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As filed with the Securities and Exchange Commission on June 16, 2000.
Registration No. 333-94597
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 2
TO
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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INTERNATIONAL MONETARY SYSTEMS, LTD.
(Name of small business issuer in its charter)
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WISCONSIN 7389 39-1924096
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
16901 WEST GLENDALE DRIVE
NEW BERLIN, WISCONSIN 53151 16901 WEST GLENDALE DRIVE
(262) 780-3640 O FAX (262) 780-3655 NEW BERLIN, WISCONSIN 53151
(Address and telephone number of principal executive offices) (Address of principal place of business)
DONALD F. MARDAK
INTERNATIONAL MONETARY SYSTEMS, LTD.
16901 WEST GLENDALE DRIVE
NEW BERLIN, WISCONSIN 53151
(262) 780-3640 O FAX (262) 780-3655
(Name, address and telephone number of agent for service)
Copies of communications to:
ROBERT J. PHILIPP, ESQ. GERALD R. TURNER, ESQ.
KRANITZ & PHILIPP GERALD R. TURNER & ASSOCIATES, S.C.
2230 EAST BRADFORD AVENUE 411 EAST WISCONSIN AVENUE
MILWAUKEE, WISCONSIN 53211 MILWAUKEE, WISCONSIN 53202
(414) 332-2118 O FAX (414) 332-4480 (414) 278-7865 O FAX (414) 278-0064
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this registration statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_| If
this Form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. |_| If this Form is a post-effective amendment filed
pursuant to Rule 462(d) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_| If delivery of
the prospectus is expected to be made pursuant to Rule 434, please check the
following box. |_|
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CALCULATION OF REGISTRATION FEE
================================================================================================================
Proposed Proposed
Amount maximum maximum Amount of
Title of each class of securities to be offering price aggregate registration
to be registered registered per unit offering price fee
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Common Stock 1,150,000 shares $6.00 (1) $6,900,000 (1) $1,821.60
================================================================================================================
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(1)Estimated solely for the purpose of calculating the registration fee.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
================================================================================
<PAGE> 2
PROSPECTUS (SUBJECT TO COMPLETION)
DATED JUNE 16, 2000
1,000,000 SHARES
INTERNATIONAL MONETARY SYSTEMS, LTD.
COMMON STOCK
-------------------
International Monetary Systems, Ltd. is offering a minimum of 50,000 shares
and a maximum of 1,000,000 shares of its common stock. This is our initial
public offering and no public market currently exists for our shares. We expect
that the initial public offering price will be between $5.00 and $6.00 per
share.
-------------------
We anticipate that, upon the completion of this offering, our common stock
will be quoted on the NASD's OTC Bulletin Board under the symbol "IMSB."
-------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING
ON PAGE 5.
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PRICE $ A SHARE
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Underwriting Proceeds to
Price to Discounts and International
Public Commissions Monetary Systems
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Per Share................................. $ $ $
Minimum (50,000 shares)................... $ $ $
Maximum (1,000,000 shares) ............... $ $ $
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THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE
NOT APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS
IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
This is a best-efforts, minimum-maximum offering. Our selected placement
agents must sell the minimum offering of 50,000 shares if any are sold. The
selected placement agents are not required to sell any specific number or dollar
amount of securities in excess of the 50,000-share minimum offering, but will
use their best efforts to sell all of the 1,000,000 shares offered. Funds
received from subscribers will be held in escrow by Grafton State Bank. Unless
the minimum offering is fully sold within 120 days from the date of this
prospectus, all purchase payments will be returned in full to subscribers,
without interest or deduction. If the minimum offering is sold within the
foregoing period, the offering may continue until 1,000,000 shares are sold or
March 31, 2001, whichever occurs first. However, we may terminate the offering
at any earlier time if we choose to do so.
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LISS FINANCIAL SERVICES
, 2000
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TABLE OF CONTENTS
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Page
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Prospectus Summary...................................................................... 3
Risk Factors............................................................................ 5
Use of Proceeds......................................................................... 8
Dividend Policy......................................................................... 8
Dilution................................................................................ 9
Selected Financial Data................................................................. 10
Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................................... 11
Business................................................................................ 14
Management.............................................................................. 22
Certain Relationships and Related Transactions.......................................... 24
Principal Stockholders.................................................................. 25
Description of Securities............................................................... 26
Common Stock Eligible for Future Sale................................................... 29
Underwriting............................................................................ 31
Legal Matters........................................................................... 33
Experts................................................................................. 33
Where You Can Find Additional Information............................................... 33
Index to Consolidated Financial Statements.............................................. 34
Exhibit A (Subscription Agreement)...................................................... A-1
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UNTIL , 2000 (90 DAYS AFTER THE COMMENCEMENT OF THIS OFFERING), ALL
DEALERS THAT BUY, SELL OR TRADE OUR COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
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PROSPECTUS SUMMARY
You should read the following summary in conjunction with the more detailed
information appearing elsewhere in this prospectus concerning our company and
the common stock being offered, including our consolidated financial statements
and related notes. In this prospectus, "IMS," "we," "us" and "our" refer to
International Monetary Systems, Ltd., a Wisconsin corporation, and its
subsidiaries, and not to the selected placement agents.
OUR COMPANY
IMS was incorporated in 1988 under the laws of the State of Wisconsin. We
acquire, own, manage and operate trade exchanges and 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." In the 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.
Currently, we service over 2,400 barter customers. Over the ten-year
period from January 1990 through December 1999, total revenue from all sources
increased from $154,658 to $1,930,506, an average gain of 24.6% per year,
compounded annually. We have achieved this growth by continually expanding our
customer base, principally through the acquisition of four other barter
exchanges, and by persuading our members to increase their trade volume. We
currently conduct our business operations only in the United States. However, we
may in the future begin to operate internationally, particularly in the areas of
business-to-business and consumer barter on the Internet.
Our mailing address is 16901 W. Glendale Drive, P.O. Box 510305, New
Berlin, Wisconsin 53151, and our telephone numbers are (800) 236-8104 and (262)
780-3640; the telephone number for our facsimile line is (262) 780-3655. Our
Internet address is www.ctebarter.com.
THE OFFERING
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Common stock offered.......................................................... 1,000,000 shares
Common stock outstanding before the offering.................................. 2,136,704 shares
Common stock to be outstanding after minimum offering ........................ 2,186,704 shares
Common stock to be outstanding after maximum offering......................... 3,136,704 shares
Proposed OTC Bulletin Board trading symbol.................................... IMSB
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This is a best-efforts, minimum-maximum offering. Unless at least 50,000
shares of our common stock are sold within 120 days following the date of this
prospectus, the offering will terminate and no shares will be sold. If the
50,000-share minimum offering is sold within the foregoing period, the offering
may continue until 1,000,000 shares are sold or March 31, 2001, whichever occurs
first. Our selected placement agents are not obligated to (1) sell any number or
dollar amount of our common stock in excess of the 50,000-share minimum offering
or (2) purchase any shares at any time. While these agents have agreed to use
their best efforts to sell on our behalf all of the common stock offered, we
cannot guarantee how much stock in excess of the required minimum, if any, will
actually be sold in the offering. See "Risk Factors" and "Underwriting" for
additional information concerning the terms of this offering.
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USE OF PROCEEDS
We will use the net proceeds of this offering to develop our Web site and
increase marketing efforts, which will involve the hiring of additional
personnel. If net proceeds are sufficient to do so, we also propose to acquire
other trade exchanges in order to expand the geographic scope of our business
and make more extensive use of our facilities and personnel. We may on a
selective basis acquire partial or complete ownership of firms in unrelated
fields which utilize barter services or offer other operating synergies with our
barter business. Please see "Use of Proceeds" for additional information
concerning the manner in which we intend to expend the net proceeds of this
offering .
SUMMARY FINANCIAL DATA
You should read the following summary financial data in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our consolidated financial statements, and the related notes,
which are included in this prospectus. The information shown below as of
December 31, 1999 and 1998, and for the years which ended on those dates, has
been taken from our consolidated financial statements, which have been audited
by Smith & Gesteland, LLP., independent certified public accountants. The
unaudited financial statements of the Company as of March 31, 2000, and for the
three months ended March 31, 2000 and 1999, reflect, in the opinion of
management, all adjustments (which include only normal recurring adjustments)
necessary to present fairly the financial condition and results for such
periods.
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Year Ended Three Months Ended
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December 31, December 31, March 31, March 31,
1999 1998 2000 1999
---- ---- ---- ----
(Unaudited) (Unaudited)
STATEMENT OF INCOME DATA:
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Total revenues............................. $ 1,930,506 $ 1,705,179 $ 518,000 $ 444,543
Total costs and expenses.................. 1,949,494 1,686,527 535,503 475,057
----------- ----------- ---------- -----------
Income (loss) before income taxes.......... (18,988) 18,652 (17,503) (30,514)
Income tax expense (benefit)............... (4,583) 9,278 (4,200) (7,400)
----------- ----------- ---------- -----------
Net income (loss).......................... $ (14,405) $ 9,374 $ (13,303) $ (23,114)
Retained earnings (deficit) beginning
of period............................... $ (32,382) $ (41,756) $ (46,787) $ (41,756)
----------- ----------- ---------- -----------
Retained earnings (deficit) end
of period............................... $ (46,787) $ (32,382) $ (60,090) $ (64,870)
=========== =========== ========== ===========
Net income (loss) per common share $ (0.01) $ 0.01 $ (0.01) $ (0.01)
=========== =========== ========== ===========
Weighted average common
shares outstanding.................... 1,992,198 1,834,118 2,136,704 1,911,711
</TABLE>
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BALANCE SHEET DATA: March 31, 2000
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(unaudited)
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Cash and cash equivalents....................................................... $ 46,320
Total assets.................................................................... $ 591,974
Long-term debt, less current portion............................................ $ 64,181
Stockholders' equity............................................................ $ 468,383
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RISK FACTORS
This offering and an investment in our common stock involve a high degree
of risk. You should carefully consider the following risk factors and the other
information in this prospectus, including our financial statements and the
related notes, before investing in our common stock. If any of the following
risks actually occurs, our business, operating results, prospects or financial
condition could be seriously harmed. The trading price of our common stock could
decline, and you could lose all or part of your investment.
THIS IS A BEST-EFFORTS, MINIMUM-MAXIMUM OFFERING, AND WE MAY NOT RAISE ENOUGH
CAPITAL FROM THE SALE OF OUR COMMON STOCK TO ADEQUATELY FUND OUR PLANNED METHOD
OF GROWTH AND EXPANSION.
The managing placement agent, Liss Financial Services, and the other
selected placement agents are not obligated (1) to sell on our behalf any number
or dollar amount of our common stock in excess of the 50,000-share minimum
offering or (2) to purchase any number or dollar amount of shares at any time.
These agents have agreed to use their best efforts to sell on our behalf all of
the common stock offered by this prospectus. However, we cannot guarantee how
much stock in excess of the required minimum, if any, will actually be sold in
this offering.
We plan to use up to approximately $100,000 of net offering proceeds to
enhance our existing business, whether or not we are also able to acquire
additional exchanges or other complementary businesses. However, we believe that
the most cost-effective and rapid growth of our company can be achieved through
one or more acquisitions. We anticipate that we will be able to acquire
additional barter exchanges for prices ranging from approximately $100,000 to $1
million per exchange. If the proceeds of this offering, after deduction of
selling commissions and other expenses, are not sufficient to meet our cash
requirements for such acquisitions, we will expend all the proceeds we receive
to grow and expand our existing business, principally by expanding our Internet
site and otherwise increasing our marketing efforts. Our inability to obtain
adequate financing may impede our growth and thus negatively affect the return
on your investment in our common stock.
WE FACE RISKS ASSOCIATED WITH OUR ACQUISITION STRATEGY, INCLUDING COMPETITION
FOR SUITABLE CANDIDATES.
We intend to continue our growth, in large part, through the acquisition
of additional barter exchanges and other complementary businesses. The success
of this strategy depends upon several factors, including:
- the availability of financing;
- our ability to identify and acquire exchanges and related businesses on a
cost-effective basis;
- our ability to integrate acquired personnel, operations, products and
technologies into our organization effectively; and
- our ability to retain and motivate key personnel and to retain the
clients of acquired firms.
The competition to find and acquire suitable barter exchanges is intense,
and we will compete for these exchanges with other companies that have
substantially greater financial and other resources than our company.
We cannot assure you that financing for acquisitions will be available on
terms we find acceptable, or that we will be able to identify or consummate new
acquisitions, or manage and integrate our expansions successfully. Any inability
to do so could materially and adversely affect our business, financial condition
and operating results, principally by requiring us to grow at a slower rate than
we believe would be possible if we are able to make one or more suitable
acquisitions. We also cannot assure you that we will be able to sustain the
rates of growth that we have experienced in the past.
Furthermore, we may issue equity securities to pay for future acquisitions,
which could be dilutive to our existing stockholders. We may also incur debt or
assume contingent liabilities in connection with acquisitions, which could harm
our operating results.
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WE CANNOT GUARANTEE THAT AN ACTIVE TRADING MARKET FOR OUR COMMON STOCK WILL
DEVELOP OR BE SUSTAINED.
While our common stock will be quoted on the NASD's OTC Bulletin Board upon
completion of this offering, we cannot provide definite assurance that our
shares will be actively traded. The development and continuation of a trading
market will depend principally upon our business, financial condition and
operating results. Further, if the market price for our common stock drops below
$5.00 per share, SEC rules may impose additional requirements upon
broker-dealers who effect transactions in our shares, principally with respect
to (1) additional disclosures concerning the risks of investment in lower-priced
stocks, (2) written investor-suitability determinations and (3) written
authorization of these transactions by the proposed purchasers. Compliance with
these rules could impede trading and adversely impact the price and liquidity of
your shares.
INCREASED REGULATION OF THE BARTER INDUSTRY COULD NEGATIVELY AFFECT OUR
BUSINESS.
The barter industry is in large part currently self-regulated. We have
obtained all federal, state and local licenses, permits and bonds necessary to
operate our business and facilities. However, we cannot assure you that the
barter industry in general, and our company in particular, will not in the
future be subject to increased and more restrictive governmental regulation. If
such regulation restricts or limits our ability to conduct our business, or if
we are required to pay substantial compliance costs, our business, financial
condition and operating results could be harmed and the return on your
investment in our common stock might be negatively affected.
PURCHASERS OF COMMON STOCK IN THIS OFFERING WILL EXPERIENCE IMMEDIATE AND
SUBSTANTIAL DILUTION.
Assuming a price of $6.00 per share, the initial public offering price of
our common stock is substantially higher than its book value immediately after
the offering. As a result, if you invest in this offering, you will incur
immediate dilution of at least $4.20 per share in the book value of the shares
purchased from the price you pay for your stock. You will incur this dilution
largely because our earlier investors paid substantially less than the initial
public offering price when they purchased their common stock. See the discussion
under " Dilution" for a calculation of the dilution you will experience,
assuming various levels of sales in this offering.
PROVISIONS IN OUR CHARTER DOCUMENTS AND WISCONSIN LAW COULD PREVENT OR DELAY A
CHANGE IN CONTROL OF OUR COMPANY AND POSSIBLY REDUCE THE AMOUNT PAID FOR OUR
COMMON STOCK IN THE FUTURE.
Provisions of our articles of incorporation, bylaws and Wisconsin law
could, separately or together:
- discourage potential acquisition proposals;
- delay or prevent a change in control; and
- limit the price that investors might be willing to pay in the future for
shares of our common stock.
The application of these provisions could make it more difficult for a
third party to acquire us, even if doing so would be beneficial to our
stockholders. See "Description of Securities - Anti-Takeover Provisions" for a
further discussion of statutory and other anti-takeover provisions which may
affect us. Also, our board of directors has the authority to issue up to
5,000,000 shares of preferred stock and to determine the price, voting rights,
restrictions, preferences and privileges of those shares without the approval of
our stockholders. The rights of holders of common stock will be subject to, and
may be impaired by, the rights of the holders of any shares of preferred stock
that may be issued in the future. The issuance of preferred stock may delay,
defer or prevent a change in control by making it more difficult for a third
party to acquire a majority of our stock. In addition, the issuance of preferred
stock could have a dilutive effect on our stockholders. We have no present plans
to issue shares of preferred stock. However, even the potential issuance of
preferred stock could reduce the price that investors are willing to pay for our
common stock.
WE DEPEND ON OUR KEY PERSONNEL.
Our future success depends upon the continued services of our management
team, including our president, Donald F. Mardak, and our two vice presidents,
Dale L. Mardak and John E. Strabley, Jr. The loss of the services of any one or
more of these key employees could have a material adverse effect on our
business, financial condition
6
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and operating results. In addition, if one or more of these key employees joins
a competitor firm or forms a competing company, the resulting loss of existing
or potential clients and business relationships, including merger or acquisition
candidates, could have a serious adverse effect upon our business. None of our
employees, including Donald F. Mardak, Dale L. Mardak and John E. Strabley, Jr.,
is bound by an employment agreement, and these personnel may terminate their
employment at any time. If we were to lose one or more of these key employees,
we may be unable to prevent the unauthorized disclosure of our strategic
planning, procedures, practices or client lists. In addition, we do not have
"key person" life insurance policies covering any of our employees.
OUR MANAGEMENT MAY NOT BE SUCCESSFUL IN APPLYING THE PROCEEDS OF THIS OFFERING
IN A MANNER THAT INCREASES THE VALUE OF YOUR INVESTMENT.
