U.
S. SECURITIES AND EXCHANGE COMMISSION


Washington,
D.C. 20549


FORM
10-K




(Mark
      One)x
              ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      the fiscal year ended December 31, 2008ORo
              ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      the transition period from  to





Commission
File No. 0-30853





INTERNATIONAL
MONETARY SYSTEMS, LTD.


(Exact
name of registrant as specified in its charter)





Wisconsin
            39-1924096(State  of
      incorporation)
            (I.R.S.
      Employer Identification No.)





16901
West Glendale Drive New Berlin, Wisconsin 53151


(Address
of principal executive offices & Zip Code)





(Registrant's telephone number,
including area code)(262)
780-3640





Securities
registered pursuant to Section 12(b) of the Act:  None


Securities
registered pursuant to Section 12(g) of the Act:  Class A Common par value $.0001 per
share




Indicate
by checkmark if registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act.   Yes  o      No  x




Indicate
by checkmark if registrant is not required to file reports pursuant to Section
13 or Section 15(d) of the Act.  Yes o       No x




Indicate
by checkmark whether the Registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.    Yes  x     No
o




Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of the Registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.  o





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




Large
      accelerated filer o
            Accelerated
      filer oNon-accelerated
      filer   o (Do not check if
      a smaller reporting company)
            Smaller
      reporting company x




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





As of
April 6, 2009, the Registrant had issued and outstanding 61,025,436 shares of
common stock. The aggregate market value of the voting Common Stock (par value
$.0001 per share) held by non-affiliates on June 30, 2008 (the last business day
of our most recently completed second quarter) was $25,630,683 using the ask
price on June 30, 2008.




1


INTERNATIONAL
MONETARY SYSTEMS, LTD.





Form 10-K
Annual Report


TABLE OF
CONTENTS





PART
      I
              
              PageItem
      1.
              Description
      of Business
              3Item
      2.
              Description
      of Property
              5Item
      3.
              Legal
      Proceedings
              5Item
      4.
              Submission
      of Matters to a Vote of Security Holders
              5PART
      IIItem
      5.
              Market
      for IMSL Common Equity and Related Stockholder Matters
              6Item
      6.
              Selected
      Financial Data
              6Item
      7.
              Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
              6Item
      8.
              Financial
      Statements
              10Item
      9.
              Changes in and Disagreements with Accountants on Accounting and
      Financial Disclosure
              10Item
      9 A(T).
              Controls and Procedures
              10PART
      IIIItem
      10.
              Directors
      and Executive Officers
              12Item
      11.
              Executive
      Compensation
              14Item
      12.
              Security
      Ownership of Certain Beneficial Owners and Management
              19Item
      13.
              Certain
      Relationships and Related Transactions
              20Item
      14.
              Principal
      Accountant Fees and Services
              20Item
      15.
              Exhibits
      List and Reports On Form 8-K
              21





CERTAIN
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING INFORMATION





Certain
statements in this annual report on Form 10-K contain or may contain
forward-looking statements that are subject to known and unknown risks,
uncertainties and other factors which may cause actual results, performance or
achievements to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. These
forward-looking statements were based on various factors and were derived
utilizing numerous assumptions and other factors that could cause our actual
results to differ materially from those in the forward-looking statements. These
factors include, but are not limited to, economic, political and market
conditions and fluctuations, government and industry regulation, interest rate
risk, U.S. and global competition, and other factors. Most of these factors are
difficult to predict accurately and are generally beyond our control. You should
consider the areas of risk described in connection with any forward-looking
Statements that may be made herein. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date of
this report. Readers should carefully review this quarterly report in its
entirety, including but not limited to our financial statements and the notes
thereto. Except for our ongoing obligations to disclose material information
under the Federal securities laws, we undertake no obligation to release
publicly any revisions to any forward-looking statements, to report events or to
report the occurrence of unanticipated events. For any forward-looking
statements contained in any document, we claim the protection of the safe harbor
for forward-looking statements contained in the Private Securities Litigation
Reform Act of 1995.











2





PART
I







In this
report, "IMSL", "IMS", "The Company", "we", "us" and "our" refer to the
Registrant, International Monetary Systems, Ltd., a Wisconsin corporation, and
its subsidiaries.





ITEM
1 - DESCRIPTION OF BUSINESS





Introduction





International
Monetary Systems, Ltd. was incorporated in 1989 under the laws of the State of
Wisconsin. The Company acquires, owns, manages and operates trade exchanges and
other related businesses.





