories and profitably capitalize on their excess capacity. IMS functions as a third-party record keeper - a status granted by the Internal Revenue Service - and also manages the barter system.
To provide clients with a flexible and effective means of trading, IMS has created an alternative monetary system with its own unique currency. Upon enrolling in the program, each member is assigned a barter account (much like a traditional bank account) through which it receives IMS trade dollars - the medium of exchange for the barter system. Under the T.E.F.R.A. act of 1982, we are required to report all barter sales to the IRS. For accounting and tax purposes, the IRS has ruled that trade dollars are treated the same as cash. Accordingly, the Company may in any period report significant revenue, profits and increases in net assets from transactions denominated in IMS trade dollars or other non-cash consideration.
The IMS barter system began operations in July of 1985 and has had a record of consistent and steady growth, both organic and through acquisitions of other barter networks. During the past decade, we have acquired twenty two independent trade exchange operations. We believe that the barter industry, much like the banking industry, is ready for a period of substantial consolidation and, therefore, we intend to continue acquiring strategically located trade exchanges that will enable us to achieve and maintain a dominant market position. A dominant position within a market gives us better visibility within that market, allows us to offer a wider range of customer products and services for the benefit of our clients, and ensures that we will achieve greater economies of scale.
Other Related Businesses
In addition to expanding our IMS barter operations, we will consider acquiring other related businesses that synergize with and enhance the barter network.
ITEM 1A
ITEM 1A - RISK FACTORS
Not applicable to smaller reporting companies.
ITEM 2
ITEM 2 - DESCRIPTION OF PROPERTY
Our Company's executive offices and principal operating facilities occupy 11,000 square feet of leased space located at 16901 West Glendale Drive, New Berlin, Wisconsin, under a lease from Glendale Investments, LLC, a Wisconsin limited liability company owned by three executive officers and directors of ITNM. Rent and other terms of our lease, which expires September 30, 2013, are believed by us to be comparable to those available for similar space from unaffiliated, third-party lessors in the same area.
The Company currently leases 4,900 square feet of office space located in Rochester, New York, from a member of the board of directors of the Company. The triple net lease commenced in February 2007, and May, 2011 was extended to January 31, 2015. The Company believes that the rental payments required and other terms of the lease are comparable to those available for similar space from unaffiliated, third-party lessors in the area.
As part of the acquisition of a trade exchange in St. Louis, Mo, the company agreed to lease the offices of that exchange from the former owner, who is now an employee of IMS. In accordance with this agreement, the Company currently leases approximately 5,000 square feet of office space in Maryland Heights, MO. The triple net lease began in October, 2011 and ends in September, 2014. The Company believes that the rental payments required and other terms of the lease are comparable to those available for similar space from unaffiliated, third-party lessors in the area.
The Company also leases the following office spaces:
The leases on all properties aside from the New Berlin, Wisconsin facility, the office in Rochester, NY, and the offices in Maryland Heights, MO, are from unaffiliated parties and range from a month-to-month basis to leases expiring in 2016. Upon the expiration of our current leases, we expect that, in each case, we will be able to obtain either a renewal lease, if desired, or a new lease at an equivalent or better location, at comparable expense.
ITEM 3
ITEM 3 - 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 legal claims pending which we feel will result in material loss to the Company.
ITEM 4
ITEM 4 - SPECIALIZED MATTERS
No applicable items for disclosure.
PART II
ITEM 5
ITEM 5 - MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There were no sales of unregistered securities during 2011.
Trading information for the last two fiscal years:
Repurchases in the fourth quarter of 2011 were as follows:
As of December 31, 2011, the approximate number of shareholders of record was 550.
The Company has declared no dividends.
ITEM 6
ITEM 6 - SELECTED FINANCIAL DATA
Not applicable to smaller reporting companies.
ITEM 7
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In addition to current and historical information, this Annual Report on Form 10-K 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.
The following commentary should be read in conjunction with the financial statements and related notes contained elsewhere in this report.
Following are some of the highlights of 2011:
Return to Shareholders
●
During the year 1,789,437 shares of the Company’s outstanding common stock were repurchased into treasury. This represents approximately 17% of the outstanding shares of the Company as of January 1, 2011. The average price per share of all repurchases was $1.14
●
The Company’s stock generally traded in a higher range in 2011 than in 2010.
Operations
●
In 2011, the Company produced income from operations of $515,675, compared to an operating loss of $333,620 last year.
●
International Monetary Systems, Ltd. had EBITDA (earnings before interest, taxes, depreciation and amortization) of $2,170,984 or approximately $.23 per share, compared to $1,297,547 or $.12 per share in 2010.
●
Cash flow from operations totaled approximately $1,519,000 or $.16 per share compared to $960,630 or $.09 per share in 2010.
●
Several regional offices were relocated, resulting in savings in occupancy expenses of approximately $250,000
●
Trade exchanges in two additional markets, St. Louis, MO and Peterborough, Ontario, were acquired in 2011, adding approximately 800 new members to the IMS network.