The net proceeds of this offering have not been allocated for specific
purposes, and we will have broad discretion in determining how the proceeds will
be used. You will be entrusting your funds to our management, upon whose
judgment you must depend, with limited information concerning acquisitions, if
any, or other purposes to which the funds will ultimately be applied. We may not
be successful in spending the proceeds from this offering, whether in our
existing operations or for external investments, in ways which increase our
profitability or our market value, or otherwise yield favorable returns. See
"Use of Proceeds" for information concerning how we plan to use the proceeds
from this offering.
BECAUSE EXISTING STOCKHOLDERS WILL CONTINUE TO OWN A CONTROLLING PERCENTAGE OF
OUR COMMON STOCK, THE VOTING POWER OF OTHER STOCKHOLDERS WILL BE LIMITED.
We anticipate that our directors, executive officers and their affiliates
will beneficially own, in the aggregate, more than 57% of our outstanding common
stock after this offering. As a result, if these persons act together, they will
have the ability to control all matters submitted to our stockholders for
approval and to exercise controlling influence over our business and affairs.
This includes any determination as to the election and removal of directors and
the approval of any merger or other business combination, the acquisition or
disposition of our assets, whether or not we incur indebtedness, the issuance of
any additional common stock or other equity securities and the payment of
dividends on our common stock. These stockholders may make decisions that are
adverse to your interests. See "Principal Stockholders" for more information
about the ownership of our common stock.
FUTURE SALES OF OUR COMMON STOCK MAY DEPRESS OUR STOCK PRICE.
The officers and directors of our company and their affiliates currently
own, in the aggregate, 1,772,000 shares, or 82.9%, of our outstanding common
stock. These persons have agreed to enter into lock-up agreements that prevent
them from selling, pledging or otherwise disposing of their common stock for a
period of 120 days after the commencement of this offering, without the prior
written approval of Liss Financial Services, the managing placement agent. Upon
the expiration of the 120-day lock-up period, these 1,772,000 shares held by our
affiliates will become eligible for sale in the public market, subject only to
the volume, manner of sale and notice requirements of Rule 144 under the
Securities Act. An additional 476,856 shares our outstanding common stock,
including 112,152 shares subject to warrants exercisable within 60 days
following the date of this prospectus, which are held by non-affiliates and not
subject to lock-up agreements, will become eligible for sale at approximately
the same time. Of these shares, approximately 446,856 may be sold subject to
some Rule 144 requirements, and approximately 30,000 shares may be sold publicly
without Rule 144 restrictions. Sales of substantial amounts of our common stock
in the public market, or conceivably only the perception that such sales may
occur, could create the impression in the public of difficulties or problems
with our business. This might adversely affect the market price of our common
stock and could impair our ability to sell additional common stock or other
equity securities on terms that we consider satisfactory. For a more detailed
discussion of potential future sales by existing stockholders, see "Shares
Eligible for Future Sale."
WE DO NOT INTEND TO DECLARE OR PAY DIVIDENDS IN THE FORESEEABLE FUTURE.
We currently intend to retain earnings, if any, to support our growth
strategy. Consequently, a prospective investor who needs to receive periodic
dividend income should probably not invest in this offering.
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USE OF PROCEEDS
Assuming a public offering price of $6.00 per share, we estimate that our
net proceeds from the sale of the sale of this offering, after deducting
underwriting discounts and commissions and other offering expenses payable by
us, will be approximately $150,000 if the minimum offering of 50,000 shares is
sold and $850,000 if the maximum offering of 1,000,000 shares is sold. The
primary purposes of this offering are to obtain additional equity capital,
create a public market for our common stock and facilitate future access to
public markets.
Because this is a best-efforts, minimum-maximum offering, we can give you
no definite assurance as to how much of our common stock in excess of the
50,000-share minimum, if any, will actually be sold. See "Risk Factors" and
"Underwriting" for additional information concerning the terms of this offering.
We intend to use the net proceeds we receive from the offering for working
capital and general corporate purposes, including
- developing our Internet World Wide Web site, including an on-line
consumer barter auction;
- expanding and improving our marketing efforts; and
- improving and promoting our services and facilities.
We currently estimate that up to approximately $100,000 will be used for
these purposes. While we presently anticipate that working capital will be
expended for the above purposes in approximately equal amounts, the actual
amount that we expend for these purposes will depend on a number of factors,
including the amount which is raised in this offering, our future revenue
growth, if any, and the amount of cash we generate from operations. As a result,
we will retain broad discretion in the allocation of the net proceeds of this
offering.
If we receive sufficient net offering proceeds in excess of the
50,000-share minimum offering, we intend to use a portion of such proceeds to
acquire one or more barter exchanges or other businesses, or to make strategic
investments in barter exchanges or other businesses, that are complementary to
our business. We currently anticipate that we will be able to acquire additional
barter exchanges for prices ranging from approximately $100,000 to $1 million
per exchange. We continually evaluate and discuss potential acquisitions and
strategic investments. However, we have no present understandings, commitments
or agreements with respect to any acquisition or investment. If the net proceeds
of this offering are not sufficient to meet our cash requirements for one or
more acquisitions, we will expend all the proceeds we receive to grow and expand
our existing business, principally by expanding our Internet site and otherwise
increasing our marketing efforts.
Pending their use, net proceeds from this offering will be invested in bank
certificates of deposit, interest-bearing savings accounts, prime commercial
paper, United States Government obligations, money market funds or similar
short-term investments. Any income derived from these short-term investments is
expected to be used for working capital.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock. We
currently intend to retain any future earnings to finance the growth and
development of our business and therefore do not anticipate paying any cash
dividends in the foreseeable future. Any future determination to pay cash
dividends will be made at the discretion of our board of directors and will
depend on our financial condition, results of operations, capital requirements,
general business condition and other factors that our board of directors may
deem relevant.
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DILUTION
Our net tangible book value as of March 31, 2000 was approximately $404,970,
or $0.19 per share of common stock. Net tangible book value per share represents
the amount of total tangible assets less total liabilities, divided by the
number of shares of common stock then outstanding. The following table
illustrates the dilution to purchasers of common stock in this offering if the
minimum offering of 50,000 shares is sold, and also at certain arbitrarily
determined sales levels in excess of the minimum (ie., 200,000, 600,000 and
1,000,000), at the assumed public offering price of $6.00 per share, after
deduction of estimated underwriting commissions and other offering expenses
payable by us. At the sales levels indicated, our pro forma net tangible book
value at March 31, 2000 would have been $524,970, $1,334,970, $3,494,970 or
$5,654,970, respectively, or $0.24, $0.57, $1.28 or $1.80, respectively, per
share of common stock, representing an immediate increase in net tangible book
value of $0.05, $0.38, $1.09 or $1.61, respectively, per share to existing
stockholders and immediate dilution of $5.76, $5.43, $4.72 or $4.20,
respectively, per share to new investors.
<TABLE>
<CAPTION>
Number of shares of common stock sold in the offering (1)
-----------------------------------------------------------
50,000 200,000 600,000 1,000,000
Shares Shares Shares Shares
------ ------ ------ ------
<S> <C> <C> <C> <C>
Initial public offering
price per share............................ $6.00 $ 6.00 $ 6.00 $6.00
Net tangible book value
before the offering........................ 0.19 0.19 0.19 0.19
Increase in net tangible book value
attributable to new investors.............. 0.05 0.38 1.09 1.61
---- ---- ---- ----
Pro forma net tangible book value
per share after the offering................ 0.24 0.57 1.28 1.80
---- ---- ---- ----
Dilution per share to new public investors $ 5.76 $5.43 $ 4.72 $ 4.20
====== ===== ====== ======
</TABLE>
----------
(1) The numbers of shares of common stock shown as sold in the above table,
in excess of the minimum offering of 50,000 shares, have been
arbitrarily selected by us for purposes of illustration only. We can
provide no assurance that all or any part of the common stock offered
by this prospectus in excess of the minimum will be sold. See "Risk
Factors" and " Underwriting" for additional information concerning this
best-efforts, minimum-maximum offering.
The following table summarizes, on a pro forma basis as of March 31, 2000,
after giving effect to the sale of the minimum offering of 50,000 shares, the
difference between the number of shares of common stock purchased from IMS, the
total consideration paid and the average price per share paid by the existing
stockholders and by new public investors purchasing shares in this offering at
the assumed initial public offering price of $6.00 per share and before
deduction of estimated underwriting discounts and commissions and offering
expenses payable by us:
<TABLE>
<CAPTION>
Shares Total Average
Purchased Consideration Consideration
----------------------- ------------------------ Paid Per Share
Amount Percent Amount Percent ---------------
------ ------- ------ -------
<S> <C> <C> <C> <C> <C>
Existing stockholders............ 2,136,704 97.7% $1,388,858 82.2% $0.65
New public investors (1)......... 50,000 2.3% 300,000 17.8% $6.00
--------- ----- --------- -----
Total....................... 2,186,704 100.0% $1,688,858 100.0%
========= ===== ========== =====
</TABLE>
----------
(1) If sales levels of 200,000 shares, 600,000 shares and 1,000,000 shares
are assumed for purposes of illustration only, at the assumed public
offering price of $6.00 per share, the percent of total shares sold
which are purchased by new investors would be 8.6%, 21.9% and 31.9%,
respectively; and the aggregate consideration paid by new investors
would be $1,200,000, $3,600,000 or $6,000,000, respectively, or 46.4%,
72.2% or 81.2%, respectively, of the total consideration paid for all
of the common stock to be outstanding after this offering. The average
consideration paid per share, by both existing stockholders and new
investors, remains the same at all levels of sales. There can be no
assurance that all or any part of the common stock offered by this
prospectus in excess of the minimum offering of 50,000 shares will be
sold. See "Risk Factors" and "Underwriting" for additional information
concerning the terms of this offering.
9
<PAGE> 11
SELECTED FINANCIAL DATA
You should read the following selected financial data in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our consolidated financial statements, and the related notes,
which are included in this prospectus. The information shown below as of
December 31, 1999 and 1998, and for the years which ended on those dates, has
been taken from our consolidated financial statements, which have been audited
by Smith & Gesteland, LLP., independent certified public accountants. The
selected financial data as of March 31, 2000, and for the three months ended
March 31, 2000 and 1999, have been derived from unaudited financial statements
which, in the opinion of management, reflect all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the data.
<TABLE>
<CAPTION>
Year Ended Three Months Ended
---------------------------- ----------------------------
December 31, December 31, March 31, March 31,
1999 1998 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
STATEMENT OF INCOME DATA: (Unaudited) (Unaudited)
Revenues:
Gross revenues................................. $1,930,506 $ 1,705,179 $ 518,000 $ 444,543
Cost of sales.................................. 533,655 523,639 134,969 134,169
--------- --------- --------- ---------
Net revenues.......................... 1,396,851 1,181,540 383,031 310,374
Expenses:
Payroll, related taxes and employee
benefits................................. 788,717 649,446 229,223 190,090
General and administrative..................... 284,927 266,229 78,002 49,021
Occupancy...................................... 166,361 115,769 41,653 34,685
Selling........................................ 142,310 99,514 47,735 46,194
Other.......................................... 33,524 31,930 3,921 20,898
--------- --------- --------- ---------
Total expenses........................ 1,415,839 1,162,888 400,534 340,888
Income (loss) before income taxes................. (18,988) 18,652 (17,503) (30,514)
Income tax expense (benefit)...................... (4,583) 9,278 (4,200) (7,400)
--------- --------- --------- ---------
Net income (loss)................................. (14,405) 9,374 (13,303) (23,114)
Retained earnings (deficit) beginning
of period.................................... (32,382) (41,756) (46,787) (41,756)
--------- --------- --------- ---------
Retained earnings (deficit) end
of period.................................... $ (46,787) $ (32,382) $ (60,090) $ (64,870)
=========== =========== ========== ==========
Net income (loss) per common share................ $ (0.01) $ 0.01 $ (0.01) $ (0.01)
=========== =========== =========== ===========
Weighted average common
shares outstanding........................... 1,992,198 1,834,118 2,136,704 1,911,711
</TABLE>
<TABLE>
<CAPTION>
March 31, 2000
--------------
<S> <C>
BALANCE SHEET DATA: (Unaudited)
Cash and cash equivalents............................................................... $ 46,320
Total assets............................................................................ $ 591,974
Long-term debt, less current portion.................................................... $ 64,181
Stockholders' equity.................................................................... $ 468,383
</TABLE>
10
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following commentary in conjunction with the financial
statements and related notes contained elsewhere in this prospectus.
RESULTS OF OPERATIONS
Gross Revenue. Since IMS began operation, we have primarily generated sales
revenues from new-client membership fees, monthly service fees and transaction
fees. Please see "Business - Cash and Trade Dollar Income" for information
concerning these sources of revenue. We bill our clients monthly for transaction
fees and we have an excellent record of collections on our receivables, with
most collected within 30 days after the transaction. We generate additional
revenue when we purchase merchandise at wholesale or from manufacturers and
distributors who are liquidating, and then we resell these products to our
exchange members at a markup. We sometimes purchase merchandise for cash and
other times purchase by issuing barter credit. We generate trade dollar revenue
when we purchase and then resell through our barter network (1) prepaid blocks
of media time or space from radio and television stations, newspapers or
magazines and (2) rooms, tickets, tours and other travel-related products and
services from hotels, ocean cruise lines, airlines and travel tour operators. We
also generate trading revenue when we issue dining and gift scrip (certificates
that are sold to clients to represent trade credit), if, as is periodically the
case, the scrip is never redeemed by the holder.
In fiscal 1998, we processed over $9,689,000 in total client barter
transactions, which generated consolidated gross revenues of $1,705,179. In
fiscal 1999, we processed over $11,150,000 in client barter transactions which
generated consolidated gross revenues of $1,930,506, representing an increase of
15.1% in transactions and 13.1% in gross revenues. For the three-month period
ended March 31, 2000, our gross revenues were $518,000, an increase of $73,457
over the comparable period in 1999, representing an increase of 16.5% for the
three-month period. We have achieved this growth by continually expanding our
customer base, principally through the acquisition of other barter exchanges,
including in 1998 Commercial Barter of Illinois and Wisconsin Barter Exchange,
and by persuading our members to increase their trade volume.
These increases in consolidated gross revenues continue a general pattern
of gains that IMS has experienced throughout most of its existence. Over the
five-year period from January 1995 through December 1999, total revenue from all
sources increased from $480,380 in 1995 to $1,930,506 in 1999, an average gain
of over 23.8% per year, compounded annually. Over the ten-year period from
January 1990 through December 1999, total revenue from all sources increased
from $154,658 to $1,930,506, an average gain of 24.6% per year, compounded
annually.
Operating Expenses. We have learned that the incremental cost of
transaction processing and travel booking does not generally increase
proportionate to the growth of revenue. We attribute this result largely to the
effect of computerization, which allows a small number of clerks to record a
large number of transactions quickly and efficiently. As a result, when we add
revenue through the acquisition of trade exchanges, we generally do not add
overhead at the same rate, thereby increasing the efficiency of the acquired
firms and potentially increasing overall profitability of our business.
During 1999, however, several factors caused an increase in operating
expenses of $252,951 or 21.8% over 1998. These included our hiring of additional
personnel to handle increased trade activity and travel booking, more emphasis
on marketing activities, and changes in our office facilities.
For 1999, payroll and related taxes and benefits increased by $139,271, or
21.4%, over 1998. General and administrative expenses increased $18,698, or 7%,
from 1998 to 1999. Occupancy expenses increased by $50,592, or 43.7%, for 1999,
due principally to lease changes and our move to a new building to house our
executive offices and principal operating facilities. Selling expenses increased
by $42,796, or 43%, from 1998 to 1999, including significant increases in most
categories, such as commissions, travel, telephone and convention expenses.
11
<PAGE> 13
For the three months ended March 31, 2000, total expenses increased by
$59,646 over the comparable period in 1999, an increase of 17.5%. Principal
increases occurred in payroll, taxes and benefits, in the amount of $39,133, and
in general administrative expenses, in the amount of $28,981.
During December 1999, we moved into a building owned by a limited liability
company whose owners are officers and directors of our company. These new
facilities offer room for expansion and are more conducive to our planned future
growth. The amount of rent payable under our lease is at a rate which is
competitive for the area in which we are located and is not expected to
materially impact earnings.
Net Income. For 1999 as compared to 1998, our expenses rose more rapidly
than our revenues, and our net income decreased from a profit of $9,374 in 1998
to a loss of $14,405 in 1999 as a result. During the first quarter of fiscal
2000, revenue growth exceeded increased expenses, as compared to the first
quarter of fiscal 1999, resulting in a net loss of $13,303 for 2000, compared to
$23,114 for 1999.
Effects of Acquisitions. During fiscal 1998, we incurred extraordinary
charges associated with the acquisition of Commercial Barter of Illinois and
Wisconsin Barter Exchange, and the integration of the operations of those firms
into our business. These extraordinary charges were not separately itemized. In
the future, as we acquire additional trade exchanges or other businesses, we
expect to incur extraordinary charges in connection with the integration of
acquired operations.
While we have not acquired businesses other than barter exchanges in the
past, in the future we may seek to acquire other types of businesses which make
significant use of barter in their operations, provided that we either have or
can acquire the expertise necessary to run them. When acquiring unrelated
businesses, we may incur costs associated with hiring and training personnel, as
well as "learning costs" associated with entering new lines of business. While
these types of charges may depress earnings in the period following the
acquisition, we intend to make acquisitions and incur charges only when these
have the projected effect of enhancing our ability to earn and retain profits in
the long run.
FINANCIAL CONDITION
Liquidity; Commitments for Capital Resources; and Sources of Funds
Our principal sources of liquidity from operations have been cash earnings
from membership charges, monthly service fees, transaction processing charges,
and profits from our own trading activity. In addition, we have improved
liquidity by utilizing the proceeds of a private placement of common stock and
warrants. We anticipate that our principal sources of liquidity during the next
year will be cash from operations and net proceeds of this offering. We believe
that cash from operations will alone be adequate to provide for our liquidity
needs, as it has since our inception, for the next year and on a continuing
basis thereafter.