Trade
exchanges, or barter networks, are financial service firms which permit
companies and individuals to exchange goods and services utilizing an electronic
currency known as "trade dollars", the use of which is described below.
Currently, IMS services more than 18,000 barter customers. We have continually
expanded our customer base, principally through enrolling new members in our
existing markets, acquiring other barter exchanges, and by encouraging our
members to increase their trade volume.





Our
corporate headquarters mailing address is 16901 West Glendale Drive, New Berlin,
Wisconsin 53151, and our telephone numbers are (800) 559-8515 and (262)
780-3640; the telephone number for our primary facsimile line is (262) 780-3655.
Our Internet addresses are www.internationalmonetary.com and
www.imsbarter.com.





The
Modern Barter Industry





The
modern barter industry took shape in its current form in 1969 with the creation
of the first retail barter exchange. Currently there are an estimated 250 barter
system firms - including several with multiple licensees – operating in the
United States and Canada. These exchanges provide services that involve an
estimated 200,000 member companies.





Retail
trade exchanges range in size from those operated by a single person from a
small office to large firms operating out of multiple offices located over a
wide area. The 35 largest commercial exchange firms handle approximately 50% of
the estimated $700 million in transactions that flow through the barter system
annually. Most trade exchanges are private companies that make extensive use of
computers to track their members, match transactions, and provide necessary
accounting.





The
National Association of Trade Exchanges and the International Reciprocal Trade
Association are the two professional associations most active in the
industry.





How
Barter Works





In a
typical barter transaction, a member offers to sell products or services in
return for the exchange's trade dollars, typically referenced as "T$", which are
paid to the member by the purchaser in the transaction. For example, T$100
refers to $100 worth of trade dollars that are used to acquire a product or
service priced at $100 in U.S. currency. If the purchase price is greater than
the amount of earned trade dollars in the buyer's account, the exchange may
grant a trade dollar line of credit to the buyer. Periodically, each member has
to account for any deficit in its trade account just as it would with a
conventional loan or other credit facility.





As
compensation for providing its services, the trade exchange generally charges a
one-time membership fee, monthly maintenance fees and/or a percentage of the
price of each transaction (usually 10% to 15%). These fees are typically paid by
the member to the trade exchange in cash.





Barter
transactions which represent sales revenue are taxable as ordinary income to the
recipient of the trade dollars in the conventional dollar amount of the trade
dollars received, and conversely are deductible as ordinary expense by a
purchaser in the conventional dollar amount of the trade dollars paid. Members'
barter sales are reportable by the trade exchange to the Internal Revenue
Service on Form 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





3




product
or service. Consequently, each purchase results in a probable sale. And since
the actual cash cost of producing the product or service is typically less than
its retail sale price, a person utilizing barter is actually purchasing for a
real cash cost that is only a fraction of the price of the product or service
purchased. In effect, the barter exchange member buys at wholesale, but sells
its own goods or services at retail. Frequently, the member will charge a higher
price for barter than for cash to cover the charges due to the trade exchange.
However, the benefit to the person bartering for the product or service is still
significant as a result of the purchase being accomplished through
barter.





For
example, a trade exchange member may incur a $1,000 cash cost to produce a
product or to purchase it at wholesale. If the member then barters this product
for a good or service priced at $1,500, representing the retail price at which
it is normally sold, the member has effectively bought the good or service for a
cost of only $1,000 in cash. Barter leverage is particularly effective in the
case of products that have become hard to sell. Rather than write down their
value, the producer may be able to secure full value by bartering them through
the trade exchange. Barter leverage works most effectively when trading for
something that is perishable, such as hotel rooms or airline tickets. Once the
hotel room lies vacant or the airline seat is unfilled for a flight, its value
is lost forever. In those cases, exchange of the room or seat in barter offers
an effective way to gain value from something that would otherwise have been
rendered worthless. Due to barter leverage, the value of barter to exchange
members will more than likely offset the fees charged by the barter
exchange.





Barter
also provides an effective means by which a member may enter new markets, gain
trial usage by potential customers, or increase market share. The member may
well find that he can reach a customer who would not otherwise have tried his
product or service if the full price had to be paid in cash, but who will try
his goods or services, sometimes in large amounts or on extended terms, when the
price is being paid in goods or services of the purchaser in the form of trade
dollars. Because of the need to clear trade dollars over time, barter exchanges
become affinity marketing networks, in which members seek out opportunities to
do business with one another.