●
Throughout the year, the Company continued to significantly improve its new TNT barter software, which allows for enhanced sales, operating and reporting efficiencies.
RESULTS OF OPERATIONS
To evaluate operations, management monitors, among other measures, number of members, trade volume, revenue generated from said trade volume, EBIDTA, cash flow, and levels of significant operating expense categories. Key metrics to evaluate the health of the Company include cash position, ratio of current assets to current liabilities, debt levels, and equity trading activity.
Revenue
During the year ended December 31, 2011, IMS processed approximately $210 million in billable trade purchase and sales transactions, generating gross revenue of $13,481,858, compared to $14,219,874 in 2010. The 5.2 % decrease is primarily due to approximately $600,000 of non-recurring trade dollar sales in 2010. The ratio of cash to trade revenue strengthened in 2011 vs. 2010, rising to 85% from 81%.
Revenue is somewhat seasonal with the first quarter typically accounting for approximately only 22% of the Company’s annual revenue, compared to 24 to 26% in the second and third quarters, and 26 to 29 % in the fourth quarter of the year.
Cash Flows from Operations
Net cash flows from operations totaled $ 1,518,776 in 2011 compared to $960,630 in 2010.
EBITDA (earnings before interest, taxes, depreciation and amortization)
Operating Expenses
Total other operating expenses decreased to $12,966,183 from $14,553,494 in 2010, an 11% decrease. The main elements of the cost savings were a $250,000 decrease in occupancy costs due to relocation of several offices, approximately $600,000 of professional fees incurred associated with settling litigation, tax audits and abandonment of a secondary stock offering, $200,000 of reduced investor relations consulting and $220,000 of legal settlement expense. We continue to see savings from the continuation of a cost containment and realignment exercise where redundant costs in acquired markets were eliminated and the Company’s outside sales force was restructured and reduced.
Employee costs decreased 2.4% from $7,949,398 in 2010 to $7,758,710 in 2011, primarily due to payment of a payroll tax audit settlement in 2010.
Occupancy expenses, included in selling, general and administrative costs, decreased by approximately $250,000 due to consolidation of some offices and relocation to smaller offices for others.
In 2010, other general and administrative expenses decreased due primarily to the non-recurring professional fees and legal settlement expenses described above.
FINANCIAL CONDITION
Liquidity, Commitments for Capital Resources, and Sources of Funds
At December 31, 2011, the Company had net working capital of $182,889 compared to $149,378 at December 31, 2010.
In 2011, senior management and the board of directors felt that the Company’s stock was undervalued and a stock buyback program was a good way to enhance shareholder value. Additional debt was issued to fund the majority of the buyback program. Shares were repurchased under contractual obligations, in direct transactions with shareholders, and in open market purchases.
The Company’s financial position continues to be adequate to meet continuing liquidity needs and in fact, there are a number of enhancements anticipated in 2012 as follows:
·
In 2011, IMS produced positive cash flows from operations of approximately $1,518,000. Our principal source of liquidity from operations has been cash earnings from membership charges, monthly service fees and transaction processing charges. The recently acquired St. Louis market is expected to add to cash flows from operations over the course of a full year.
·
In 2012, the final payments will be made on stock buyback guarantees arising from the purchase of several markets. This is expected to improve cash flow by approximately $400,000 in 2012 relative to 2011.
·
In December, 2011, the final payment was made on a legal settlement. Conclusion of these payments is expected to improve cash flow by $240,000 in 2012 relative to 2011.
·
It is expected that most, if not all, 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 lines of credit with various financial institutions with unused borrowing capacity totaling approximately $400,000 which may be drawn as needed.
FUTURE PLANS
The Company is not currently obligated to purchase any trade exchange or other business. However, we will continue to seek opportunities to acquire additional quality exchanges in the future.
In mid-2011, the Company began offering IMS franchises for sale. While no sale of a franchise was completed in 2011, two sales are currently being negotiated.
CRITICAL ACCOUNTING POLICIES
Our consolidated 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. The significant accounting policies which management believes are the most critical to aid in fully understanding and evaluating our reported financial results include revenue recognition, consideration of impairment of intangible assets and income taxes, as more fully described in Note 1 to the financial statements.
OFF BALANCE SHEET ARRANGEMENTS
We do not have any off balance sheet arrangements or other relationships with unconsolidated entities.
ITEM 7A
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable to small reporting companies.
ITEM 8
ITEM 8 - FINANCIAL STATEMENTS
Our consolidated financial statements and related notes, and the report of LBB &Associates Ltd., LLP, independent auditors, with respect thereto, as described in the Index to Financial Statements, appear elsewhere in this report at pages through.
ITEM 9
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
ITEM 9A(T)
ITEM 9A(T) - CONTROLS AND PROCEDURES
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 December 31, 2011. Based on management’s assessment and those criteria, management believes that the internal controls relative to financial reporting as of December 31, 2011, were effective with regards to IT access controls over the accounting applications.