We do not currently have any major capital commitments. For example, we are
not currently obligated to purchase any trade exchanges; however, we intend to
seek opportunities to acquire exchanges on completion of the current offering.
We intend to seek acquisitions which can be purchased upon payment of a
combination of cash, trade dollars and stock. Generally, we will seek
acquisitions of exchanges which we believe have, or within two years can
achieve, at least 50% or greater share volume relative to competing trade
exchanges within their market areas, and whose transaction processing and travel
bookings can be conducted by IMS, thereby reducing the overhead of the acquired
firm following the acquisition. Assuming that sufficient net proceeds of this
offering in excess of the 50,000-share minimum are available, we may utilize
substantial offering proceeds for acquisitions. During 1998, we obtained funds
to support expansion from operating profits, the proceeds of a certain private
placement of our securities, and from using our common stock as payment to the
seller for a part of the purchase price of an acquisition. During 1999, we
concluded the private placement of our securities and converted certain notes
and warrants issued in prior years. In fiscal 2000, we expect to obtain funds to
support expansion from operating profits, the proceeds of this offering, and the
issuance of common stock in connection with acquiring barter exchanges and other
businesses.
12
<PAGE> 14
From June 10, 1998 to September 30, 1999, we conducted a private placement
of investment units, each unit consisting of two shares of common stock at the
price of $3.00 per share plus a warrant to purchase one share of common stock at
the price of $4.00 per share. Subsequently, we split our shares two for one. We
raised a total of $246,719 net of expenses in the placement. In addition, the
investors received warrants which entitled them to purchase up to 56,076 shares
of common stock at the price of $4.00 per share (adjusted for the two for one
stock split to the right to purchase 112,152 shares at $2.00 per share ). If
exercised, these warrants will increase our equity by $224,304.
During December 1999, several holders of notes previously issued by IMS or
by our affiliates converted their notes into common stock at the price of $2.00
per share, which reduced our outstanding debt by $55,000 and increased capital
by the same amount.
Changes in Assets and Liabilities
During 1999, we substantially increased our cash on hand, from $8,789 at
December 31, 1998 to $101,505 at the end of 1999, primarily due to the private
offering of common stock and warrants referred to below.
Accounts receivable and inventory also increased from 1998 to 1999, by
$26,191 and $29,005, respectively. Our earned trade dollar account decreased by
$62,493 from 1998 to 1999, due primarily to our increased use of trade dollars
rather than cash to purchase assets and pay expenses. As a result of these
changes, our total current assets increased by $85,419, or 24.3%, for 1999 as
compared to 1998.
Fixed assets increased by $22,458, or 35.2%, from 1998 to 1999, primarily
as a result of furnishings and equipment purchased for use in our new offices by
newly-hired personnel. From 1998 to 1999, our total assets increased $114,154,
or 22.5%, from $507,132 at December 31, 1998 to $621,286 at December 31, 1999.
Current liabilities declined $7,274, or 8.3%, from 1998 to 1999. Long-term
debt was reduced by 52.6%, from $103,519 at December 31, 1998 to $49,049 at the
end of 1999, due to the conversion of debentures to stock referred to above.
Total liabilities in turn declined by 32.3% over the same period, from $191,298
at the end of 1998 to $129,554 at December 31, 1999. As a result, overall
liquidity improved substantially.
Common stock and paid in capital increased 54.7% from 1998 to 1999, from
$348,216 at the end of 1998 to $538,519 at the end of 1999, principally as a
result of our private offering of common stock and warrants, and the conversion
of debentures into common stock referred to above.
Our retained earnings deficit increased by 44.5% from $32,382 at December
31,1998 to $46,787 at the end of 1999, chiefly as a result of the net loss of
$14,405 for fiscal 1999.
During the first quarter of fiscal 2000, our cash was reduced from $101,505
at December 31, 1999 to $46,320, due primarily to the fact that we paid down
some current liabilities and made additional capital expenditures. Paid-in
capital decreased by $10,046 due to payment of debt-issuance costs.
INFLATION AND OTHER FACTORS THAT MAY AFFECT FUTURE RESULTS.
We have not been affected by inflation in the past, and do not expect
inflation to have a significant effect on operations in the foreseeable future.
13
<PAGE> 15
BUSINESS
INTRODUCTION
Barter has been used by individuals since earliest times, pre-dating the
creation of money. In its simplest form, two persons meet and trade whatever
items each has in surplus. In barter's modern form, trade exchanges operating
like banks use a special form of "currency," consisting of credits issued by the
exchanges and generally known as "trade dollars," to facilitate and effect
multiple trades made among participating exchange members. The following
background information is taken principally from Roger Langrick, Barter Systems:
A Business Guide for Trade Exchanges (Longmeadow Press 1994).
THE MODERN BARTER INDUSTRY
The modern barter industry took shape in its current, systematic form in
1969 with the creation of the first barter exchange. By 1993, an estimated 270
barter system firms, including several with multiple licensees, were in
operation. These exchanges provide services that involve an estimated 2 million
persons, including some 200,000 member companies. Commercial trade exchanges are
the most numerous, outnumbering corporate barter companies by almost eight to
one and catering to the largest number of members. The differences between
commercial trade exchanges and other types of barter firms are described below.
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. Trade exchanges have also joined in regional associations
through which they recognize one another's trade dollars to allow members to
exchange goods and services with members located in another exchange's service
area.
TYPES OF BARTER SYSTEMS
The most common type of modern barter system is the commercial trade
exchange. These exchanges, which account for 80% of the firms in the industry,
typically serve clients ranging in size from one-man service firms to large
manufacturing businesses. The commercial trade exchange keeps track of
transactions of its clients expressed in trade dollar credits and debits,
handles complaints, publishes a member directory and provides statements for the
Internal Revenue Service at year end. These exchanges generate most of their
income from a service charge for each transaction, through monthly service
charges and through membership fees.
The corporate barter company or trading company has a different format and
set of goals. It specializes in helping businesses to maximize their return on
distressed inventory or other unwanted assets. On this type of exchange,
companies trade products and services that they do not want or need for products
and services that they do want and need. Corporate barter companies usually
specialize in large transactions, typically involving at least $1 million, using
trade dollars as a bookkeeping device. Unlike the trade dollars of a commercial
barter exchange, which are backed by the goods and services of exchange members,
the trade dollars of a corporate barter company essentially represent a promise
to perform. Corporate barter companies do not ordinarily offer memberships or
ongoing services, but act as brokers, taking their profits as a percentage of
the transaction.
The full service exchanges are a hybrid business which, although operating
in the general field of inventory clearance, offer brokerage services in
transactions involving smaller firms with excess inventory. These are often
organized as divisions of companies whose principal business is something other
than barter. For example, the television show Wheel of Fortune barters
television advertising for gifts awarded to its contestants.
14
<PAGE> 16
Countertrade is the generic name for international barter. A number of
firms have been established to specialize in this field. Frequently,
countertrade is required by a developing country which by law requires firms
that wish to import products for sale to its citizens to take goods and services
produced in that country, rather than cash, in return. In effect, this
arrangement forces the trading company to assist the developing country to
develop its export businesses.
Finally, there is informal, one-on-one barter which has existed since the
dawn of history. In certain industries, it is used as a routine marketing
technique. Common applications today are the bartering of advertising time by
radio stations for goods and services of the advertisers, game show swaps for
prizes, exchanges of real estate for other real estate or for goods, services or
even gemstones, and special event bartering, such as the holding of annual
barter conferences by participating barter firms or by non-barter firms, such as
resorts, hotels and lodges.
HOW BARTER WORKS
In the 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. In addition, the exchange typically charges an
annual percentage of any trade credit that it extends to a member, just as a
bank would charge for a loan. The annual fees and transaction fees are typically
paid by the member to the trade exchange in cash, and loan fees are usually
payable in 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 income is reportable by the trade exchange to the Internal
Revenue Service on Form 1099B.
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 probable sale. Since the actual cash cost of
producing the product or service is typically less than its retail sale price, a
person utilizing barter is in effect 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 good or service at
retail. Frequently, the member will charge a higher price for barter than for
cash to cover the charges due to the barter 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 barter
exchange member may incur a $1,000 cash cost to produce a product. If the member
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 through barter. Barter leverage works most effectively when trading for
something that is perishable, such as, for example, hotel rooms or airplane
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 often offset the fees charged by the barter
exchange, and may even offset the effect of any increased price charged by
exchange members for products and services which they barter.
15
<PAGE> 17
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 regularly 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.
INFLATION OF CURRENCY
Every barter exchange, including ours, must be careful not to over-extend
credit in the form of trade dollars. Any such over-extension is likely to
"depreciate" the value of the exchange's trade dollars through a form of trade
credit inflation. To avoid this potential problem, members who receive an
extension of trade credit when they open their accounts must over time supply
goods and services equal to the credits they receive, and in turn they must
spend the credits that they have received through the purchase of the goods and
services of other members.
INTERNATIONAL MONETARY SYSTEMS, LTD.
IMS is a holding company that currently has two operating subsidiaries.
These companies together comprise the Continental Trade Exchange barter network.
Our first operating subsidiary, Continental Trade Exchange, Ltd., commenced
operations in 1985 and serves eastern Wisconsin, including the greater
Milwaukee, Madison, Green Bay and Fox River Valley areas. Our second operating
subsidiary, Continental Trade Exchange of Illinois, Inc. commenced operations in
1997 and serves northeastern Illinois, including the greater Chicago area. Our
barter network now has more than 2,400 active member clients in Wisconsin and
Illinois and has experienced steady growth in its client enrollment and trading
revenue over the last 10 years. We currently conduct our business operations
only in the United States. However, we may in the future begin to operate
internationally, particularly in the areas of business-to-business and consumer
barter on the Internet.
In 1989, we acquired Mid-American Exchange Corp., a barter exchange located
in Green Bay, Wisconsin. Mid-American Exchange had been operating since 1984 and
had a client enrollment of more than 300 members, located throughout the Fox
River Valley and north into Door County, Wisconsin. In 1996, we acquired Midwest
Trade Exchange, a North Chicago, Illinois-based barter exchange that was founded
in 1983. Midwest Trade Exchange had a client enrollment of approximately 700
members. During 1998, we purchased two barter exchanges: Commercial Barter of
Illinois, located in Joliet, Illinois, for consideration totaling $20,000, and
Wisconsin Barter Exchange, located in Madison, Wisconsin, for a total cost of
$105,000. As a result of these acquisitions, our operations now cover the
eastern portions of Wisconsin and northern Illinois. Our trade volume for 1999
and 1998 was $11,150,000 and $9,689,000, respectively, producing consolidated
gross revenues of $1,930,506 for 1999 and $1,705,179 for 1998. Our consolidated
pre-tax income for 1999 and 1998 was $(18,988) and $18,652, respectively.
NATURE OF BUSINESS
Our Continental Trade Exchange barter network is currently comprised of
more than 2,400 businesses that regularly trade their products and services with
each other. Through their participation in our barter program, these companies
are provided with an effective revenue management tool which enables them to
identify and capture incremental income, liquidate surplus inventories and
profitably capitalize on their excess capacity. We function as a third-party
record-keeper and also manage the operations of our barter network system. In
addition, we act as a principal in certain transactions where we acquire various
products, including fine art, real estate and other commodities which we either
hold as investment or sell at a profit.
16
<PAGE> 18
To provide our clients with a flexible and effective means of trading, we
have created an alternative monetary system which utilizes its own unique
currency. Upon enrolling in the Continental Trade Exchange barter network
program, each member is assigned a barter account, much like a traditional bank
account, through which it receives Continental Trade Exchange "trade dollars",
the medium of exchange for our barter system. Under the tax laws and
regulations, we are required to report all barter sales to the Internal Revenue
Service. For accounting and tax purposes, the Internal Revenue Service has ruled
that trade dollars must be treated in the same manner as cash. Accordingly, we
may in any period report significant revenue, profits and increases or deceases
in net assets from transactions denominated in trade dollars or other non-cash
consideration.
Barter exchanges like ours have a unique characteristic: they not only
operate with traditional cash currency, but they also can issue trade dollars,
which constitute their own unique currency. Using earned trade dollars, barter
exchanges are able to acquire products, services, and even other businesses. In
the everyday operation of their businesses, trade exchanges permit member
clients to barter their goods and services with other clients. The clients do
this in several ways. Some sell their products to the barter network directly;
others issue trade certificates that are redeemable for their goods or services;
and the balance transact their barter business through our trade brokers or on
our Internet Web site. In return, the selling clients receive trade dollars,
sometimes also referred to as " trade credits," from the exchange, which they
may use to purchase goods or services that are available in the program.
Continental Trade Exchange trade dollars are usable only on our exchanges.
However, apart from their limited acceptance, these trade dollars function in
the same manner as traditional government-issued currency. As our barter
exchanges have expanded their client base, they have achieved acceptance of
their trade dollars among their members throughout much of Wisconsin and
northern Illinois. We anticipate that the trade currency issued by our exchanges
will continue to gain recognition throughout an increasingly wider area as our
barter network is further expanded into other cities and states. We intend to
seek nationwide and possibly international acceptance over time.
CASH AND TRADE DOLLAR INCOME
Just as our barter exchange members conduct transactions in both
traditional currency and in trade dollars, we also generate revenues in both
traditional dollars and in trade dollars.
Our income is generally earned in four ways: (1) through membership set-up
fees assessed upon acceptance for membership in our exchange, presently $395.00
to $595.00 in cash; (2) through transaction fees generated when clients spend
their trade dollars to purchase merchandise from other members or from our
product inventory, typically 10% to 12% of the purchase price; (3) through
monthly maintenance fees, currently an amount of $10.00 to $15.00 in cash and
$10.00 to $15.00 in trade dollars per month ; and (4) through the sale of
merchandise from our own inventory and gift certificates, generally known as
"scrip."
We generate trade profits in various ways. Typically, we barter at retail
prices. However, in some situations, usually when dealing with manufacturers, we
are able to purchase products for trade dollars at wholesale prices. These
products can then be liquidated at retail prices through the barter exchange
program. Some specific clients, such as radio and television stations, hotels
and restaurants, are not accustomed to paying cash fees because they already are
involved in many direct barter transactions for their services. In dealing with
these businesses, our exchange will occasionally accept a favorable trade ratio
(usually $3.00 of air time, room or food certificates, etc. for $2.00 of trade
credit) in lieu of a cash service fee, and such situations can produce a
substantial trade dollar surplus. In addition, we also have an opportunity to
create considerable trade profits by purchasing wholesale, closeout and
liquidation merchandise for cash, and then liquidating such products at retail
on our barter exchange.
USES OF TRADE DOLLARS
We use earned trade dollars to purchase goods and services necessary to our
operations, such as office supplies, office furniture and equipment,
advertising, printing and janitorial services, to name some common uses. We can
also convert trade profits to cash whenever we use our trade dollars to buy
products or services which we then liquidate for cash.
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<PAGE> 19
LIQUIDATION AND CLOSEOUT SALES
As a basic element of our barter operations, we help businesses to
liquidate their under-utilized assets and to realize value from their excess
capacity. There is currently a large amount of liquidation merchandise available
in America. This merchandise can take the form of manufacturers' overruns,
returned merchandise, factory seconds, last year's obsolete models, government
surplus, bankrupt stock, etc. In light of all these opportunities, we intend to
develop a liquidation and closeout division through which we will first attempt
to purchase the available products with our own trade dollars. If quality
merchandise can be obtained for trade dollars, some of it can be sold at
considerable markups on our barter exchange, and the balance can then be
converted to cash.
However, many companies are willing to liquidate such merchandise at
bargain prices only because of an urgent need for hard cash. To take advantage
of those situations, we plan to set aside a portion of our working capital,
which may include a portion of the proceeds from this offering, for the purchase
of desirable merchandise that we are unable to acquire with trade dollars. We
expect to be able to purchase such merchandise in many cases for as little as
ten to twenty cents on the dollar, based upon retail prices, and then to
liquidate the items through our barter system, selling to our own members as
individual sales, or in quantity to other barter networks, at or near the
original list price. If these transactions are successful, we expect to earn
substantial trade profits and service fees. Since we will have a low cost basis
in the remaining merchandise, goods which do not move through the barter system
can then be liquidated in bulk for cash at no loss to us.
EXPANDING OUR BARTER NETWORK
Much of our growth to date is a direct result of our earlier acquisitions,
and, based upon our knowledge of recent merger and acquisition activity in the
barter industry, we believe that our industry as a whole is experiencing an
increasing trend toward consolidation. We intend to utilize a substantial
portion of the proceeds of this offering to acquire other barter exchanges that
will complement our existing network. We cannot guarantee that all or any of the
shares offered by this prospectus in excess of the 50,000-share minimum offering
will be sold. If we do not sell more than approximately $100,000 in excess of
the minimum offering, implementation of our growth-through-acquisition strategy
will be unlikely, and our rate of growth may be slowed. See "Risk Factors" for
additional information concerning the potential adverse impact of our inability
to fund one or more acquisitions.
Our prior acquisitions have demonstrated that these mergers, if managed
properly, can result in important reductions in overhead expense. For example,
in the case of our North Chicago office, the previous operation, Midwest Trade
Exchange, had twelve employees. The new Continental Trade Exchange of Illinois
is generating the same revenue as Midwest Trade Exchange, but is doing so with
five employees. This is possible because overlapping jobs have been eliminated.
We cannot guarantee that future acquisitions, if any, will result in similar
reductions in our consolidated overhead expense.
