Revenue Increases 42% in 2006
NEW BERLIN, Wis.–International Monetary Systems, Ltd. (OTCBB:INLM), a worldwide leader in business-to-business barter services, has filed its 2006 annual report on form 10-KSB.
As the report illustrates, 2006 was a year of record achievements and growth for International Monetary Systems (IMS). The company processed more than $72 million in trade transactions. Every transaction represents a purchase and sale between members of the exchange. While others in the industry report the combined total of both purchases and sales, the $72 million processed through IMS represents sales only. These transactions generated revenue of $8,782,666. Gross revenue increased by 42%, EBITDA increased nearly 100%, totaling $1,048,369. Cash flows from operations were $871,631. During 2006 IMS acquired the client bases of five trade exchanges, culminating with the acquisitions of North America’s largest independent barter system, Illinois Trade Association, and its corporate barter division, National Trade Association.
In 2006 IMS received total equity investments of $4 million from a hedge fund. Proceeds from this investment were used to finance the five acquisitions that were concluded during the year and to retire long-term debt outstanding with financial institutions. As a result, total assets nearly doubled, increasing by 92%, and book value nearly tripled, increasing by 271%.
Despite dramatic increases in gross revenue, operating income and operating cash flows, IMS still experienced a net loss, primarily due to non-cash adjustments for depreciation, amortization and a partial impairment of the membership list in specific markets. The company incurred significant income tax expense despite the net loss, primarily due to the difference in accounting and tax treatments of intangible assets and goodwill.
During 2006 IMS instituted a “Best Practices” program for its business operations. The company continued its significant investment in infrastructure by purchasing additional computer equipment and by hiring additional employees. Management believes these commitments will help to improve internal controls, revenue and membership growth, and long-term profitability. By the end of 2006, the outside sales force was expanded to more than twenty people, and has grown even more in the first few months of 2007, creating record new-client enrollments, which will contribute to strong organic growth and increased future revenues.
Following is a summary of International Monetary Systems’ operating statement for the year ended December 31, 2006.
In 2006 IMS processed more than $72 million in barter transactions, generating revenues of $8,782,666. In 2005 it processed $52 million in barter transactions that produced revenues of $6,187,138. Total barter transactions for 2006 increased 38% and revenue increased nearly 42%. These increases were primarily a result of five trade-exchange acquisitions, plus a higher volume of transactions within the barter network. The acquired client bases are located in: Chicago, IL; Indianapolis, IN; Denver, CO; Los Gatos, CA and Memphis, TN.
For 2006, operating expenses increased by $2,390,456 or 38%, in proportion to the increases in revenue. Most of the additional operating expenses were a result of the 2006 acquisitions, along with the company’s investment in infrastructure and new client sales, plus depreciation, amortization and an impairment loss from the write-down of the Reno, Las Vegas and Modesto membership lists.
In 2006 payroll expenses increased nearly 33% to $4,812,595, while occupancy expenses increased from $588,642 to $761,040. Both increases resulted from acquisitions. Selling expenses increased by $302,386. The increase in selling expenses was a direct result of the expanded sales force, which management believes will ultimately lead to sustained organic growth. General and administrative expenses increased 30% from $1,065,766 to $1,388,059. Although the IMS trade exchange had an operating profit in excess of $1 million, after deducting charges for interest, taxes, depreciation, amortization, and the one-time membership-list impairment, the company is reporting a net loss of $421,652 in 2006, compared to a loss of $221,639 in 2005.
In 2006 IMS experienced positive cash flow, as net cash provided by operating activities was more than $871,631, compared to a cash flow of $678,361 in 2005. During 2006 IMS received $4 million in equity capital and raised $2,665,000 from private investors in the form of term notes and convertible notes, used exclusively as down payments on the trade-exchange acquisitions in Denver and Chicago. Over 60% of the current portion of long-term debt consists of notes convertible to equity, of which almost half has been converted as of March 2007. We anticipate that the remaining portion will also be converted to equity.
CHANGES IN ASSETS AND LIABILITIES
During 2006 cash balances increased to $930,962 from $80,496 in 2005, resulting primarily from operations. Equity capital raised during the year was used to retire debt and to fund acquisitions. In addition, restricted cash that had been deposited in escrow accounts to guarantee the repurchase of shares issued in the acquisitions of Tradecard, Inc. and of Barter Business Unlimited has either been distributed to the former owners, or returned to IMS in accordance with the purchase agreements.
Accounts receivable increased by $530,701, to $1,644,299, primarily because of acquisitions. As a result of these changes total current assets increased 62% from $1,814,983 in 2005 to $2,942,265 in 2006. Other assets increased by $6,138,619, or 100% from 2005 to 2006. Total assets increased 92% from $7,937,986 to $15,203,887, primarily because of acquisitions.
Current liabilities increased by $884,324, or 42%, from $2,119,451 in 2005 to $3,003,775 on December 31, 2006. Because of the infusion of equity capital in 2006, most of the long-term debt outstanding at the end of 2005 was retired, including debt to financial institutions as well as guaranteed buybacks of shares granted in earlier acquisitions. Current and long-term notes payable consist of various notes to former owners, or to investors who funded acquisitions. The company anticipates that $1,050,000 of the current portion of notes payable will be converted to equity in 2007. As of March 2007, $500,000 of this amount had already been converted.
For acquisitions in which IMS stock was used in payment, the company previously issued shares at $.50 per share and guaranteed that value. Because the company has repurchased most of those shares, or the sellers have agreed to sell their shares into the public market or hold them for investment, IMS has been relieved of further liability on those contracts. Therefore, the liability for common stock subject to guarantees decreased 92% to $155,000 in 2006, from $1,981,750 in 2005.
Long-term debt increased during 2006 because the company issued convertible notes to raise capital for the acquisitions in Denver, CO and Chicago, IL. At the end of 2006, long-term debt was $4,420,755, compared to $3,733,936 in 2005, an increase of 18%. Total liabilities increased 27%, from $5,853,387 in 2005 to $7,424,530 at the end of 2006 (compared to the increase of 92% in total assets).
Total shareholder equity increased 273%, from $2,084,599 in 2005 to $7,779,357 on December 31, 2006.