Management’s internal control report was not subject to attestation by the Corporation’s independent registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit small reporting companies to provide only management’s report.
Changes in Internal Controls
There were no changes 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
ITEM 9B
ITEM 9B - OTHER INFORMATION
No items noted.
PART III
ITEM 10
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS
Executive Officers and Directors
Donald F. Mardak, 75, has been Chairman of ITNM and a director, since its’ inception in 1988. In July of 2011, he relinquished the titles of Chief Executive Officer (Principal Executive Officer) and President that he had held since our inception in 1988. From 1970 to 1974, Mr. Mardak was a partner in Learning Unlimited, a division of Hal Leonard Publishing Corp. In 1974, he founded Don Mardak Piano & Organ Centers, Ltd., a chain of retail piano and organ stores in the Greater Milwaukee area. In 1985, Mr. Mardak founded the Continental Trade Exchange barter network under the name "Continental Trading Company", a sole proprietorship. Continental Trading Company was incorporated in 1988 as Continental Trade Exchange, Ltd. and is now our primary operating subsidiary. Mr. Mardak is a two-term president of NATE, the National Association of Trade Exchanges (NATE)(1995-96 and 1999-2000) and served on the board of directors of the organization for seven years. NATE is one of the principal barter industry trade associations. He has also served on the board of directors of the International Reciprocal Trade Association (IRTA) and is a member of the Barter Hall of Fame.
John E. Strabley, 48, has been Chief Executive Officer and Principal Executive Officer since July 1, 2011. Prior to that, he was the Executive Vice President of ITNM since 1992 and a director since 1997. Mr. Strabley joined Continental Trade Exchange, Ltd. as a trade broker in 1991. In 1992, he was promoted to General Manager and, in August of that year, was appointed as Vice President of Continental Trade Exchange and ITNM. In 1995, Mr. Strabley passed the barter industry certification examination and was awarded with the industry's highest designation of CTB - Certified Trade Broker. In 1997, Mr. Strabley became a director of both Continental Trade Exchange, Ltd. and ITNM. He is currently a director of IRTA.
Dale L. Mardak, 51, has been President since July 1 2011. Prior to that he was Senior Vice President of ITNM since 1995, and a director since 1997. He joined Continental Trade Exchange, Ltd. in 1993 as a trade broker and was appointed trade director in 1995. In 1997, he was appointed Treasurer and a director of both Continental Trade Exchange, Ltd. and ITNM. In 1999, Mr. Mardak received the designation of CTB - Certified Trade Broker. He has also served on the board of directors of NATE.
David A. Powell, 53, was appointed as the Company’s interim Chief Financial Officer on April 1, 2010, with the interim title removed in May, 2010. He is a Certified Public Accountant with 10+ years experience in public accounting and more than 20 years of private industry experience, holding a variety of senior financial positions with a number of companies. Prior to joining IMS, he has served as finance and operations manager for the insurance subsidiaries of US Bancorp for 12 years, and most recently spent several years as corporate controller for a number of privately held companies. Since joining IMS in July, 2009, he has been involved in tax compliance, risk management, and accounting and financial reporting.
Patricia A. Katisch, 66, is the owner of Katisch & Associates, a marketing consulting and public relations firm she has operated since 2002. From 1998 - 2001, Ms. Katisch was an Associate Dean in the College of Professional Studies at Marquette University. Previous to that, she founded and published the Women's Yellow Pages of Greater Milwaukee and was the producer of the Wisconsin World of Women Show.
Wayne Emmer, 57, is the President of Illinois Cement Co., a position he has held since August of 1998. Wayne is also a former member of the Parkview Christian Academy School Board.
Gerald Van Dyn Hoven, 55, has been the president of the Van Dyn Hoven Automotive Group for more than 20 years. Jerry is a director of American National Bank - Fox Cities, and is a member of the Board of Trustees of Equitable Reserve Association.
Thomas Delacy, 47, the president and CEO of Independent Inspections, Ltd., a company that provides municipal inspection services for several cities. Tom has held this position for more than 15 years.
Wayne Dalin, 67, has been a Certified Public Accountant for more than 30 years and is a retired principal in Dalin, Lindseth & Company.
Stephen Webster, 67, was the former owner of Alliance Barter, of Rochester New York for more than 25 years. He is a past president of the National Association of Trade Exchanges (NATE) and the International Reciprocal Trade Association (IRTA). Steve is also a member of the Barter Hall of Fame. He is currently a real estate developer and private investor.
Additional information in response to this Item 10 can be found in the Company’s Proxy Statement under the headings “Directors, Executive Officers, Promoters, and Control Persons, Financial Disclosure” and “Security Ownership of Certain Beneficial Owners and Management”. That information is incorporated into this report by reference.
Code of Ethics
The Board of Directors has adopted a Code of Business Conduct and Ethics that applies to all employees, including our Chief Executive Officer, (being our principal executive officer) and Chief Financial Officer (being our principal accounting officer).