In addition to expanding our barter network through acquisitions, we will
also seek to grow by expanding our existing markets. To accomplish this, we
intend to hire additional salespeople and trade brokers. We are currently
enrolling approximately 40 to 50 new clients per month. We believe that an
expanded sales force could substantially increase recruitment and
correspondingly increase our gross revenues and net income.
COMPETITION
The primary method of competition in the barter industry is the
recruitment of individual exchange members, generally accomplished by acquiring
an exchange and its related client list or through traditional marketing
efforts, such as advertising, direct client contacts and other promotional
activities, often involving the hiring of additional sales and marketing
personnel.
If more than one exchange is operating in a given market, they may compete
for the same potential members. However, this competition for members is
generally not as detrimental to us as it might be in other industries because
many businesses are members of several trade exchanges. For example, there are
five exchanges currently
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<PAGE> 20
operating in the Chicago area, and a number of businesses belong to all five.
The fact that a client of ours is also a member of another exchange does not
necessarily harm us. For the most part, businesses which belong to several
exchanges have shown themselves to be the more active traders that generate
increased transaction fees for all the exchanges to which they belong. In our
experience, businesses do not resign from one exchange upon joining another, and
these clients enjoy a wider selection of products and services as the result of
multiple exchange membership.
Provided that the net proceeds of this offering are sufficient to
adequately fund one or more acquisitions, we expect to compete for additional
exchange members principally with respect to such acquisitions. We intend to
provide for the growth of our company largely through the acquisition of barter
firms and other businesses that are complementary to ours, and our inability to
successfully compete for such acquisitions could impede our efforts to grow and
expand as quickly as planned.
If we are unable to make any acquisitions, we will continue to recruit
additional members for our exchange as we have in the past. As described above,
to accomplish this growth, we intend to allocate a portion of the net proceeds
from this offering to enhance our sales and marketing efforts, including the
improvement and expansion of our Web site and the hiring of additional sales and
marketing personnel.
The competition to find and recruit new exchange members, whether by
acquisition of existing exchanges or otherwise, is intense, and we will compete
with other companies that have substantially greater financial and other
resources than our company, particularly with respect to suitable acquisition
candidates. Risks associated with our acquisition strategy are discussed under
"Risk Factors."
OUR GROWTH STRATEGY
The Continental Trade Exchange barter network began operations in July of
1985 and has had a record of consistent and steady growth. This growth has been
generated both internally and through the acquisition of other barter exchanges.
During the past several years, we have acquired four independent trade exchange
operations.
In 1997, we acquired the client list and other assets of Midwest Trade
Exchange, North Chicago, Illinois. The purchase of this operation allowed us to
establish a significant presence in the Greater Chicago marketplace and to
increase our revenues by more than 40%.
During 1998, we acquired the Joliet-based Commercial Barter of Illinois,
thereby increasing our penetration into the Chicago area. We also purchased the
client list and other assets of Wisconsin Barter Exchange, providing us with an
office in Madison, Wisconsin. These two acquisitions added more than 400 clients
to our roster and increased revenues by more than 20%.
A major factor in the success of our growth-through-acquisitions strategy
has been and will be our ability to achieve unique synergies with the client
base of the acquired exchange and to take advantage of profit-enhancing
economies of scale. Generally, we can improve the operating performance of
acquired firms because processing a larger volume of trade transactions can
still be handled effectively with existing personnel. We cannot guarantee that
future acquisitions, if any, will result in similar reductions in our
consolidated overhead expense.
We intend to continue our growth-through-acquisition strategy by
concentrating on identifying and purchasing trade exchanges in areas where we
can develop or maintain a dominant market position. We believe that a dominant
position within a market gives us increased visibility within that market,
allows us to offer a wider range of customer products and services for the
benefit of our clients, and enhances our efforts to achieve greater economies of
scale. However, we cannot guarantee that all or any of the shares offered by
this prospectus in excess of the 50,000-share minimum offering will be sold. If
we do not sell more than approximately $100,000 in excess of the minimum
offering, implementation of our growth-through-acquisition strategy will be
unlikely, and our rate of growth may be slowed. See "Risk Factors" for
additional information concerning the potential adverse impact of our inability
to fund one or more acquisitions.
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<PAGE> 21
We also expect future internal growth from our present base of operations
as we regularly add new members to our barter exchange. To accomplish this, we
intend to allocate a portion of the proceeds from this offering to the hiring of
new sales and marketing personnel. We also hope to acquire trade exchanges in
strategic target markets or, where this is not possible, to open new
company-owned branch offices in those areas.
ACQUISITION OF OTHER BUSINESSES
We believe that trade exchange activity and cash revenues can be further
enhanced through the acquisition of other businesses that utilize barter
heavily. For example, Continental Trade Exchange has a very active travel
department that each month books hundreds of lodging packages for its clients.
After we reserve the lodging, these clients have in the past been required to
contact an outside travel agency or an airline directly for their flight
tickets.
To take advantage of this situation, we have recently created CTE Travel,
our own full-service travel agency. Because we already have an identified, and
therefore targetable, group of members that are interested in procuring
travel-related products and services, we expect to generate new revenues in the
form of travel agency commissions from airlines. We will also earn commission
income for cruises, rental car reservations and special tour group packages. To
further enhance our travel division, we have acquired the customer list of a
recently closed travel agency, giving us additional access to this market. But
most important, our expansion into the travel business is being accomplished for
less than $2,000 because we already have an office, a staff and a computer
system in place.
Examples of other businesses that we believe have exploitable synergies
with our barter network include advertising and media firms, such as magazines,
coupon mailers and direct mail marketers; printing companies and related
businesses; plus hotels, resorts and other participants in the travel industry.
We continually evaluate and discuss potential acquisitions and strategic
investments. However, we have no present understandings, commitments or
agreements with respect to any acquisition or investment.
BARTERING ON THE INTERNET
We believe that our core business will continue to generate a steady stream
of revenue. However, we realize that our greatest potential for growth is likely
to come from the Internet. We are therefore currently in the process of
developing a dynamic e-commerce Web site that we hope will expand our previous
business-to-business network into a comprehensive, worldwide barter system that
will also allow consumers (i.e. the general public) to trade their personal
possessions and other products on-line. A special feature of the Internet
operation will be the on-line barter auction where members will have the
opportunity to bid in trade dollars on items being offered by others, or submit
their own merchandise for sale. To maintain a steady flow of products available
for the on-line auction, we will also offer merchandise from our own inventory
as well as appropriate items from the existing Continental Trade Exchange barter
system. In preparing for this auction program, we have registered the Internet
domain name www.barterinternet.com. As discussed under "Use of Proceeds," we
intend to use a portion of the proceeds from this offering to enhance our Web
site and to promote our planned on-line consumer barter network.
Our Internet World Wide Web site is being designed to provide potential
barter participants with ready access to the services provided by us that meet
their individual needs. Upon entry to our site at www.barterinternet.com, a
potential or existing customer will be routed to one of our three major areas of
operation:
- Continental Trade Exchange, our business-to-business barter network.
- Corporate barter services, our division devoted to the barter needs and
requirements of larger business organizations with respect to products
and services such as hotel accommodations, airline tickets, car rentals
and liquidation services.
- On-line consumer barter network, our planned consumer auction program
described above.
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<PAGE> 22
By linking to these specific areas, our clients and prospective clients
will be aided in their attempts to seek out only those products and services
that are relevant to their particular needs. For example, a major corporate
account located in Phoenix or Los Angeles is not likely to be interested in
haircuts or other local services in Chicago. By checking our corporate barter
Web page, these businesses will find a list of only those products and services
which would be useful to them.
EMPLOYEES AND FACILITIES
We currently have twenty-two full-time employees: thirteen at our principal
place of business in New Berlin, Wisconsin; two in Green Bay, Wisconsin; two in
Madison, Wisconsin; and five in North Chicago, Illinois. None of our employees
are represented by a union or covered by a collective bargaining agreement. We
believe that our relationships with our employees are excellent.
Our company's executive offices and principal operating facilities occupy
6,300 square feet of leased space located at 16901 W. Glendale Drive, New
Berlin, Wisconsin, under a lease from Glendale Investments, LLC., a Wisconsin
limited liability company owned by Donald F. Mardak, Dale L. Mardak and John E.
Strabley, Jr., officers and directors of IMS. Rent and other terms of our lease,
which expires September 30, 2002, are believed by us to be comparable to those
available for similar space from unaffiliated, third-party lessors in the same
area. See "Certain Relationships and Related Transactions" for additional
information concerning this lease. We also lease (1) 500 square feet of office
space at 1012 South Broadway, Green Bay, Wisconsin; (2) 400 square feet of
office space at 2814 Syene Road, Madison, Wisconsin; and (3) 1,600 square feet
of office space at 2300 Green Bay Road, North Chicago, Illinois. The Green Bay
and Madison, Wisconsin offices and the North Chicago, Illinois offices are
leased from unaffiliated parties. The lease agreement covering the Madison,
Wisconsin office expires June 30, 2000. The leases covering the Green Bay,
Wisconsin and the North Chicago, Illinois office are both on a month-to-month
basis. 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.
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<PAGE> 23
MANAGEMENT
DIRECTORS AND OFFICERS
The following table shows the names and ages of our directors and officers
and the positions they hold with our company.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Donald F. Mardak 63 Chief Executive Officer, President and Director
John E. Strabley, Jr. 36 Executive Vice President and Director
Dale L. Mardak 40 Vice President, Treasurer and Director
Judy E. Mardak 60 Secretary
</TABLE>
DONALD F. MARDAK has been the Chief Executive Officer, President and a
director of IMS 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. Currently, Mr. Mardak is the Chairman of the Board of Directors of
the National Association of Trade Exchanges, the principal barter industry trade
association, having served as its President during 1999.
JOHN E. STRABLEY, JR. has been the Executive Vice President and a director
of IMS 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 IMS. 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 was named Executive Vice President
of our company and became a director of both Continental Trade Exchange, Ltd.
and IMS.
DALE L. MARDK has been Vice President and a director of IMS 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 Vice President,
Treasurer and a director of both Continental Trade Exchange, Ltd. and our
company.
JUDY E. MARDAK has been Secretary of IMS since our inception in 1988. In
1988, she joined Continental Trade Exchange, Ltd. as Office Manager and head
bookkeeper. In 1990, she became the first Continental Trade Exchange, Ltd. trade
broker, and in 1991 she was named to the position of Trade Director, a position
she held until 1995. Mrs. Mardak continues to serve as our Office Manager.
Donald F. and Judy E. Mardak are husband and wife. John E. Strabley, Jr.
is their son-in-law, and Dale L. Mardak is their son. Kimberly A. Strabley, the
daughter of Donald F. and Judy E. Mardak and the wife of John E. Strabley, Jr.,
is also employed by us as travel director and reciprocal accounts manager.
All of our directors hold office until the next annual meeting of
stockholders and the election and qualification of their successors. Officers
are elected annually by our board of directors and serve at the discretion of
the board.
See "Principal Stockholders" for information concerning ownership of our
common stock by our directors and officers.
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<PAGE> 24
Summary Compensation Table. The following table provides information
concerning compensation earned by our Chief Executive Officer for services
rendered to us in all capacities during the fiscal years ended December 31,
1997, 1998 and 1999, respectively. We are required to disclose in the table the
compensation we paid to our Chief Executive Officer and to any other executive
officer of our company who was paid in excess of $100,000. These persons are
referred to in this prospectus as " named executive officers." Because no
executive officer of our company was paid more than $100,000 for any of our last
three fiscal years, only the compensation paid by us to our Chief Executive
Officer is included in the table.
<TABLE>
<CAPTION>
Annual Compensation
-------------------
All Other
Name and Principal Positions Year Salary($) Bonus($) Compensation($)
----------------------------------------------------------- ---- --------- -------- ---------------
<S> <C> <C> <C> <C>
Donald F. Mardak........................................... 1999 90,000 -- --
Chief Executive Officer and President 1998 88,000 -- --
1997 52,000 -- --
</TABLE>
Option Grants in the Last Fiscal Year. No options were granted to our Chief
Executive Officer, our only named executive officer, for our fiscal year ended
December 31, 1999.
Option Exercises in 1999 and Aggregate Option Values at December 31, 1999.
No options were exercised by our Chief Executive Officer, our only named
executive officer, during fiscal 1999, and, as of December 31, 1999, no
unexercised options were held by our Chief Executive Officer.
DIRECTORS' COMPENSATION
Our directors are not compensated for acting as directors, nor are they
reimbursed for expenses related to their service as directors.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Our bylaws provide for the elimination, to the fullest extent permissible
under Wisconsin law, of the liability of our directors to us for monetary
damages. This limitation of liability does not affect the availability of
equitable remedies such as injunctive relief. Our bylaws also provide that we
shall indemnify our directors and officers against certain liabilities that may
arise by reason of their status or service as directors or officers, other than
liabilities arising from certain specified misconduct. We are required to
advance their expenses incurred as a result of any proceeding against them for
which they could be indemnified, including in circumstances in which
indemnification is otherwise discretionary under Wisconsin law. At the present
time, there is no pending litigation or proceeding involving a director,
officer, employee or other agent of our company in which indemnification would
be required or permitted. We are not aware of any threatened litigation or
proceeding which may result in a claim for such indemnification.
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<PAGE> 25
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CERTAIN TRANSACTIONS
We currently lease our executive offices and principal operating
facilities, consisting of 6,300 square feet of space located at 16901 West
Glendale Drive, New Berlin, Wisconsin, from Glendale Investments, LLC., a
Wisconsin limited liability company owned by Donald F. Mardak, Dale L. Mardak
and John E. Strabley, Jr., officers and directors of our company, under a triple
net lease which commenced in October, 1999 and expires September 30, 2002. For
the fiscal year ended December 31, 1999, we made rental payments aggregating
$15,000 to Glendale Investments, LLC. We believe that rent and other terms of
our lease are comparable to those available for similar space from unaffiliated,
third-party lessors in the area.
On July 20, 1999, we sold an aggregate of 10,000 shares of our common stock
to Dale L. Mardak, a director and officer of our company, pursuant to the
exercise of options granted in 1996, at the price of $1.00 per share.
During the fiscal year ended December 31, 1999, we effected 2 for 1 splits
of our outstanding common stock, effective as of July 28 and December 28, 1999,
respectively. Also effective as of July 28, 1999, the par value of our common
stock was changed from $0.01 per share to $0.0001 per share.
We have no loans outstanding to any of our directors or officers.
CONFLICTS OF INTEREST
Certain potential conflicts of interest are inherent in the relationships
between our affiliates and us.
From time to time, one or more of our affiliates may form or hold an
ownership interest in and/or manage other businesses both related and unrelated
to the type of business that we own and operate. These persons expect to
continue to form, hold an ownership interest in and/or manage additional other
businesses which may compete with ours with respect to operations, including
financing and marketing, management time and services and potential customers.
These activities may give rise to conflicts between or among the interests of
IMS and other businesses with which our affiliates are associated. Our
affiliates are in no way prohibited from undertaking such activities, and
neither we nor our shareholders will have any right to require participation in
such other activities.
Further, because we intend to transact business with some of our officers,
directors and affiliates, as well as with firms in which some of our officers,
directors or affiliates have a material interest, including for example the
lease agreement described above under "Certain Relationships and Related
Transactions - Certain Transactions", potential conflicts may arise between the
respective interests of IMS and these related persons or entities. We believe
that such transactions will be effected on terms at least as favorable to us as
those available from unrelated third parties.
With respect to transactions involving real or apparent conflicts of
interest, we have adopted policies and procedures which require that (1) the
fact of the relationship or interest giving rise to the potential conflict be
disclosed or known to the directors who authorize or approve the transaction
prior to such authorization or approval, (2) the transaction be approved by a
majority of our disinterested outside directors and (3) the transaction be fair
and reasonable to IMS at the time it is authorized or approved by our directors.
Kranitz & Philipp, our securities counsel, are also counsel to Liss
Financial Services, the managing placement agent. We will be represented by
other independent counsel in all instances, including securities law matters,
where our interests are deemed to conflict with those of the managing placement
agent.
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<PAGE> 26
PRINCIPAL STOCKHOLDERS
The following table sets forth as of May 31, 2000, and as adjusted to
reflect the sale of the minimum offering of 50,000 shares, certain information
with respect to the beneficial ownership of our common stock by:
- each person known by us to beneficially own more than 5% of our common
stock;
- each of our directors;
- our sole named executive officer; and
- all of our directors and executive officers as a group.
We believe that, subject to applicable community and marital property laws,
the beneficial owners of our common stock listed below have sole voting and
dispositive power with respect to such shares.
<TABLE>
<CAPTION>
Shares beneficially owned Shares beneficially owned
prior to offering after minimum offering (1)
------------------------- --------------------------
Name and Address of Beneficial Owner Number Percent Number Percent
------------------------------------ ------ ------- ------ -------
<S> <C> <C> <C> <C>
Donald F. Mardak (2).................................. 1,440,000 67.4% 1,440,000 65.9%
13470 W. Fountain Drive
New Berlin, WI 53151
Dale L. Mardak ....................................... 128,000 6.0% 128,000 5.6%
5815 S. Vista Drive
New Berlin, WI 53146
John E. Strabley, Jr. (3)............................. 64,000 3.0% 64,000 2.9%
28440 Joanie Lane
Waterford, WI 53185
All directors and executive officers
as a group (3 persons)............................. 1,632,000 76.4% 1,632,000 74.6%
</TABLE>
--------------------
(1) Because this is a best-efforts, minimum-maximum offering, we cannot
guarantee that all or any part of the common stock offered by this
prospectus in excess of the minimum offering of 50,000 shares will be
sold. See "Risk Factors" and "Underwriting" for information concerning
the terms of this offering. If the number of shares of common stock
sold in the offering, as arbitrarily selected by us for purposes of
illustration only, is assumed to be 250,000 shares, 500,000 shares,
750,000 shares or 1,000,000, ownership percentages would be as follows:
<TABLE>
<CAPTION>
Assumed number of shares of common stock sold in the offering
-------------------------------------------------------------
250,000 500,000 750,000 1,000,000
Shares Shares Shares Shares
------- ------- ------- ---------
<S> <C> <C> <C> <C>
Donald F. Mardak.............................. 60.3% 54.6% 49.9% 45.9%
Dale L. Mardak................................ 5.4% 4.9% 4.4% 4.1%
John E. Strabley, Jr.......................... 2.7% 2.4% 2.2% 2.0%
Directors and executive officers as a group 68.4% 61.9% 56.5% 52.0%
</TABLE>
(2) Does not include 40,000 shares held by his wife, Judy E. Mardak, as to
which Mr. Mardak disclaims beneficial ownership.
(3) Does not include 100,000 shares held by his wife, Kimberly A. Strabley, as
to which Mr. Strabley disclaims beneficial ownership.
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<PAGE> 27
DESCRIPTION OF SECURITIES
Our authorized capital stock consists of 20,000,000 shares of common stock,
par value $0.0001 per share, and 5,000,000 shares of preferred stock, par value
$0.0001 per share. As of the date of this prospectus, 2,136,704 shares of common
stock (beneficially owned by approximately 42 persons) and no shares of
preferred stock were outstanding.
COMMON STOCK
Holders of our common stock are entitled to one vote per share of common
stock beneficially owned on each matter submitted to a vote at a meeting of
shareholders, subject to Section 180.1150 of the Wisconsin Business Corporation
Law. Our common stock does not have cumulative voting rights, which means that
the holders of a majority of voting shares voting for the election of directors
can elect all of the members of our board of directors.
Our common stock has no preemptive rights and no redemption or conversion
privileges.
The holders of our common stock are entitled to receive dividends out of
assets legally available at such times and in such amounts as our board of
directors may, from time to time, determine, and upon liquidation and
dissolution are entitled to receive all assets available for distribution to the
shareholders. Under the Wisconsin Business Corporation Law, a majority vote of
shares represented at a meeting at which a quorum is present is generally
sufficient for all actions that require the vote of shareholders, However,
certain actions require approval by either a super-majority of two-thirds of all
the outstanding shares entitled to vote, and certain actions require a majority
of all outstanding shares entitled to vote. See "Description of Securities -
Anti-Takeover Provisions" for additional information concerning some of these
actions. All of the outstanding shares of our common stock are, and the shares
to be sold by us as part of this offering when legally issued and paid for will
be, fully paid and nonassessable, except for certain statutory liabilities which
may be imposed by Section 180.0622(2)(b) of the Wisconsin Business Corporation
Law for unpaid employee wages.
LIMITATION OF DIRECTOR LIABILITY
Section 180.0828 of the Wisconsin Business Corporation Law provides that
our directors can be held personally liable only for intentional breaches of
fiduciary duties, criminal acts, transactions from which the director derived an
improper personal profit and wilful misconduct. These provisions may have the
effect of reducing the likelihood of derivative litigation against directors and
may discourage or deter shareholders or management from bringing a lawsuit
against directors for breach of their duty of care, even though such an action,
if successful, might otherwise have benefitted IMS and its shareholders.
INDEMNIFICATION
Under the Wisconsin Business Corporation Law, our directors and officers
are entitled to mandatory indemnification from us against certain liabilities
and expenses (1) if the officer or director is successful in the defense of an
action brought against him or her and (2) if the officer or director is not
successful in the defense of an action brought against him or her, unless, in
the latter case only, it is determined that the director or officer breached or
failed to perform his or her duties to IMS and such breach or failure
constituted: (a) a wilful failure to deal fairly with us or our shareholders in
connection with a matter in which the director or officer had a material
conflict of interest; (b) a violation of the criminal law unless the director or
officer had reasonable cause to believe his or her conduct was lawful or had no
reasonable cause to believe his or her conduct was unlawful; (c) a transaction
from which the director or officer derived an improper personal profit; or (d)
wilful misconduct. While the Wisconsin Business Corporation Law allows us to
limit our obligation to indemnify officers and directors by so providing in our
articles of incorporation, to date we have not done so.
Our bylaws provide for the indemnification of our directors and officers by
us to the fullest extent permitted by Wisconsin law.
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<PAGE> 28
ANTI-TAKEOVER PROVISIONS
Provisions of our bylaws and the Wisconsin Business Corporation Law
described in this section may delay or make more difficult acquisitions or
changes in control of IMS which are not approved by our board of directors. We
believe that these provisions will enhance our ability to develop our business
in a manner which will foster our long-term growth without the disruption caused
by the threat of a takeover that our board of directors does not consider to be
in the best interests of IMS and its shareholders, particularly, but not
exclusively, in the initial years of our existence as a publicly-traded company.
These provisions could have the effect of discouraging third parties from making
proposals involving an acquisition or change in control of IMS, although such
proposals, if made, might be considered desirable by a majority of our
shareholders. These provisions may also have the effect of making it more
difficult for third parties to cause the replacement of our current management
without the concurrence of our board of directors.
Number of Directors; Removal; Vacancies. Our bylaws currently provide that
we may have up to seven directors. The authorized number of directors may be
changed by amendment of the bylaws. The bylaws also provide that our board of
directors shall have the exclusive right to fill vacancies on the board,
including vacancies created by expansion of the board or removal of a director,
and that any director elected to fill a vacancy shall serve until the next
annual meeting of our shareholders. The bylaws further provide that directors
may be removed by the shareholders only by the affirmative vote of the holders
of at least a majority of the votes then entitled to be cast in an election of
directors. This provision, in conjunction with the provisions of the bylaws
authorizing the board to fill vacant directorships, could prevent shareholders
from removing incumbent directors and filling the resulting vacancies with their
own nominees.
Amendments to the Articles of Incorporation. The Wisconsin Business
Corporation Law provides authority to IMS to amend its articles of incorporation
at any time to add or change a provision that is required or permitted to be
included in the articles or to delete a provision that is not required to be
included in such articles. Our board of directors may propose one or more
amendments to our articles of incorporation for submission to a shareholder
vote. The board may condition its submission of the proposed amendment on any
basis it chooses if the board notifies each shareholder, whether or not entitled
to vote, of the shareholders' meeting at which the proposed amendment will be
voted upon.
Constituency or Stakeholder Provision. Section 180.0827 of the Wisconsin
Business Corporation Law provides that, in discharging his or her duties to IMS
and in determining what he or she believes to be in our best interests, a
director or officer may, in addition to considering the effects of any action on
shareholders, consider the effects of the action on employees, suppliers,
customers, the communities in which we operate, so-called "stakeholders," and
any other factors that the director or officer considers pertinent.
Wisconsin Anti-Takeover Statutes. Sections 180.1140 to 180.1144 of the
Wisconsin Business Corporation Law regulate the broad range of "business
combinations" between a "resident domestic corporation," such as IMS, and an
"interested stockholder." The law defines a "business combination" to include a
merger or share exchange, or a sale, lease, exchange, mortgage, pledge, transfer
or other disposition of assets equal to at least 5% of the market value of our
stock or assets, 10% of our earning power, or the issuance of stock or rights to
purchase stock with a market value equal to at least 5% of our outstanding
stock, the adoption of a plan of liquidation or dissolution and certain other
transactions involving an "interested stockholder," defined as a person who
beneficially owns 10% of the voting power of our outstanding voting stock or who
is an affiliate or associate of IMS and beneficially owned 10% of the voting
power of our then outstanding voting stock within the last three years.
Section 180.1141 of the Wisconsin Business Corporation Law prohibits us
from engaging in a business combination, other than a business combination of a
type specifically excluded from the coverage of the statute, with an interested
stockholder for a period of three years following the date such person becomes
an interested stockholder, unless our board of directors approved the business
combination or the acquisition of the stock that resulted in a person becoming
an interested stockholder before such acquisition. Accordingly, the statutory
prohibition against business combinations cannot be avoided during the
three-year period by subsequent action of
27
<PAGE> 29
the board of directors or shareholders. Business combinations after the
three-year period following the stock acquisition date are permitted only if (1)
our board of directors approved the acquisition of the stock by the interested
stockholder prior to the acquisition date, (2) the business combination is
approved by a majority of our outstanding voting stock that is not beneficially
owned by the interested stockholder, or (3) the consideration to be received by
our shareholders meets certain requirements of the statute with respect to form
and amount.
In addition, the Wisconsin Business Corporation Law provides in Sections
180.1130 to 180.1133 that business combinations involving a "significant
shareholder," as defined below, and a " resident domestic corporation," such as
IMS, are subject to a two-thirds supermajority vote of shareholders. Compliance
with this "fair price" provision is in addition to any approval otherwise
required. A "significant shareholder," with respect to a resident domestic
corporation, is defined as a person who beneficially owns, directly or
indirectly, 10% or more of the voting stock of the corporation, or an affiliate
of the corporation which beneficially owned, directly or indirectly, 10% or more
of the voting stock of the corporation within the last two years. We anticipate
that after this offering we will be an " issuing public corporation" for
purposes of the defensive action restrictions discussed below.
Under the Wisconsin Business Corporation Law, the business combinations
described above must be approved by 80% of the voting power of our stock and at
least two-thirds of the voting power of our stock that is not beneficially held
by the significant shareholder who is a party to the relevant transaction or any
of its affiliates or associates, in each case voting together as a single group,
unless the following fair price standards have been met: (1) the aggregate value
of the per share consideration is equal to the higher of (a) the highest price
paid for any of our common stock by the significant shareholder in the
transaction in which it became a significant shareholder within two years before
the date of the business combination, (b) the market value of our shares on the
date of commencement of any tender offer by the significant shareholder, the
date on which the person became a significant shareholder or the date of the
first public announcement of the proposed business combination, whichever is
highest, or (c) the highest liquidation or dissolution distribution to which
holders of the shares would be entitled, and (2) either cash, or the form of
consideration used by the significant shareholder to acquire the largest number
of shares, is offered.
Section 180.1134 of the Wisconsin Business Corporation Law contains
defensive action restrictions and provides that, in addition to the vote
otherwise required by law or the articles of incorporation of an issuing public
corporation, the approval of the holders of a majority of the shares entitled to
vote is required before we can take certain action while a takeover offer is
being made or after a takeover offer has been publicly announced and before it
is concluded. Under these defensive action restrictions, shareholder approval is
required for us to (1) acquire more than 5% of our outstanding voting shares at
a price above the market price from any individual who or organization which
owns more than 3% of our outstanding voting shares and has held such shares for
less than two years, unless a similar offer is made to acquire all of our voting
shares, or (2) sell or option assets of IMS which amount to at least 10% of our
market value, unless we have at least three directors who are not officers or
employees and a majority of these independent directors vote not to have this
provision apply to us.
The restrictions described in clause (1) of the preceding paragraph may
have the effect of deterring a shareholder from acquiring shares of our common
stock with the goal of seeking to have us repurchase such shares at a premium
over the market price.
Under Section 180.1150 of the Wisconsin Business Corporation Law, the
voting power of our common stock, held by any person or persons acting as a
group, which is in excess of 20% of the voting power in the election of
directors is limited to 10% of the full voting power of such common stock. This
statutory voting restriction does not apply to shares acquired directly from us
or in certain specified transactions or shares for which full voting power has
been restored pursuant to a vote of our shareholders.
Anti-Takeover Consequences. Certain provisions of our articles of
incorporation and bylaws may have significant anti-takeover affects, including
the inability of our shareholders to remove directors without cause, and the
ability of the remaining directors to fill vacancies.
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<PAGE> 30
The explicit grant of discretion to directors to consider non-shareholder
constituencies could, in the context of an "auction" of the Company, have
antitakeover effects in situations where the interests of "stakeholders" of our
company, including employees, suppliers, customers and communities in which we
do business, conflict with the short-term maximization of shareholder value.
The fair price provision may discourage any attempt by a shareholder to
squeeze out other shareholders without offering an appropriate premium purchase
price. In addition, the defensive action restrictions may have the effect of
deterring a shareholder from acquiring our common stock with the goal of seeking
to have us repurchase the common stock at a premium. The statutory and bylaw
provisions referenced above are intended to encourage persons seeking to acquire
control of IMS to initiate such an acquisition through arms-length negotiations
with our board of directors, and to ensure that sufficient time for
consideration of such a proposal, and any alternatives, is available. These
measures are also designed to discourage investors from attempting to accumulate
a significant minority position in our company and then using the threat of a
proxy contest as a means to pressure us to repurchase shares of our common stock
at a premium over the market value. To the extent that such measures lessen the
likelihood of a proxy contest or the assumption of control by a holder of a
substantial block of our common stock, they could increase the likelihood that
incumbent directors will retain their positions, and may also have the effect of
discouraging a tender offer or other attempt to obtain control of IMS, even
though such attempt might be beneficial to us and to our shareholders.
TRANSFER AGENT AND REGISTRAR
We are currently the transfer agent and registrar for our common stock.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common
stock, and sales of substantial amounts of common stock in the public market
after this offering could adversely affect market prices prevailing from time to
time and could impair our ability to raise capital through the sale of equity
securities.
SALES OF RESTRICTED SHARES
Upon completion of this offering, assuming that the entire offering is
sold, 3,136,704 shares of our common stock will be outstanding. All of the
shares we sell in this offering will be freely tradable without restriction or
further registration under the Securities Act, except that any shares purchased
by our affiliates, as that term is defined in Rule 144 under the Securities Act,
may generally only be sold in compliance with Rule 144 below.
The remaining 2,136,704 shares of common stock outstanding following this
offering will be restricted securities under the terms of the Securities Act.
Sales of a large portion of the restricted shares to be outstanding upon
completion of this offering will be limited by Rule 144 and by lock-up
agreements. Under these agreements, we, our officers, directors and respective
affiliates have agreed, subject to limited exceptions, not to sell, transfer or
otherwise dispose of, directly or indirectly, any shares of common stock, or any
securities convertible or exchangeable for shares of common stock, for a period
of 120 days after the date of this prospectus without the prior written consent
of Liss Financial Services, the managing placement agent. Liss Financial
Services, however, may in its sole discretion, at any time without notice,
release all or any portion of the shares of common stock subject to lock-up
agreements.
Upon the expiration of the 120-day lock-up period, or earlier with the
written consent of Liss Financial Services, 1,772,000 restricted shares held by
our affiliates will become eligible for sale in the public market, subject only
to the volume, manner of sale and notice requirements of Rule 144. An additional
476,856 restricted shares (including 112,152 shares subject to warrants
exercisable within 60 days following the date of this prospectus) held by
non-affiliates and not subject to lock-up agreements will become eligible for
sale at approximately the same time. Of these shares, approximately 446,856 may
be sold subject to some Rule 144 requirements, and approximately 30,000
shares may be sold without Rule 144 restrictions.
29
<PAGE> 31
RULE 144
In general, under Securities Act Rule 144, a stockholder who owns
restricted shares that have been outstanding for at least one year is entitled
to sell, within any three-month period, a number of these restricted shares that
does not exceed the greater of:
- 1% of the then outstanding shares of common stock, or approximately
31,367 shares immediately after this offering, assuming the entire
offering is sold, or
- the average weekly reported trading volume in the common stock during
the four calendar weeks preceding filing of a notice on Form 144 with
respect to the sale.
In addition, our affiliates must comply with the restrictions and
requirements of Rule 144, other than the one-year holding period requirement, to
sell shares of common stock that are not restricted securities. Sales under Rule
144 are also governed by manner of sale provisions and notice requirements, and
current public information about us must be available.
Under Rule 144(k), a stockholder who is not currently, and who has not been
for at least three months before the sale, an affiliate of ours and who owns
restricted shares that have been outstanding for at least two years may resell
these restricted shares without compliance with the above requirements. The one-
and two-year holding periods described above do not begin to run until the full
purchase price is paid by the person acquiring the restricted shares from us or
an affiliate of ours.
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<PAGE> 32
UNDERWRITING
We have entered into a managing placement agent agreement with Liss
Financial Services, providing for the sale of this offering. The principal
offices of the managing placement agent are located at 424 East Wisconsin
Avenue, Milwaukee, Wisconsin 53202, and its telephone number is (414) 225-3555.
Liss Financial Services, as managing placement agent, may engage other
broker-dealer members of the NASD to participate as selected placement agents in
the offering of our common stock.
This is a best-efforts, minimum-maximum offering. Our selected placement
agents, including the managing placement agent, are not obligated (1) to sell on
our behalf any number or dollar amount of our common stock in excess of the
50,000-share minimum offering or (2) to purchase any number or dollar amount of
shares at any time. These agents have agreed to use their best efforts to sell
on our behalf all of the common stock offered by this prospectus. However, we
cannot guarantee how much stock in excess of the required minimum, if any, will
actually be sold in this offering. See "Risk Factors" for additional information
concerning this type of offering.
All funds received from subscribers for our common stock will be held in
escrow by Grafton State Bank, Grafton, Wisconsin, as escrow agent, pursuant to
an agreement among us, the managing placement agent and the escrow agent.
Pending disbursement, subscription proceeds will be deposited in a segregated
account and invested in short-term United States government securities,
securities guaranteed by the United States government, certificates of deposit
or time or demand deposits in commercial banks located in the United States.
In the event that at least 50,000 shares of Common Stock have not been
sold within 120 days from the date of this prospectus, the offering will
terminate and all funds received from subscribers will be promptly returned in
full by the escrow agent directly to subscribers, without interest or deduction,
as provided in the escrow agreement. Provided that at least 50,000 shares of
Common Stock are sold within the foregoing period, we may continue to offer our
common stock for sale until (1) 1,000,000 shares are sold or (2) March 31, 2001,
whichever occurs first. However, we may terminate the offering at any earlier
time if we choose to do so.