The Company’s Code of Ethics and Business Conduct can be found at www.imsbarter.com by clicking on “Investor Relations” and then clicking on “Code of Conduct and Ethics” under the “Management Corporate Governance” heading, which is located at the top of the page. The Company intends to satisfy the disclosure requirements under Item 5.05 of Form 8-K regarding amendments to, or waivers from, certain provisions of the Code of Ethics and Business Conduct that apply to its principal executive officer, principal financial officer and principal accounting officer by posting such information on its website, at the address and location specified above.
In addition, we will provide a copy of the Code of Business Conduct and Ethics to any person without charge, upon request. Requests can be sent to 16901 West Glendale Drive, New Berlin, WI 53151.
ITEM 11
ITEM 11 - EXECUTIVE COMPENSATION
Information in response to this Item 11 can be found in the Company’s Proxy Statement under the headings “Executive Compensation” and “Director Compensation.” That information is incorporated into this report by reference.
ITEM 12
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information in response to this Item 12 can be found in the Company’s Proxy Statement under the heading “Security Ownership of Certain Beneficial Owners and Management” That information is incorporated into this report by reference.
ITEM 13
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information in response to this Item 13 can be found in the Company’s Proxy Statement under the headings “Director Independence” and “Certain Relationships and Related Transactions.” That information is incorporated into this report by reference
ITEM 14
ITEM 14 - PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information in response to this Item 14 can be found in the Company’s Proxy Statement under the headings “Fees to Independent Auditor” and “Administration of Engagement of Independent Auditor.” That information is incorporated into this report by reference.
ITEM 15
ITEM 15 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES
The Company is filing the following exhibits herewith:
Consolidated financial statements as of December 31, 2011 and 2010 are contained herein.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: March 9, 2012
By:
/s/ John E Strabley
John E Strabley, Chief Executive Officer
(Principal Executive Officer)
Dated: March 9, 2012
By:
/s/ David A. Powell
David A. Powell, Chief Financial Officer
(Principal Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURE
TITLE
DATE
/s/ John E Strabley
Principal Executive Officer,
March 9, 2012
CEO and Director
John E. Strabley
/s/ David A Powell
Principal Financial Officer,
March 9, 2012
Principal Accounting Officer
David A Powell
/s/ Dale L. Mardak
President
March 9, 2012
and Director
Dale L. Mardak
/s/ Donald F. Mardak
Chairman of the Board
March 9, 2012
and Director
Donald F. Mardak
/s/ Thomas E. Delacy
Director
March 9, 2012
Thomas E. Delacy
/s/ Wayne R. Dalin
Director and Chairman of the
March 9, 2012
Audit Committee
Wayne R. Dalin
INTERNATIONAL MONETARY SYSTEMS, LTD.
CONSOLIDATED FINANCIAL STATEMENTS
and
REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
For the Years Ended December 31, 2011 and 2010
INTERNATIONAL MONETARY SYSTEMS, LTD.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors
International Monetary Systems, Ltd.
New Berlin, WI
We have audited the accompanying consolidated balance sheets of International Monetary Systems, Ltd. as of December 31, 2011and 2010, and the related consolidated statements of operations and comprehensive income (loss), changes in stockholders’ equity and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company was not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that were appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of International Monetary Systems, Ltd. at December 31, 2011 and 2010, and the results of its operations and comprehensive income (loss) and cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
/s/ LBB & Associates, Ltd. LLP
LBB & Associates Ltd., LLP
Houston, Texas
March 1, 2012
INTERNATIONAL MONETARY SYSTEMS, LTD.
CONSOLIDATED BALANCE SHEETS
December 31, 2011 and 2010
See accompanying notes to consolidated financial statements.
INTERNATIONAL MONETARY SYSTEMS, LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
Years Ended December 31, 2011 and 2010
See accompanying notes to consolidated financial statements.
INTERNATIONAL MONETARY SYSTEMS, LTD.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
Years Ended December 31, 2011 and 2010
See accompanying notes to consolidated financial statements.
INTERNATIONAL MONETARY SYSTEMS, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2011 and 2010
See accompanying notes to consolidated financial statements.
INTERNATIONAL MONETARY SYSTEMS, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2011 and 2010
Continued
See accompanying notes to consolidated financial statements.
INTERNATIONAL MONETARY SYSTEMS, LTD.
Notes to Consolidated Financial Statements
Years Ended December 31, 2011 and 2010
NOTE 1 -
INFORMATION ABOUT THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
International Monetary Systems, Ltd. (IMS - the Company) is a Wisconsin holding company located in New Berlin, Wisconsin, with three wholly-owned operating subsidiaries: Continental Trade Exchange, Ltd (CTE) and National Trade Association, both of which operate a barter (trade) exchange in the United States, and INLM CN Inc., which operates a barter (trade) exchange in Canada.
Operations of Barter Exchanges
A barter (trade) exchange is a business network, a membership organization comprised of businesses that buy and sell among the network without using cash. It is a small, private economy with a unique currency called a barter dollar or trade dollar. It is a third-party record keeper which provides an alternative payment system.