For services performed by it pursuant to the escrow agreement, we will pay
to the escrow agent fees in the amounts of $2,500, plus $250 per closing and $10
per subscriber (whether accepted or rejected); provided, however, that the
escrow agent shall receive, in the aggregate, not less than $3,000 in
consideration of its services rendered pursuant to the terms of the escrow
agreement.
We propose to offer our common stock to the public at the public offering
price set forth on cover page of this prospectus, and will pay to Liss Financial
Services, the managing placement agent, commissions in an amount equal to 8% of
the aggregate purchase price of the common stock sold. The managing placement
agent may reallow all or any part of such commissions to any other selected
placement agent, up to an amount equal to 8% of the aggregate purchase price of
the common stock sold in this offering by that selected placement agent. We have
also agreed to pay to the managing placement agent a non-accountable expense
allowance equal to 2% of the aggregate purchase price of the common stock sold
in this offering. The managing placement agent may reallow all or any part of
such expense allowance to any other selected placement agent, up to an amount
equal to 2% of the aggregate purchase price of the common stock sold in this
offering by that selected placement agent.
Liss Financial Services has informed us that the selected placement agents,
including the managing placement agent, will not confirm sales of common stock
offered by this prospectus to accounts over which they exercise discretionary
authority.
To purchase common stock in this offering, a prospective investor must (1)
complete and sign a subscription agreement, in the form attached to this
prospectus as Exhibit A, and any other documents that we or the managing
placement agent may require and (2) deliver such documents, together with
payment in an amount equal to the full purchase price the shares of common stock
being purchased, to the selling selected placement agent. Checks should be made
payable to "Grafton State Bank, Escrow Agent." Each subscription payment must be
transmitted to the escrow agent by 12:00 noon on the business day next following
its receipt by a selected placement agent.
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<PAGE> 33
We will determine, in our sole discretion, to accept or reject
subscriptions within five days following their receipt. Funds of an investor
whose subscription is rejected will be promptly returned directly to such person
by the escrow agent, without interest or deduction, pursuant to the terms of the
escrow agreement. No subscription may be withdrawn, revoked or terminated by the
purchaser. We reserve the right to refuse to sell our common stock to any person
at any time.
We, our officers, directors and respective affiliates have agreed, subject
to limited exceptions, not to sell, transfer or otherwise dispose of, directly
or indirectly, any shares of common stock or any securities convertible or
exchangeable for shares of common stock for a period of 120 days after the date
of this prospectus without the prior written consent of Liss Financial Services,
the managing placement agent. Liss Financial Services, however, may in its sole
discretion, at any time without notice, release all or any portion of the shares
of common stock subject to lock-up agreements.
In connection with this offering, we have agreed to sell to the managing
placement agent or its designee, which designee must be another selected
placement agent or a bona fide officer or partner of a selected placement agent,
at a purchase price of $.01 each, warrants to purchase from us shares of common
stock in an amount equal to 10% of the number of shares of common stock sold in
this offering. These underwriter's warrants are exercisable for a period of four
years, commencing one year after the date of this prospectus, at an exercise
price equal to 135% of the price per share set forth on the cover page of this
prospectus. The underwriter's warrants will not be transferable, except to
officers of Liss Financial Services. The underwriter's warrants contain
provisions for adjustment of the exercise price upon the occurrence of certain
events, including stock dividends, stock splits, recapitalizations and the
issuance of our common stock for consideration less than the exercise price. The
holders of underwriter's warrants have no voting, dividend or other rights as
stockholders of IMS with respect to shares underlying their warrants, unless and
until the underwriter's warrants have been exercised.
A new registration statement or post-effective amendment to the
registration statement of which this prospectus is a part will be required to be
filed and declared effective before distribution to the public of shares of our
common stock issuable upon exercise of the underwriter's warrants. We have
agreed, on one occasion when requested, to make necessary filings, at our
expense, in order to permit a public offering of the shares underlying the
underwriter's warrants during the period beginning one year and ending five
years after the date of this prospectus, and to use our best efforts to cause
that registration statement or post-effective amendment to become effective and
remain effective for a period of at least one year. In addition, we have agreed
that, during the same four-year period, we will give advance notice to holders
of underwriter's warrants and shares issued upon the exercise of underwriter's
warrants, if any, of our intention to file a registration statement. In any such
case, the warrantholders so notified shall have the right to require us to
include any shares of common stock issued upon the exercise of their
underwriter's warrants in that registration statement, at our expense, and to
maintain the effectiveness of such registration statement for a period of at
least one year.
For the period during which the underwriter's warrants are exercisable, the
managing placement agent and any transferee will have the opportunity to profit
from a rise in the market price of our common stock, with a resulting dilution
in the interest of our other stockholders. In addition, the terms on which we
will be able to obtain additional capital during the exercise period may be
adversely affected in that the managing placement agent or its transferee is
likely to exercise the underwriter's warrants at a time when we would, in all
likelihood, be able to obtain capital by a new offering of securities on terms
more favorable than those provided by the terms of the underwriter's warrants.
We and the selected placement agents have agreed to indemnify each other
against certain liabilities, including liabilities under the Securities Act of
1933.
Prior to this offering, there has been no public market for our common
stock. The initial public offering price has been determined by negotiations
between us and the managing placement agent and is not necessarily related to
our asset value, net worth, results of operations or other established criteria
of value. The factors considered in determining the initial offering price
include the history of and the prospects for IMS and the industry in which
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<PAGE> 34
we operate, our past and present operating results and the trends of such
results, our financial condition, the experience of our management, the market
price of publicly traded stock of comparable companies in recent periods and the
general condition of the securities markets at the time of this offering.
LEGAL MATTERS
The validity of the shares of common stock offered through this prospectus
will be passed upon for us by Gerald R. Turner & Associates, S.C., Milwaukee,
Wisconsin. Legal matters relating to this offering will be passed upon for the
managing placement agent by Kranitz & Philipp, Milwaukee, Wisconsin.
EXPERTS
Smith & Gesteland, LLP, independent accountants, have audited our
consolidated financial statements as of December 31, 1999 and 1998, and for each
of the two years in the period ended December 31, 1999, as set forth in their
report. We have included our financial statements in this prospectus and
elsewhere in the registration statement in reliance upon the report of Smith &
Gesteland, LLP, given on their authority as experts in auditing and accounting.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form SB-2 under the
Securities Act of 1933 with respect to the common stock to be sold in this
offering. This prospectus does not contain all of the information set forth in
the registration statement and the exhibits and schedules to the registration
statement. For further information with respect to us and the common stock to be
sold in this offering, we refer you to the registration statement and the
exhibits and schedules filed as part of the registration statement. Statements
contained in this prospectus concerning the contents of any contract or any
other document are not necessarily complete. If a contract or document has been
filed as an exhibit to the registration statement, we refer you to the copy of
the contract or document that has been filed. Each statement in this prospectus
relating to a contract or document filed as an exhibit is qualified in all
respects by the filed exhibit. The registration statement, including exhibits
and schedules filed with it, may be inspected without charge at the SEC's public
reference rooms at:
- Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C.
20549;
- Seven World Trade Center, 13th Floor, New York, New York 10048; or
- Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661.
Copies of all or any part of the registration statement may be obtained
from such office after payment of fees prescribed by the SEC. Please call the
SEC at 1-800-SEC-0330 for further information on the operation of the public
reference rooms. The SEC also maintains a Web site that contains registration
statements, reports, proxy and information statements and other information
regarding registrants, including us, that file electronically with the SEC at
http://www.sec.gov.
Upon completion of this offering, we will become subject to the information
and periodic reporting requirements of the Securities Exchange Act of 1934 and,
accordingly, will file annual reports containing consolidated financial
statements audited by an independent public accounting firm, quarterly reports
containing unaudited consolidated financial data, current reports, proxy
statements and other information with the SEC. You will be able to inspect and
copy such periodic reports, proxy statements and other information at the SEC's
public reference room, and the Web site of the SEC referred to above.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants........................................... F-1
Financial Statements:
Consolidated Balance Sheets at December 31, 1999 and 1998................... F-2
Consolidated Statements of Income for the years ended
December 31, 1999 and 1998......................................... F-4
Consolidated Statements of Changes in Stockholder Equity
for the years ended December 31, 1999 and 1998..................... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1999 and 1998......................................... F-6
Notes to Consolidated Financial Statements.................................. F-7
</TABLE>
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REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors
International Monetary Systems, Ltd.
New Berlin, Wisconsin
We have audited the accompanying consolidated balance sheets of International
Monetary Systems, Ltd., and subsidiaries as of December 31, 1999 and 1998, and
the related consolidated statements of income, changes in stockholder equity,
and cash flows for each of the two years in the period ended December 31, 1999.
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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. 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 financial statements referred to above present fairly the
consolidated financial position of International Monetary Systems, Ltd., and
subsidiaries at December 31, 1999 and 1998, and the results of its operations
and cash flows for each of the two years in the period ended December 31, 1999,
in conformity with generally accepted accounting principles.
Madison, Wisconsin /s/ SMITH & GESTELAND, LLP
March 10, 2000
SMITH & GESTELAND, LLP
F-1
<PAGE> 37
INTERNATIONAL MONETARY SYSTEMS, LTD.
New Berlin, Wisconsin
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, December 31, March 31,
1999 1998 2000
-------------- -------------- -------------
(Unaudited)
ASSETS
<S> <C> <C> <C>
Current assets
Cash $ 101,505 $ 8,789 $ 46,320
Accounts receivable, net of allowance for
doubtful accounts of $27,275 in 1999,
$15,308 in 1998, and $21,363 in 2000 173,550 147,359 178,967
Earned trade account 72,472 134,965 80,900
Inventory 89,685 60,680 93,585
------------ ----------- ------------
Total current assets 437,212 351,793 399,772
------------ ----------- ------------
Furniture and equipment
Furniture and equipment 225,764 174,806 236,878
Less accumulated depreciation (139,440) (110,940) (146,290)
------------ ----------- ------------
Net furniture and equipment 86,324 63,866 90,588
------------ ----------- ------------
Other assets
Goodwill 50,616 54,365 49,680
Investment in real estate 26,000 26,000 26,000
Deferred income taxes 9,534 4,951 13,734
Other 11,600 6,157 12,200
------------- ----------- ------------
Total other assets 97,750 91,473 101,614
------------ ----------- ------------
Total assets $ 621,286 $ 507,132 $ 591,974
============ =========== ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-2
<PAGE> 38
<TABLE>
<CAPTION>
December 31, December 31, March 31,
1999 1998 2000
-------------- -------------- -------------
(Unaudited)
LIABILITIES
<S> <C> <C> <C>
Current liabilities
Accounts payable $ 20,619 $ 21,944 $ 7,759
Payroll and payroll taxes 42,607 46,608 35,058
Sales taxes 1,947 4,284 319
Accrued income taxes 594 593 594
Notes payable 5,437 6,444 4,245
Current portion of long-term debt 9,301 7,906 11,435
----------- ------------ ------------
Total current liabilities 80,505 87,779 59,410
----------- ------------ ------------
Long-term liabilities
Notes payable to banks 40,814 31,653 54,375
Notes payable to stockholder 8,235 16,866 9,806
Debentures notes payable 55,000
----------- ------------ ------------
Total long-term liabilities 49,049 103,519 64,181
----------- ------------ ------------
Total liabilities 129,554 191,298 123,591
----------- ------------ ------------
STOCKHOLDER EQUITY
Common stock, $.01 par value for 1998,
$.0001 par value for 1999 and 2000 214 5,108 214
Paid in capital 538,305 343,108 528,259
Retained earnings (deficit) (46,787) (32,382) (60,090)
----------- ------------- ------------
Total stockholder equity 491,732 315,834 468,383
----------- ------------ ------------
Total liabilities and stockholder equity $ 621,286 $ 507,132 $ 591,974
=========== ============ ============
</TABLE>
F-3
<PAGE> 39
INTERNATIONAL MONETARY SYSTEMS, LTD.
New Berlin, Wisconsin
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years Ended Three Months Ended
---------------------------------- -----------------------------
December 31, December 31, March 31, March 31,
1999 1998 2000 1999
-------------- -------------- ------------- ------------
(Unaudited) (Unaudited)
Income
<S> <C> <C> <C> <C>
Gross revenue $ 1,930,506 $ 1,705,179 $ 518,000 $ 444,543
Cost of sales 533,655 523,639 134,969 134,169
------------- ------------- ------------ -----------
Net revenue 1,396,851 1,181,540 383,031 310,374
------------- ------------- ------------ -----------
Expenses
Payroll, related taxes and employee benefits 788,717 649,446 229,223 190,090
General and administrative 284,927 266,229 78,002 49,021
Occupancy 166,361 115,769 41,653 34,685
Selling 142,310 99,514 47,735 46,194
Other 33,524 31,930 3,921 20,898
------------- ------------- ------------ -----------
Total expenses 1,415,839 1,162,888 400,534 340,888
------------- ------------- ------------ -----------
Income (loss) before income taxes (18,988) 18,652 (17,503) (30,514)
Income tax expense (benefit) (4,583) 9,278 (4,200) (7,400)
------------- ------------- ------------ -----------
Net income (loss) $ (14,405) $ 9,374 $ (13,303) $ (23,114)
============= ============= ============ ===========
Net income (loss) per common share $ (0.01) $ 0.01 $ (0.01) $ (0.01)
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE> 40
INTERNATIONAL MONETARY SYSTEMS, LTD.
New Berlin, Wisconsin
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER EQUITY
<TABLE>
<CAPTION>
Common Stock Retained Total
-------------------------- Paid in Earnings Stockholder
Shares Amount Capital (Deficit) Equity
------------ ---------- ------------ ---------- -------------
1998
------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance January 1, 1998 443,850 $ 4,438 $ 173,836 $ (41,756) $ 136,518
Net income for 1998 9,374 9,374
Stock issued
Private placement proceeds 52,000 520 124,422 124,942
Purchase of assets of
Wisconsin Barter Exchange 15,000 150 44,850 45,000
----------- --------- ----------- --------- -----------
Balance December 31, 1998 510,850 5,108 343,108 (32,382) 315,834
1999
------------------------------------------
Net income (loss) for 1999 (14,405) (14,405)
Stock issued
Private placement proceeds 60,152 6 122,297 122,303
Stock options 13,000 1 12,999 13,000
Debentures exchanged for stock 27,500 3 54,997 55,000
Par value changed to $.0001 in
July 1999 (5,057) 5,057
Two for one stock splits:
July 1999 456,850 46 (46)
December 1999 1,068,352 107 (107)
----------- --------- ----------- --------- -----------
Balance December 31, 1999 2,136,704 214 538,305 (46,787) 491,732
2000 (Unaudited)
------------------------------------------
Net income (loss) for three months
ended March 31, 2000 (13,303) (13,303)
Stock issuance costs (10,046) (10,046)
----------- --------- ----------- --------- -----------
Balance March 31, 2000 2,136,704 $ 214 $ 528,259 $ (60,090) $ 468,383
=========== ========= =========== ========= ===========
</TABLE>
Common stock authorized was 560,000 shares at December 31, 1998 and 20,000,000
shares at December 31, 1999, and March 31, 2000.
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE> 41
INTERNATIONAL MONETARY SYSTEMS, LTD.
New Berlin, Wisconsin
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended Three Months Ended
------------------------------ --------------------------
December 31, December 31, March 31, March 31,
1999 1998 2000 1999
------------- -------------- ------------ -----------
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C> <C>
Net income (loss) $ (14,405) $ 9,374 $ (13,303) $ (23,114)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 32,249 27,634 7,786 7,095
Deferred income taxes (4,583) 9,278 (4,200) (7,400)
(Gain) loss on investment in partnership (743) (135)
Changes in assets and liabilities:
Accounts receivable (26,191) (35,657) (5,417) (19,750)
Earned trade account 62,493 302 (8,428) (18,244)
Inventory (29,005) (60,680) (3,900)
Prepaid expenses 400 (400) (600) 2,362
Security deposits (10,100)
Accounts payable (1,325) 333 (12,860) 33,872
Payroll and payroll taxes (4,001) (12,572) (7,549) (7,971)
Sales taxes (2,337) 4,284 (1,628) (3,006)
---------- ---------- ---------- ---------
Net cash provided by (used in) operating activities 2,452 (58,239) (50,099) (36,156)
---------- ---------- ---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (50,958) (36,353) (11,114) (900)
Goodwill (11,240)
Sale of partnership interest 5,000
---------- ---------- ---------- ---------
Net cash used in investing activities (45,958) (47,593) (11,114) (900)
---------- ---------- ---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayment) of debt 9,550 35,437 14,503 905
Advances on (repayment of) shareholder note (8,631) (56,141) 1,571 9,033
Proceeds (costs) related to issuance of stock 135,303 124,942 (10,046) (3,677)
---------- ---------- ---------- ---------
Net cash provided by financing activities 136,222 104,238 6,028 6,261
---------- ---------- ---------- ---------
Net increase (decrease) in cash 92,716 (1,594) (55,185) (30,795)
Cash at beginning of period 8,789 10,383 101,505 8,789
---------- ---------- ---------- ---------
Cash at end of period $ 101,505 $ 8,789 $ 46,320 $ (22,006)
========== ========== ========== =========
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest $ 14,729 $ 15,889 $ 3,920 $ 1,911
SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Acquisition of business for stock $ 55,000 $ 45,000
Debentures exchanged for stock
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE> 42
INTERNATIONAL MONETARY SYSTEMS, LTD.
New Berlin, Wisconsin
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
NOTE 1 - INFORMATION ABOUT THE COMPANY AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
A. ORGANIZATION
International Monetary Systems, Ltd. (IMS - the company), is a
holding company located in New Berlin, Wisconsin with two
wholly-owned operating subsidiaries which comprise the
Continental Trade Exchange Barter Network: Continental Trade
Exchange, Ltd. (CTEL), and Continental Trade Exchange of
Illinois, Inc. (CTEILL). CTEL, a barter industry trade
exchange business was acquired in January 1989. CTEILL, also a
barter trade exchange business, was acquired in December 1996.
B. ACQUISITIONS
On July 15, 1998, CTEILL acquired the assets and barter trade
accounts of Commercial Barter of Illinois, Inc., located in
Joliet, Illinois for $20,000. On July 29, 1998, CTEL acquired
the assets and barter trade accounts of Wisconsin Barter
Exchange (WBE) located in Madison, Wisconsin for $60,000 cash
and $45,000 in stock of IMS. Goodwill in the amount of $56,240
was recognized as a result of the WBE purchase.
As a result of these acquisitions, the combined operations of
Continental Trade Exchange now cover the eastern portion of
Wisconsin and northern Illinois. Total clients numbered over
2,400 as of December 1999. Trade volume totaled $9,689,000 and
$11,150,000 for 1998 and 1999, respectively, producing
consolidated revenues for the company of $1,705,000 and
$1,931,000 for 1998 and 1999, respectively.
C. OPERATIONS OF BARTER EXCHANGES
Barter exchanges not only operate with traditional cash
currency, but they can also issue trade credits, which
constitute their own unique currency. Trade exchanges permit
members/clients to barter their goods and services with other
clients in several ways. Many sell their products to the
barter network directly, others issue trade certificates that
are redeemable for their goods or services, and the balance
transact their barter business by issuing trade vouchers. In
return, the selling clients receive trade credits from the
exchange, which may be used to purchase services or products
from other members in the exchange.
D. REVENUE SOURCES
The company and its subsidiaries earn revenues in both
traditional dollars (cash income) and in trade dollars. Cash
income is earned through membership set-up fees assessed when
a member joins, through service fees generated when clients
spend their trade dollars to purchase goods and services
through the exchange from other members, through monthly
maintenance fees, and through sales for cash of products
originally purchased by IMS with its own trade dollars.
F-7
<PAGE> 43
INTERNATIONAL MONETARY SYSTEMS, LTD.
New Berlin, Wisconsin
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
NOTE 1 - INFORMATION ABOUT THE COMPANY AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (continued)
Trade profits are generated in various ways. Monthly
maintenance fees are assessed in trade dollars as well as in
cash. Transaction fees are assessed in trade dollars rather
than cash for clients in certain industries such as radio and
TV stations, hotels, and restaurants and others not accustomed
to paying cash fees because they already are involved in many
direct barter transactions for their services. Occasionally
the company will accept a favorable trade ratio in lieu of a
cash service fee. The company also has an opportunity to
create additional trade profits by purchasing wholesale,
closeout, and liquidation merchandise for cash, and the
liquidating of such products through the trade program.
Earned trade dollars are used by the company 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.
E. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of
the company and its subsidiaries. Significant intercompany
accounts and transactions have been eliminated in
consolidation.
F. 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.
G. INVENTORY
Inventory consists primarily of fine art and other merchandise
which the company intends to sell. Inventory is carried at the
lower of actual cost of acquisition or fair value.
H. EARNED TRADE ACCOUNT
As part of the operations of the subsidiaries, trade dollars
are earned which can be and are used to purchase goods and
services. This account is increased principally for service,
membership and transaction fees, and is decreased by the
company's purchase of goods and services for trade dollars. An
impairment loss is recognized if it becomes apparent that the
fair value of the trade dollars in the account is less than
the carrying amount or if it is probable that the company will
not use all of its trade dollars.
F-8
<PAGE> 44
INTERNATIONAL MONETARY SYSTEMS, LTD.
New Berlin, Wisconsin
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
NOTE 1 - INFORMATION ABOUT THE COMPANY AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (continued)
I. FURNITURE AND EQUIPMENT
Furniture and equipment are stated at cost less accumulated
depreciation. Depreciation is computed using accelerated
methods over the estimated useful lives of five to seven
years.
J. GOODWILL
Goodwill represents the excess of the cost over fair value of
the assets acquired in the purchase of Wisconsin Barter
Exchange, Madison, Wisconsin. The transaction was accounted
for as a purchase and the goodwill is being amortized on a
straight-line basis over a fifteen year period.
K. INCOME TAXES
Income taxes are provided for the tax effects of transactions
reported in the financial statements and consist of taxes
currently due plus deferred taxes related to differences
between the financial and income tax basis of assets and
liabilities, and to the tax benefit of net operating loss
carryovers.
The deferred tax assets and liabilities represent the future
tax return consequences of those differences, which will
either be taxable or deductible when the assets and
liabilities are recovered or settled.
L. CONCENTRATIONS OF CREDIT RISK
The company grants credit to its customers, substantially all
of whom are members of the Continental Trade Exchange barter
network located in eastern Wisconsin and northern Illinois.
The company routinely assesses the financial strength of its
customers and, as a consequence, believes that its trade
accounts receivable credit risk exposure is limited.
M. ADVERTISING
Advertising costs, which are principally included in selling
expenses, are expensed as incurred. Advertising expense was
$8,417 and $8,593 for the years ended December 31, 1999 and
1998, respectively.
F-9
<PAGE> 45
INTERNATIONAL MONETARY SYSTEMS, LTD.
New Berlin, Wisconsin
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
NOTE 2 - FURNITURE AND EQUIPMENT
<TABLE>
<CAPTION>
Accumulated
Cost Depreciation
------------ -------------
<S> <C> <C> <C>
Balance January 1, 1998 $ 138,453 $ 85,181
Additions during 1998 36,353
Depreciation expense for 1998 25,759
----------- -----------
Balance December 31, 1998 174,806 110,940
Additions during 1999 50,958
Depreciation expense for 1999 28,500
----------- -----------
Balance December 31, 1999 $ 225,764 $ 139,440
=========== ===========
</TABLE>
NOTE 3 - NOTES PAYABLE TO BANKS
A subsidiary of the company (CTEL) has a revolving line of credit
with Bank One in the amount of $50,000, with a final maturity of
May 5, 2005. Amounts drawn and outstanding were $29,073 and $29,244
as of December 31, 1999 and 1998, respectively. Monthly payments
are due based on the greatest of accrued interest, $250 or 3% of
the total amount outstanding. Interest is computed at prime plus 3%
(11.75% as of December 31, 1999).
CTEL obtained an additional business line of credit with Wells
Fargo Bank in the amount of $50,000, during November 1998. The line
has no maturity date. The balance outstanding was $21,042 and
$10,315 as of December 31, 1999 and 1998, respectively. Monthly
payments are based on 2% of the outstanding balance. Interest is
computed at prime plus 1.75% (10.5% as of December 31, 1999).
<TABLE>
<CAPTION>
Balance
as of
December 31, Current Long-Term
1999 Portion Portion
-------------- ----------- ------------
<S> <C> <C> <C>
Bank One $ 29,073 $ 6,491 $ 22,582
Wells Fargo 21,042 2,810 18,232
---------- --------- ----------
Total $ 50,115 $ 9,301 $ 40,814
========== ========= ==========
</TABLE>
The aggregate amount of maturities of long-term debt for each of
the next five years is as follows:
<TABLE>
<CAPTION>
<S> <C>
2000 $ 9,301
2001 7,476
2002 6,026
2003 4,870
2004 3,947
Thereafter 18,495
----------
$ 50,115
==========
</TABLE>
F-10
<PAGE> 46
INTERNATIONAL MONETARY SYSTEMS, LTD.
New Berlin, Wisconsin
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
NOTE 4 - NOTES PAYABLE TO STOCKHOLDER
From time to time, the president and major shareholder of the
company has loaned funds to the subsidiaries. There is no definite
repayment schedule. Interest is payable quarterly based on a 12%
annual rate.
NOTE 5 - DEBENTURES PAYABLE
Debentures had been issued under the following terms:
<TABLE>
<CAPTION>
Original
Number Rate Date Amount Maturity
---------- ------ -------- ---------- --------
<S> <C> <C> <C> <C>
104 10% 06/08/94 $ 10,000 06/01/97
105 10% 06/01/94 10,000 06/30/96
106 10% 07/01/94 10,000 12/31/96
107 13% 04/01/95 10,000 03/31/98
108 13% 04/01/95 10,000 03/31/96
None 10% 12/22/93 5,000 12/31/99
</TABLE>
Those debentures with original maturity dates prior to 1999 had
been renewed for indefinite periods at the same interest rates,
with the exception of #106 which increased to 12%.
The $10,000 debentures had attached warrants to purchase 5,000
shares of IMS stock at $2.00 per share. The $5,000 debenture
allowed the holder to purchase 2,500 shares at $2.00 per share. The
president and major shareholder of the company had personally
guaranteed the debentures. Interest was paid quarterly.
All debentures were exchanged for stock during December 1999.
F-11
<PAGE> 47
INTERNATIONAL MONETARY SYSTEMS, LTD.
New Berlin, Wisconsin
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
NOTE 6 - INCOME TAXES
Income tax expense consists of the following components:
<TABLE>
<CAPTION>
March 31, March 31,
1999 1998 2000 1999
---------- ---------- -------------- --------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Currently payable - federal $ $ $ $
Currently payable - state
Deferred
Federal 6,010
State 3,268
Tax benefit of net operating loss (4,583) (4,200) (7,400)
--------- --------- ---------- ---------
Total expense (benefit) $ (4,583) $ 9,278 $ (4,200) $ (7,400)
========== ========== =========== ==========
Deferred income tax assets are
attributable to the tax benefits of
net operating loss carryforwards
as follows:
Classified as a long-term asset $ 9,534 $ 4,951 $ 13,734 $ 12,351
========== ========== =========== ==========
</TABLE>
NOTE 7 - STOCK OPTIONS
Two employees of the company were granted stock options in 1996 to
acquire 10,000 and 3,000 shares respectively of the $.01 par value
common stock of the corporation for $1.00 per share. Both options
were exercised in 1999.
NOTE 8 - RELATED PARTY TRANSACTIONS
The company currently leases its executive offices and principal
operating facilities in New Berlin, Wisconsin from Glendale
Investments, LLC, a Wisconsin limited liability company which is
100% owned by officers and stockholders of the company. The lease
commenced October 1, 1999, and expires September 30, 2002. Lease
payments are $5,000 per month plus 50% of certain operating costs
including insurance, utilities, maintenance and
other-than-structural repairs, and 50% of increased real estate
taxes over the 1999 taxes.
F-12
<PAGE> 48
INTERNATIONAL MONETARY SYSTEMS, LTD.
New Berlin, Wisconsin
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
NOTE 9 - COMMITMENTS AND CONTINGENCIES
The company has various leases for office facilities and vehicles
which are classified as operating leases. Total rent expense for
all operating leases for 1999 and 1998 is summarized below:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Office facilities on month-to-month leases $ 106,367 $ 89,793
Related party lease (see Note 8) 15,000
Madison, Wisconsin office lease expiring
June 30, 2000, at $375 per month 2,250
Vehicle leases 30,578 29,361
----------- -----------
$ 154,195 $ 119,154
=========== ===========
</TABLE>
Minimum future lease commitments as of December 31, 1999, are
summarized as follows:
<TABLE>
<CAPTION>
Office
Facilities Vehicles
----------- ----------
<S> <C> <C>
Year ended December 31
2000 $ 62,250 $ 20,515
2001 60,000 14,346
2002 45,000
</TABLE>
NOTE 10 - EARNINGS PER SHARE
Earnings per share are based on the weighted average number of
shares outstanding for the year, restated for the two stock splits
in 1999. Weighted average shares outstanding were 1,992,198 and
1,834,118 for 1999 and 1998, respectively.
F-13
<PAGE> 49
EXHIBIT A
1,000,000 SHARES
INTERNATIONAL MONETARY SYSTEMS LTD.
COMMON STOCK
------------------------------------------
SUBSCRIPTION AGREEMENT
International Monetary Systems, Ltd.
16901 West Glendale Drive
New Berlin, Wisconsin 53151
Gentlemen:
The undersigned irrevocably subscribe(s) for and agree(s) to purchase
shares of common stock, par value $0.0001 per share ("Common Stock"), of
International Monetary Systems, Ltd. ("Company"), to be registered in the
name(s) of the undersigned at the address appearing below. Delivered
concurrently herewith is payment in full for the Common Stock subscribed for, at
the price of $ per share (checks made payable to "Grafton State Bank, Escrow
Agent"). The undersigned agree(s) that the Company has the right to reject this
subscription for any reason and that, in the event of rejection, all funds
delivered herewith will be promptly returned, without interest or deduction.
WITHHOLDING CERTIFICATION
Each of the undersigned certifies under penalty of perjury that:
(1) The Social Security Number or other Federal Tax I.D. Number entered
below is correct.
(2) The undersigned is not subject to backup withholding because:
(a) The IRS has not informed the undersigned that he/she/it is subject to
backup withholding.
(b) The IRS has notified the undersigned that he/she/it is no longer
subject to backup withholding.
NOTE: If this statement is not true and you are subject to backup
withholding, strike out section (2).
REGISTRATION OF SECURITIES
Common Stock is to be registered as indicated below. (Please type or
print.)
-------------------------------------
------------------------------------------
Social Security or Federal Tax I.D. Number
-------------------------------------
Name(s)
-------------------------------------
Street Address
Telephone Number ( )
---------------
----------------------------------
City, State, Zip Code
OWNERSHIP: [ ] Individual [ ] Marital Property
[ ] Joint Tenants with Right of Survivorship [ ] Tenants in Common
[ ] Corporation [ ] Partnership [ ] Trust [ ] IRA/Qualified Plan
[ ] Other
---------------------------------
If Common Stock is to be registered jointly, all owners must sign. For
IRAs/Qualified Plans, the trustee must sign. Any registration in the names of
two or more co-owners will, unless otherwise specified, be as joint tenants with
rights of survivorship and not as tenants in common. Each subscriber certifies
that he/she/it has full capacity to enter into this Agreement. This subscription
is subject to acceptance by the Company and will not be accepted unless
accompanied by payment in full.
A-1
<PAGE> 50
SUBSCRIBER SIGNATURES
INDIVIDUALS (All proposed record holders must sign.)
Dated:
------------------------
----------------------------------- ------------------------------------
(Signature) (Signature)
----------------------------------- ------------------------------------
(Print or Type Name) (Print or Type Name)
CORPORATIONS, PARTNERSHIPS, TRUSTS AND IRAS/QUALIFIED PLANS (Certificate of
Signatory must be completed.)
Dated:
----------------------- ------------------------------------------
(Print or Type Name of Entity)
By:
-------------------------------------------
(Signature of Authorized Representative)
CERTIFICATE OF SIGNATORY
I, , am the
----------------------------------------------------------
(Print or Type Name of Authorized Representative)
of
------------------------------------------- ---------------------------------
(Print or Type Title or Position) (Print or Type Name of
("Entity").
-------------------------
Subscribing Entity)
I certify that I am fully authorized and empowered by the Entity to execute
this Subscription Agreement and to purchase Common Stock, and that this
Subscription Agreement has been duly executed by me on behalf of the Entity and
constitutes a valid and binding obligation of the Entity in accordance with its
terms.
---------------------------------------------------------------------------
(Signature of Authorized Representative)
SALES AGENT
Name of Selected Placement Agent:
------------------------------------------
Name of Registered Representative:
-----------------------------------------
ACCEPTANCE
Subscription [ ] accepted [ ] rejected as of , 2000.
---------------------
INTERNATIONAL MONETARY SYSTEMS, LTD.
By:
------------------------------------------
(Signature of Authorized Officer)
A-2
<PAGE> 51
[Inside back cover]
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO
BUY, SHARES OF COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE
PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF
THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THE
PROSPECTUS OR OF ANY SALE OF THE COMMON STOCK.
<PAGE> 52
[Outside back cover]
INTERNATIONAL MONETARY SYSTEMS, LTD.
<PAGE> 53
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Sections 11.01 through 11.03 of the Bylaws of the Registrant authorize such
corporation to indemnify its directors, officers, employees or agents to the
fullest extent permitted by Wisconsin law, as follows:
ARTICLE XI
INDEMNIFICATION
SECTION 11.01. INDEMNIFICATION. The corporation shall, to the fullest
extent authorized by ch. 180, indemnify a director or officer against
liability and reasonable expenses incurred by the director or officer in a
proceeding in which the director or officer was a party because he or she
is or was a director or officer of the corporation. These indemnification
rights shall not be deemed to exclude any other rights to which the
director or officer may otherwise be entitled. The corporation may, to the
fullest extent authorized by ch. 180, indemnify, reimburse or advance
expenses of directors or officers.
A director or officer who seeks indemnification under this Section
shall make a written request to the corporation. Indemnification under this
Section is not required to the extent limited by the articles of
incorporation under Section 11.02. Indemnification under this Section is
not required if the director or officer has previously received
indemnification or allowance of expenses from any person, including the
corporation, in connection with the same proceeding.
SECTION 11.02. LIMITED INDEMNIFICATION. The corporation's articles of
incorporation may limit its obligation to indemnify under Section 11.01. A
limitation under this Section applies if the first alleged act or omission
of a director or officer for which indemnification is sought occurred while
the limitation was in effect.
SECTION 11.03. INDEMNIFICATION AND ALLOWANCE OF EXPENSES OF EMPLOYEES
AND AGENT. The corporation shall, to the fullest extent authorized by ch.