Member businesses do not actually engage in direct barter. Rather, they sell products or services to other members, accepting payment in trade dollars which they then use to buy the products or services of other members of the network. Transactions are recorded through manual and electronic data transmission using a 24-hour telephone and Internet authorization system. Some members consign their products to the barter exchange to hold as saleable inventory. Others sell gift certificates or tickets that are redeemable for their goods or services.
The barter exchange maintains the accounting records for all sales and purchases, provides monthly statements, files annual tax forms 1099-B, enrolls businesses to the network, proactively markets member products and services, maintains a member web site, facilitates transactions, and provides personal customer support services to members and clients.
Cash Equivalents
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 held for investment purposes.
Restricted Cash
As a condition to issuing the guarantee on the purchase of certain exchanges, IMS agreed to deposit a monthly amount into an escrow account for the repurchase of common stock under guaranteed transactions. As of December 31, 2011 and 2010, the Company has made all required deposits into the escrow account.
Fair Value of Financial Instruments
The carrying amounts of the Company’s cash and cash equivalents, accounts receivable, restricted cash, prepaid expense and other assets, accounts payable, accrued liabilities, notes payable and deferred compensation approximate their fair value due as of December 31, 2011 because of their short-term natures.
Revenue Sources
The Company and its subsidiaries 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 trade dollars, through monthly maintenance fees, finance charges on delinquent accounts receivable, event fees, and inventory sales.
Trade revenue is similarly generated through initial membership fees, monthly maintenance fees, transaction fees, event fees, and inventory sales. 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 are included in gross revenue and the carrying value of the trade dollars sold up to the value of the cash received is netted against the sales proceeds. Any excess of carrying value over cash proceeds is included in operating expenses.
Principles of Consolidation
The consolidated financial statements for 2011 and 2010 include the accounts of the Company and its wholly owned subsidiaries Continental Trade Exchange, Ltd., National Trade Association, Inc., and INLM CN, Inc. All inter-company 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 may differ from those estimates.
Reclassifications
Certain amounts in the prior period financial statements have been reclassified to conform to the current period presentation.
Marketable Securities
Marketable equity securities are classified into three categories: (1) held-to-maturity securities reported at amortized cost, (2) trading securities reported at fair value with unrealized gains and losses included in earnings, and (3) available-for-sale securities reported at fair value with unrealized gains and losses reported in other comprehensive income (loss). Costs are determined by the specific identification method.
Fair Value Measurements
ASC 820 defines fair value, establishes a framework for measuring fair value and enhances disclosures about fair value measurements.
ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:
Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities that are not active; and model-driven valuations whose inputs are observable or whose significant value drivers are observable. Valuations may be obtained from, or corroborated by, third-party pricing services.
Level 3: Unobservable inputs to measure fair value of assets and liabilities for which there is little, if any market activity at the measurement date, using reasonable inputs and assumptions based upon the best information at the time, to the extent that inputs are available without undue cost and effort.
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. The allowance for bad debts was $355,344 and $394,128 as of December 31, 2011 and 2010, respectively.
Earned Trade Account
As part of the operations of the subsidiaries the Company earns trade dollars, which are used to purchase goods and services required in operations. This account is increased principally for service, membership and transaction fees, and is decreased by the Company’s purchase of goods and services. 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 the balance. No impairment was recorded in 2011 or 2010.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation. Depreciation is computed using straight line methods over the estimated useful lives of five to thirty-nine years. When property or equipment is sold or retired, the cost and related accumulated depreciation are removed from the balance sheet and the resulting gain or loss is included in the income statement. The costs of repair and maintenance are included in expense as incurred.
Long-Lived Assets
Impairment losses are recorded on long-lived assets used in operations when indicators of impairment are present and undiscounted cash flows estimated to be generated by those assets are less than assets’ carrying amount.
Software Development Costs
Extensive software has been developed to manage and track trade activity and member account balances and calculate fees in the Exchange. Qualifying costs are accounted for in accordance with ASC 350. Accordingly, costs incurred in the planning and post-implementation stages are expensed as incurred, and costs related to development have been capitalized. Qualifying software development costs are included in property and equipment in the consolidated balance sheets and are amortized over their estimated useful life of 60 months.
Goodwill and Membership Lists
Goodwill and membership lists are stated at cost and arise when additional trade exchanges are purchased. Membership lists are amortized over the estimated life of ten years.
The Company has adopted FASB ASC 350, which requires that goodwill and intangible assets with indefinite lives be tested annually for impairment. No impairment losses were recorded in 2011 or 2010.
Assets Held for Investment
Assets held for investment consist of various works of art and a parcel of undeveloped land, all valued at the lower of cost or fair market value, and the cash surrender value of a life insurance policy being used to help fund the deferred compensation arrangement described in Note 7.
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.