180, indemnify an employee who is not a director or officer of the
corporation, to the extent that he or she has been successful on the merits
or otherwise in defense of a proceeding, for all reasonable expenses
incurred in the proceeding if the employee was a party because he or she
was an employee of the corporation. In addition to the indemnification
required by the preceding sentence, the corporation may indemnify and allow
reasonable expenses of an employee or agent who is not a director or
officer of the corporation to the extent provided by the articles of
incorporation or by-laws, by general or specific action of the board of
directors or by contract.
Sections 180.0850 through 180.0859 of the Wisconsin Business Corporation
Law provide for the indemnification of directors, officers and other employees
of the Registrant, as follows:
180.0850 DEFINITIONS APPLICABLE TO INDEMNIFICATION AND INSURANCE
PROVISIONS. In ss. 180.0850 to 180.0859:
(1) "Corporation" means a domestic corporation and any domestic or
foreign predecessor of a domestic corporation where the predecessor
corporation's existence ceased upon the consummation of a merger or other
transaction.
(2) "Director or officer" of a corporation means any of the following:
(a) An individual who is or was a director or officer of the
corporation.
(b) An individual who, while a director or officer of the
corporation, is or was serving at the corporation's request as a
director, officer, partner, trustee, member of any governing or
decision-making committee, employee or agent of another corporation or
foreign corporation, partnership, joint venture, trust or other
enterprise.
II - 1
<PAGE> 54
(c) An individual who, while a director or officer of the
corporation, is or was serving an employee benefit plan because his or
her duties to the corporation also impose duties on, or otherwise
involve services by, the person to the plan or to participants in or
beneficiaries of the plan.
(d) Unless the context requires otherwise, the estate or personal
representative of a director or officer.
(3) "Expenses" include fees. costs, charges. disbursements, attorney
fees and any other expenses incurred in connection with a proceeding.
(4) "Liability" includes the obligation to pay a judgment, settlement,
penalty, assessment, forfeiture or fine, including an excise tax assessed
with respect to an employee benefit plan, and reasonable expenses.
(5) "Party" includes an individual who was or is, or who is threatened
to be made, a named defendant or respondent in a proceeding.
(6) "Proceeding" means any threatened, pending or completed civil,
criminal, administrative or investigative action, suit, arbitration or
other proceeding, whether formal or informal, which involves foreign,
federal, state or local law and which is brought by or in the right of the
corporation or by any other person.
180.0851 MANDATORY INDEMNIFICATION. (1) A corporation shall indemnify a
director or officer, to the extent that he or she has been successful on
the merits or otherwise in the defense of a proceeding, for all reasonable
expenses incurred in the proceeding if the director or officer was a party
because he or she is a director or officer of the corporation.
(2) (a) In cases not included under sub. (1), a corporation shall
indemnify a director or officer against liability incurred by the director
or officer in a proceeding to which the director or officer was a party
because he or she is a director or officer of the corporation, unless
liability was incurred because the director or officer breached or failed
to perform a duty that he or she owes to the corporation and the breach or
failure to perform constitutes any of the following:
1. A wilful failure to deal fairly with the corporation or its
shareholders in connection with a matter in which the director or
officer has a material conflict of interest.
2. A violation of the criminal law, unless the director or
officer had reasonable cause to believe that his or her conduct
was lawful or no reasonable cause to believe that his or her
conduct was unlawful.
3. A transaction from which the director or officer derived an
improper personal profit.
4. Wilful misconduct.
(b) Determination of whether indemnification is required under
this subsection shall be made under s. 180.0855.
(c) The termination of a proceeding by judgment, order,
settlement or conviction, or upon a plea of no contest or an equivalent
plea, does not, by itself, create a presumption that indemnification of the
director or officer is not required under this subsection.
(3) A director or officer who seeks indemnification under this section
shall make a written request to the corporation.
(4) (a) Indemnification under this section is not required to the
extent limited by the articles of incorporation under s. 180.0852.
(b) Indemnification under this section is not required if the
director or officer has previously received indemnification or allowance of
expenses from any person, including the corporation, in connection with the
same proceeding.
180.0952 CORPORATION MAY LIMIT INDEMNIFICATION. A corporation's articles of
incorporation may limit its obligation to indemnify under s. 180.0851. Any
provision of the articles of incorporation relating to a corporation's
power or obligation to indemnify that was in existence on June 13, 1987,
does not constitute a limitation on the corporation's obligation to
indemnify under s. 180.0851. A limitation under this section applies if the
first alleged act or omission of a director or officer for which
indemnification is sought occurred while the limitation was in effect.
180.0853 ALLOWANCE OF EXPENSES AS INCURRED. Upon written request by a
director or officer who is a party to a proceeding, a corporation may pay
or reimburse his or her reasonable expenses as incurred if the director or
officer provides the corporation with all of the following:
II - 2
<PAGE> 55
(1) A written affirmation of his or her good faith belief that he or
she has not breached or failed to perform his or her duties to the
corporation.
(2) A written undertaking, executed personally or on his or her
behalf, to repay the allowance and, if required by the corporation, to pay
reasonable interest on the allowance to the extent that it is ultimately
determined under s. 180.0855 that indemnification under s. 180.0851(2) is
not required and that indemnification is not ordered by a court under s.
180.0854(2)(b). The undertaking under this subsection shall be an unlimited
general obligation of the director or officer and may be accepted without
reference to his or her ability to repay the allowance. The undertaking may
be secured or unsecured.
180.0854 COURT-ORDERED INDEMNIFICATION. (1) Except as provided otherwise by
written agreement between the director or officer and the corporation, a
director or officer who is a party to a proceeding may apply for
indemnification to the court conducting the proceeding or to another court
of competent jurisdiction. Application shall be made for an initial
determination by the court under s. 180.0855(5) or for review by the court
of an adverse determination under s. 180.0855(1), (2), (3), (4) or (6).
After receipt of an application, the court shall give any notice that it
considers necessary.
(2) The court shall order indemnification if it determines any of the
following:
(a) That the director or officer is entitled to indemnification under
s. 180-0851 (1) or (2). If the court also determines that the corporation
unreasonably refused the director's or officer's request for
indemnification, the court shall order the corporation to pay the
director's or officer's reasonable expenses incurred to obtain the
court-ordered indemnification.
(b) That the director or officer is fairly and reasonably entitled to
indemnification in view of all the relevant circumstances, regardless of
whether indemnification is required under s. 180.0851(2).
180.0955 DETERMINATION OF RIGHT TO INDEMNIFICATION. Unless otherwise
provided by the articles of incorporation or bylaws or by written agreement
between the director or officer and the corporation, the director or
officer seeking indemnification under s. 180.0851(2) shall select one of
the following means for determining his or her right to indemnification:
(1) By a majority vote of a quorum of the board of directors
consisting of directors who are not at the time parties to the same or
related proceedings. If a quorum of disinterested directors cannot be
obtained, by majority vote of a committee duly appointed by the board of
directors and consisting solely of 2 or more directors who are not at the
time parties to the same or related proceedings. Directors who are parties
to the same or related proceedings may participate in the designation of
members of the committee.
(2) By independent legal counsel selected by a quorum of the board of
directors or its committee in the manner prescribed in sub. (1) or, if
unable to obtain such a quorum or committee, by a majority vote of the full
board of directors, including directors who are parties to the same or
related proceedings.
(3) By a panel of 3 arbitrators consisting of one arbitrator selected
by those directors entitled under sub. (2) to select independent legal
counsel, one arbitrator selected by the director or officer seeking
indemnification and one arbitrator selected by the 2 arbitrators previously
selected.
(4) By an affirmative vote of shares as provided in s.180.0725. Shares
owned by, or voted under the control of, persons who are at the time
parties to the same or related proceedings, whether as plaintiffs or
defendants or in any other capacity, may not be voted in making the
determination.
(5) By a court under s.180.0854.
(6) By any other method provided for in any additional right to
indemnification permitted under s.180.0858.
180.0856 INDEMNIFICATION AND ALLOWANCE OF EXPENSES OF EMPLOYEES AND AGENTS.
(1) A corporation shall indemnify an employee who is not a director or
officer of the corporation, to the extent that he or she has been
successful on the merits or otherwise in defense of a proceeding, for all
expenses incurred in the proceeding if the employee was a party because he
or she was an employee of the corporation.
(2) In addition to the indemnification required by sub. (1), a
corporation may indemnify and allow reasonable expenses of an employee or
agent who is not a director or officer of the corporation to the extent
provided by the articles of incorporation or bylaws, by general or specific
action of the board of directors or by contract.
II - 3
<PAGE> 56
180.0857 INSURANCE. A corporation may purchase and maintain insurance on
behalf of an individual who is an employee, agent, director or officer of
the corporation against liability asserted against or incurred by the
individual in his or her capacity as an employee, agent, director or
officer or arising from his or her status as an employee, agent, director
or officer, regardless of whether the corporation is required or authorized
to indemnify or allow expenses to the individual against the same liability
under ss. 180.0851, 180.0853, 180.0856 and 180.0858.
180.0858 ADDITIONAL RIGHTS TO INDEMNIFICATION AND ALLOWANCE OF EXPENSES.
(1) Except as provided in sub. (2), ss. 180.0851 and 180.0853 do not
preclude any additional right to indemnification or allowance of expenses
that a director or officer may have under any of the following:
(a) The articles of incorporation or bylaws.
(b) A written agreement between the director or officer and the
corporation.
(c) A resolution of the board of directors.
(d) A resolution, after notice, by a majority vote of all of the
corporation's voting shares then issued and outstanding.
(2) Regardless of the existence of an additional right under sub. (1),
the corporation may not indemnify a director or officer, or permit a
director or officer to retain any allowance of expenses unless it is
determined by or on behalf of the corporation that the director or officer
did not breach or fail to perform a duty that he or she owes to the
corporation which constitutes conduct under s. 180.0851(2)(a)1, 2, 3 or 4.
A director or officer who is a party to the same or related proceeding for
which indemnification or an allowance of expenses is sought may not
participate in a determination under this subsection.
(3) Sections 180.0850 to 180.0859 do not affect a corporation's power
to pay or reimburse expenses incurred by a director or officer in any of
the following circumstances:
(a) As a witness in a proceeding to which he or she is not a party.
(b) As a plaintiff or petitioner in a proceeding because he or she is
or was an employee, agent, director or officer of the corporation.
180.0859 INDEMNIFICATION AND INSURANCE AGAINST SECURITIES LAW CLAIMS. (1)
It is the public policy of this state to require or permit indemnification,
allowance of expenses and insurance for any liability incurred in
connection with a proceeding involving securities regulation described
under sub. (2) to the extent required or permitted under ss. 180.0850 to
180.0858.
(2) Sections 180.0850 to 180.0858 apply, to the extent applicable to
any other proceeding, to any proceeding involving a federal or state
statute, rule or regulation regulating the offer, sale or purchase of
securities, securities brokers or dealers, or investment companies or
investment advisors.
The Registrant has not purchased insurance against costs which may be
incurred by it pursuant to the foregoing provisions of its Articles of
Incorporation of Incorporation and Bylaws, nor does it insure its officers and
directors against liabilities incurred by them in the discharge of their
functions as such officers and directors.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
All amounts below are based upon the registration of 1,150,000 shares
at $6.00 per share, of which 1,000,000 shares are assumed to be sold in the
offering at $6.00 per share:
<TABLE>
<S> <C>
SEC registration fee.............................................................. $ 1,821.60
NASD filing fee................................................................... 1,190.00
Brokers' expense allowance........................................................ 120,000.00
Legal fees and expenses........................................................... 98,000.00 *
Accounting fees and expenses...................................................... 17,500.00 *
Blue Sky fees and expenses........................................................ 8,250.00 *
Printing and engraving............................................................ 19,750.00 *
Other expenses.................................................................... 3,488.40 *
Total.................................................................... $ 270,000.00 *
</TABLE>
----------------
* Estimate
II - 4
<PAGE> 57
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
On July 20, 1999, the Registrant sold an aggregate of 13,000 shares of
Common Stock to two of its employees (10,000 shares and 3,000 shares,
respectively), pursuant to the exercise of options granted in 1996, at the price
of $1.00 per share. No selling commissions or other compensation were paid in
connection with either transaction. Such sales were made in reliance upon the
exemption from registration under the Securities Act of 1933 provided by Section
4(2) of such Act.
On July 29, 1998, in connection with its acquisition of the assets and
trade accounts of Wisconsin Barter Exchange, the Registrant issued 15,000 shares
of its Common Stock to Scott Sanftleben, the seller of such assets and trade
accounts, valued at $3.00 per share ($45,000) for purposes of the sale. No
selling commissions or other compensation were paid in connection with either
transaction. Such payment was made in reliance upon the exemption from
registration under the Securities Act of 1933 provided by Section 4(2) of such
Act.
From June 10, 1998 through September 30, 1999, the Registrant sold, as
investment units, 112,152 shares of common stock and warrants to purchase an
additional 56,076 shares. Each unit consisted of two shares of common stock and
a warrant to purchase one additional share for $4.00. Units were sold to 29
individual investors, of whom 6 were accredited and 23 were nonaccredited (but
who certified that they had the level of sophistication required by Rule 506 of
Regulation D), at the price of $6.00 per unit, for an aggregate purchase price
of $336,456. Adjusted for a subsequent 2-for-1 stock split, 224,304 shares of
common stock and warrants covering 112,152 additional shares at $2.00 per share
were sold. All purchasers received and/or were given access to the information
required under Rule 502(b). The foregoing private offering was underwritten, on
a "best-efforts" basis, by Pavek Investments, Inc., Milwaukee, Wisconsin; the
Registrant paid an aggregate of $33,646 in commissions and expense allowances to
Pavek Investments, Inc. in connection with the distribution of the offering. All
sales were made in reliance upon the exemption from registration under the
Securities Act of 1933 provided by Section 4(2) of such Act and Rule 506 of
Regulation D thereunder.
ITEM 27. EXHIBITS.
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C>
1.1 Managing Placement Agent (Underwriting) Agreement
1.2 Form of Selected Placement Agent (Dealer) Agreement
3.1 Articles of Incorporation of the Registrant *
3.2 Articles of Amendment of the Registrant *
3.3 Bylaws of the Registrant *
4.1 Form of Underwriter's Warrant *
5.1 Opinion of Gerald R. Turner & Associates, S.C.
10.1 Lease Agreement, between Glendale Investments, LLC. and the
Registrant *
10.2 Escrow Agreement, among the Registrant, Liss Financial Services and
Grafton State Bank
23.1 Consent of Gerald R. Turner & Associates, S.C.
(included in Exhibit 5.1)
23.2 Consent of Kranitz & Philipp
23.3 Consent of Smith & Gesteland, LLP.
24.1 Power of Attorney *
27.1 Financial Data Schedule (included in electronic filing only)
</TABLE>
---------------------
* Previously filed.
ITEM 28. UNDERTAKINGS.
The undersigned small business issuer will provide to the Underwriters at
the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
II - 5
<PAGE> 58
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the small business issuer of expenses incurred or
paid by a director, officer or controlling person of the small business issuer
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the small business issuer will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The undersigned small business issuer will:
(1) For determining any liability under the Act, treat the information
omitted from the form of prospectus filed as part of this registration statement
in reliance upon Rule 430A and contained in a form of prospectus filed by the
Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Act as part of
this registration statement as of the time the Commission declared it effective.
(2) For determining any liability under the Act, treat each post-effective
amendment that contains a form of prospectus as a new registration statement for
the securities offered in the registration statement, and the offering of the
securities at that time as the initial bona fide offering of those securities.
(3) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of the Act;
(ii) Reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information in the
registration statement; and
(iii) Include any additional or changed material information on the
plan of distribution.
(4) For determining liability under the Act, treat each post-effective
amendment as a new registration statement of the securities offered, and the
offering of the securities at that time to be the initial bona fide offering.
(5) File a post-effective amendment to remove from registration any of the
securities which remain unsold at the end of the offering.
II - 6
<PAGE> 59
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of New
Berlin, State of Wisconsin on June 12, 2000.
INTERNATIONAL MONETARY SYSTEMS, LTD.
By: /s/ DONALD F. MARDAK
------------------------------------
Donald F. Mardak,
Chief Executive Officer and President
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
DONALD F. MARDAK Chief Executive Officer
(Principal Executive Officer),
President and Director
JOHN E. STRABLEY, JR. Executive Vice President
and Director
DALE L. MARDAK Vice President, Treasurer (Principal
Financial and Accounting Officer)
and Director
</TABLE>
By: /s/ DONALD F. MARDAK
---------------------------------------------
Donald F. Mardak
Signing personally as Chief Executive Officer,
(Principal Executive Officer), President
and Director, and as
Attorney-in-Fact for the
directors and officers whose
names appear above, on
June 12, 2000.
Part III-Signatures
<PAGE> 60
1,000,000 SHARES
INTERNATIONAL MONETARY SYSTEMS, LTD.
COMMON STOCK
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C>
1.1 Managing Placement Agent (Underwriting) Agreement
1.2 Form of Selected Placement Agent (Dealer) Agreement
3.1 Articles of Incorporation of the Registrant *
3.2 Articles of Amendment of the Registrant *
3.3 Bylaws of the Registrant *
4.1 Form of Underwriter's Warrant *
5.1 Opinion of Gerald R. Turner & Associates, S.C.
10.1 Lease Agreement, between Glendale Investments, LLC. and the
Registrant *
10.2 Escrow Agreement, among the Registrant, Liss Financial Services and
Grafton State Bank
23.1 Consent of Gerald R. Turner & Associates, S.C.
(included in Exhibit 5.1)
23.2 Consent of Kranitz & Philipp
23.3 Consent of Smith & Gesteland, LLP.
24.1 Power of Attorney *
27.1 Financial Data Schedule (included in electronic filing only)
</TABLE>
--------------------
* Previously filed.
Exhibit Index