Concentrations of Risk
Cash
Cash includes deposits at financial institutions with original maturities of three months or less. The Company at times has cash in banks in excess of FDIC insurance limits and places its temporary cash investments with high credit quality financial institutions. At December 31, 2011 and 2010, respectively, the Company had approximately $622,000 and $545,000 in cash balances at financial institutions which were in excess of the FDIC insured limits of $250,000.
Accounts Receivable
The Company grants credit to its customers, all of whom are members of Continental Trade Exchange, National Trade Association and INLM CN. Customers are located throughout 20 states and in Canada. The Company routinely assesses the financial strength of its customers and, therefore, believes that its accounts receivable credit risk exposure is limited.
Segment Reporting
The Company operates in one segment and, therefore, segment information is not presented.
Advertising
Advertising costs, which are principally included in selling expenses, are expensed as incurred. Advertising expense was $143,801 and $140,014 for the years ended December 31, 2011 and 2010, respectively.
Stock-Based Compensation
The Company measures and recognizes compensation expense for all share-based payment awards made to employees and directors based on estimated fair values, as required by FASB ASC 718. The Company recognized no compensation expense related to the stock-based plans. No options were granted during 2011 or 2010.
Common stock, stock options and common stock warrants issued to other than employees or directors are recorded on the basis of their fair value, as required by FASB ASC 505. In accordance with ASC 505, the stock options or common stock warrants are valued using the Black-Scholes option pricing model on the basis of the market price of the underlying common stock on the “valuation date,” which for options and warrants related to contracts that have substantial disincentives to non-performance is the date of the contract, and for all other contracts is the vesting date. Expense related to the options and warrants is recognized on a straight-line basis over the shorter of the period over which services are to be received or the vesting period. Where expense must be recognized prior to a valuation date, the expense is computed under the Black-Scholes option pricing model on the basis of the market price of the underlying common stock at the end of the period, and any subsequent changes in the market price of the underlying common stock up through the valuation date is reflected in the expense recorded in the subsequent period in which that change occurs.
Comprehensive Income
FASB ASC 220 establishes rules for reporting and displaying comprehensive income and its components. Comprehensive income is the sum of net loss as reported in the consolidated statements of operations and other comprehensive income transactions as reported in the consolidated statement of changes in stockholders' equity. Other comprehensive income transactions that currently apply to the Company result from unrealized gains or losses on equity investments and from changes in exchange rates used in translating the financial statements of its wholly owned subsidiary INLM CN, Inc. of Canada.
Foreign Currency Translation
The financial statements of the Company's foreign subsidiary have been translated into U.S. dollars in accordance with FASB ASC 830. All balance sheet accounts have been translated using the exchange rate in effect at the balance sheet date. Income statement amounts have been translated using an appropriately weighted average exchange rate for the year. The translation gains and losses of $7,951 and $10,014 resulting from the changes in exchange rates during 2011 and 2010, respectively, have been reported in accumulated other comprehensive income, except for gains and losses resulting from the translation of intercompany receivables and payables, which are included in earnings for the period.
Earnings (Loss) Per Share
Basic and diluted net gain or loss per common share is computed based upon the weighted average common shares outstanding as defined by FASB ASC 260. As of December 31, 2011 and 2010 there were 1,569,883 and 1,619,148 common share equivalents outstanding which consisted of:
These shares were not included in the computations of income or loss per share in 2010, because their effect was anti-dilutive.
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.
NOTE 2 -
MARKETABLE SECURITIES
The Company has classified certain of its investments as trading securities which are reported at fair value, defined as the last closing price for the listed securities. The unrealized gains and losses which the Company recognizes from its trading securities are included in earnings. The Company also has investments classified as available-for-sale, which are also required to be reported at fair value, with unrealized gains and losses excluded from earnings and reported as a separate component of stockholders' equity (net of the effect of income taxes). Fair value is also defined as the last closing price for the listed security.
The amortized cost of equity securities as shown in the accompanying balance sheets and their estimated market value at December 31, 2011 and 2010 are as follows:
The changes in unrealized gains (losses) from available-for-sale securities included as a component of equity for the years ended December 31, 2011 and 2010 were as follows:
The majority of the investment in marketable equity securities has been designated to secure the liability for deferred compensation (Note 7).
NOTE 3 -
ACQUISITIONS
On March 1, 2011, the Canadian subsidiary of the Company purchased selected assets of Nationwide Barter of Peterborough Ontario for $61,325. This purchase was deemed by management to be a business combination under ASC 805. IMS paid $20,440 in cash, $20,442 in trade dollars and issued a note for $20,443. Of the total purchase price, $33,218 was allocated to intangibles ($12,975 to the membership list and $20,243 to goodwill).
On September 30, 2011, the Company purchased selected assets of NCE, Inc. which operated a trade exchange in St. Louis, Missouri. This purchase was deemed by management to be a business combination under ASC 805. IMS paid $10,000 in cash and issued a note for $356,900, net of interest discount of $33,100. Assets acquired and values assigned, based on the estimated fair values of the assets, were: accounts receivable $56,467, earned trade dollars $39,464, furniture and equipment $7,500, membership list $163,669, non-compete agreement $48,000, and goodwill $51,800.
The future cash flows of the St. Louis exchange may negatively or positively impact the final purchase price. Management does not expect any adjustment to the purchase price based on this contingency.
NOTE 4 -
INTANGIBLE ASSETS
Intangible assets consist of membership lists, goodwill and a covenant not to compete, and for the years ended December 31, 2011 and 2010 are as follows:
Aggregate amortization expense was $ 1,333,792 and $1,327,047 for the years ended December 31, 2011 and 2010, respectively. Estimated future amortization expense is as follows:
NOTE 5 -
PROPERTY AND EQUIPMENT
Property and equipment consisted of the following as of December 31, 2011 and 2010:
Depreciation expense during the years ended December 31, 2011 and 2010 was $322,509 and $302,109, respectively.
NOTE 6 -
DEBT
Convertible Notes Payable
Other Notes Payable
Related Party Convertible Notes Payable
Aggregate Maturities
Interest expense for the years ended December 31, 2011 and 2010 was $233,739 and $200,642, respectively.
A number of convertible note holders have the option to purchase stock at prices ranging from $.60 to $2.55, with the amount being the difference between current outstanding principal balance and the original note payable amount. As of December 31, 2011, $1,924,066 of debt can be converted to 1,569,883 shares of the company’s common stock.
The Company has an outstanding stand-by letter of credit with a financial institution in the amount of $75,000 related to an office lease security deposit. This letter of credit expires on August 31, 2012.
NOTE 7 -
DEFERRED COMPENSATION
As part of an acquisition, the Company assumed a deferred compensation liability of $2,500 per month for 120 months, payable to a key employee after retirement.
The value of future payments required under the agreement is being charged to operations over the period of expected active employment until the employee reaches her retirement date, in December, 2012.
Assets intended to fund this liability include an investment in marketable securities (Note 2) with a balance of $162,323 and $157,014, as of December 31, 2011 and 2010, respectively, and a life insurance policy with a $300,000 death benefit and a cash surrender value as of December 31, 2011 and 2010, of $60,234 and $54,634, respectively. All incidents of ownership accrue to the Company, which is the designated beneficiary. There are no loans outstanding on the insurance policy.
NOTE 8 -
INCOME TAXES
Income tax expense for the years ended December 31, 2011 and 2010 reflect a higher or lower effective tax rate due to certain expenses that are not deductible for tax purposes, such as 50% of meals and entertainment. The difference between actual and expected tax liability also includes the effects of timing differences in deducting certain expenses such as bad debts, charitable contributions and depreciation, as well as the effects of different financial accounting and tax bases of certain assets.
Income tax expense consists of the following components:
The following table reconciles the reported income taxes and the income taxes that would be computed by applying the Company’s normal tax rate to income before taxes for the periods ended December 31:
The tax effects of temporary differences that gave rise to significant portions of deferred tax liabilities are as follows:
NOTE 9 -
STOCKHOLDERS’ EQUITY
Purchase-Related Transactions
In 2011 and 2010, IMS repurchased 70,000 and 130,667 shares respectively, of common stock at $4.50 per share using restricted cash of $315,005 and $588,000 respectively, thereby releasing $315,005 and $588,000 of common stock guarantee in the respective years.
In 2011and 2010, IMS repurchased 20,004 and 15,001 shares of common stock at $3.00 per share, using unrestricted cash, thereby releasing $60,000 and $45,000 of common stock guarantee in the respective years.
In both 2011 and 2010, IMS repurchased 8,334 shares of common stock at $3.00 per share using $25,000 of Trade dollars (earned trade account receivable), thereby releasing $25,000 of the common stock guarantee in each year.
Stock Issued as Compensation
During 2010, IMS issued 165,000 shares of IMS stock to several consulting firms for services. The fair value of the stock was $169,750.
In April, 2010 IMS issued 8,333 shares of common stock to the then interim Chief Financial Officer of the Company as a bonus. The fair value of the shares was $5,833.
In July, 2010, the independent directors and the corporate secretary were each issued 8,000 shares of IMS common stock as part of their directors’ compensation. The value of the stock was $43,680, and was initially recorded as prepaid expense, amortizing over a period of 12 months.
During 2011, IMS issued 25,000 shares of IMS stock to several consulting firms for services. The fair value of the stock was $18,800.
In July, 2011, the independent directors and the corporate secretary were each issued 8,000 shares of IMS common stock as part of their directors’ compensation. The value of the stock was $33,120, and was initially recorded as prepaid expense, amortizing over a period of 12 months.
Other Treasury Stock Transaction
In September, 2010, the Company received 79,164 shares of common stock with a value of $67,289 in settlement of a lawsuit. The shares were placed in treasury.
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 2010 the Company purchased 44,789 shares at a cost of $41,860 in open market transactions.
In 2011 the Company purchased 1,521,934 shares at a cost of $1,417,403 in open market transactions.
In 2011, the Company purchased 169,167 shares at a cost of $221,233 in several private transactions from unrelated parties.
Share retirements
During 2011, the Company retired 2,520,783 shares acquired at a cost of $4,857,598.
Stock Options
As of December 31, 2011 and 2010, there were no options outstanding.
Warrants
366,667 fully vested warrants with an option price of $3.30 per share expired in May, 2011.
No warrants were issued in the current year.
No warrants were outstanding as of December 31, 2011.
Stock Guarantee Liability
The stock guarantee liability was reduced by $400,005 and $658,000 during 2011 and 2010, respectively, through treasury stock buy backs as described above.
Other Comprehensive Income (Loss)
ASC 220 establishes rules for reporting and displaying of comprehensive income and its components. Comprehensive income is the sum of the net income (loss) as reported in the consolidated statements of operations and other comprehensive income transactions. Other comprehensive income transactions that currently apply to the Company result from unrealized gains or losses on equity investments and from changes in exchange rates used in translating the financial statements of its wholly owned subsidiary in Toronto, Canada. The total of these various items was $2,497 and $26,699 in 2011 and 2010, respectively.
Proposed Sale of Stock
In December, 2010, the Company decided to indefinitely postpone raising capital via a proposed offering of preferred shares. Accordingly, approximately $116,000 in legal and other costs relating to the offering was recognized as expense in 2010.
NOTE 10 -
RELATED PARTY TRANSACTIONS
The Company leases its executive offices and principal operating facilities in New Berlin, Wisconsin from Glendale Investments, LLC, a Wisconsin limited liability company which is owned by officers and stockholders of the Company. The original lease began October 1, 2002 and extended through September 30, 2010. Upon expiration, the lease was renewed for a term of 3 years, through September, 2013. Under the old lease, payments were $8,000 monthly plus certain operating costs, including sales and use taxes, insurance, utilities, maintenance, and non-structural repairs. Under the new lease, the monthly payment increased to $9,740 per month plus operating costs. Total payments in 2011 and 2010 were $116,880 and $101,219, respectively.
The Company currently leases office space in Rochester, New York, from a member of the board of directors of the Company. The triple net lease commenced in February 2007, and, in 2011, was extended through 2015. Monthly rental payments are $6,644. The Company believes that the rental payments required and other terms of the lease are comparable to those available for similar space from unaffiliated, third-party lessors in the area. Total payments in 2011 and 2010 were $79,728 each year.
As part of the acquisition of a trade exchange in St. Louis, Mo, as described above, the company agreed to lease the offices of that exchange from the former owner, who is now an employee of IMS. In accordance with this agreement, the Company currently leases approximately 5,000 square feet of office space located at Maryland Heights, MO at a cost of $4,000 per month. The triple net lease began in October, 2011 and ends in September, 2014. The Company believes that the rental payments required and other terms of the lease are comparable to those available for similar space from unaffiliated, third-party lessors in the area. Total payments in 2011 were $12,000.
See Note 5 for a discussion of related party debt.
The Company sold trade dollars to employees and directors at a discount during the years ended December 31, 2011 and 2010 of $108,179 and $217,793, respectively. The value of trade dollars sold related to these transactions was $213,859 and $368,737.
NOTE 11 -
COMMITMENTS AND CONTINGENCIES
Leases
The Company has various leases for office facilities and vehicles which are classified as operating leases, and which expire at various times through 2016. Total rent expense for all operating leases for 2011 and 2010, is summarized as follows:
Minimum future lease commitments as of December 31, 2011, are summarized as follows:
Employment Agreements
On February 28, 2011, the Compensation Committee of the board finalized employment agreements with the executive officers of the company, effective March 1, 2011 and renewing automatically each year. Key components of these agreements include involuntary termination clauses calling for payment of two years’ salary plus $ 300,000 to $ 400,000 per covered officer and change of control provisions calling for payments of one to two years’ salary and additional lump sum payments of $150,000 to $300,000, depending on the officer.
Legal Matters
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 12 -
SUBSEQUENT EVENTS
In accordance with the share buyback program described above, from January 1, 2012 to February 29, 2012, the Company purchased 60,462 shares in open market transactions at a cost of $184,920. The shares were placed in treasury.
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 monthly installments of $30,334, including interest at 10%.
In January and February, 2012, the Company repurchased 45,000 shares at $4.50 per share using restricted cash and 3,332 shares at $3.00 per share, in accordance with the stock guarantee agreements described above. This released $212,500 of stock guarantee liability. The shares were placed in treasury.
In a private transaction in January, 2012, the Company repurchased 143,129 shares of common stock for $314,884, paying $58,115 in cash and giving a note payable for the remaining balance. The note is payable in monthly installments of $6,268 including interest at 8%. The shares were placed in treasury.
In a private transaction in February, 2012, the Company repurchased 60,000 shares of common stock from a director of the Company, for $132,000, by issuing a note payable The note is payable in monthly installments of $5,850 including interest at 6%. The shares were placed in treasury.