The
principal disadvantage of barter is that, in comparison to the general
cash-based economy, a more limited supply of products and services is
available.





International
Monetary Systems, Ltd. (IMSL) is a holding company that currently has two
operating subsidiaries: Continental Trade Exchange, Ltd., doing business as
International Monetary Systems (IMS), and National Trade Association, Inc.
(NTA), both are part of the IMS barter system which operates in the United
States and Canada.





The
IMS Barter Network





As a
leader in the barter industry, IMS has created a network of more than 18,000
barter clients who regularly trade their goods and services with each other.
Through their participation in our barter program, these companies and
individuals are provided with an effective revenue management tool which enables
them to identify and capture incremental income, move surplus inventories and
profitably capitalize on their excess capacity. IMS functions as a third-party
record keeper - a status granted by the Internal Revenue Service - and also
manages the barter system.





To
provide clients with a flexible and effective means of trading, IMS has created
an alternative monetary system with its own unique currency. Upon enrolling in
the program, each member is assigned a barter account (much like a traditional
bank account) through which it receives IMS trade dollars - the medium of
exchange for the barter system. Under the T.E.F.R.A. act of 1982, we are
required to report all barter sales to the IRS. For accounting and tax purposes,
the IRS has ruled that trade dollars are treated the same as cash. Accordingly,
the Company may in any period report significant revenue, profits and increases
in net assets from transactions denominated in IMS trade dollars or other
non-cash consideration.





The IMS
barter system began operations in July of 1985 and has had a record of
consistent and steady growth, both organic and through acquisitions of other
barter networks. As we have added new members to the system we have witnessed a
compounded annual growth rate of approximately 15% per year for the past decade.
During that same period we have acquired twenty two independent trade exchange
operations. We believe that the barter industry, much like the banking industry,
is ready for a period of substantial consolidation and, therefore, we intend to
continue acquiring strategically located trade exchanges that will enable us to
achieve and maintain a dominant market position. A dominant position within a
market gives us better visibility within that market, allows us to offer a wider
range of customer products and services for the benefit of our clients, and
ensures that we will achieve greater economies of scale.





Three of
those acquisitions were consummated during 2008. In April 2008, IMSL exercised
its option to acquire the membership and assets of New York Commerce Group of
New York, NY. In May 2008, IMSL acquired the membership list and assets of
Business Network of Hauppauge, New York.. In July 2008,  IMSL acquired
the membership list and assets of Bartermax of Norwood, MA.





4





Other
Related Businesses





In
addition to expanding our IMS barter operations, we intend to acquire other
related businesses that synergize with and enhance the barter
network.





ITEM 1A – RISK
FACTORS -No applicable risk factors





ITEM
2 - DESCRIPTION OF PROPERTY





Our
company's executive offices and principal operating facilities occupy 11,000
square feet of leased space located at 16901 West Glendale Drive, New Berlin,
Wisconsin, under a lease from Glendale Investments, LLC, a Wisconsin limited
liability company owned by Donald F. Mardak, Dale L. Mardak and John E.
Strabley, officers and directors of IMSL. Rent and other terms of our lease,
which expires September 30, 2010 are believed by us to be comparable to those
available for similar space from unaffiliated, third-party lessors in the same
area. We also lease (1) 400 square feet of office space at 1545 University
Avenue, Green Bay, Wisconsin, (2) 2,800 square feet of office space at 5350
Commerce Blvd., Rohnert Park, CA, (3) 6,840 square feet at 8938 Cotter Street,
Lewis Center, Ohio, (4) 1,000 square feet of office space at 1317 Oakdale Road,
Modesto, California, (5) 2,900 square feet of office at 4295 Cromwell Rd,
Chattanooga, TN, (6) 630 square feet of office space at 4600 Kietzke Lane,,
Reno, NV, (7) 7,600 square feet of office and warehouse space at 103 East Main
Street, Plainview, CT, (8) 833 square feet of office space at 6402 McLeod Drive,
Las Vegas, NV. (9) 200 square feet of office space at 50 Airport Parkway, San
Jose, CA, (10) 1,896 square feet of office space at 7670 Wolff Court,
Westminster, CO (11) 21,630 square feet of office and warehouse space at 7449
North Natchez Ave., Niles, IL, (12) 4,900 square feet of office space at 1595
Elmwood Ave., Rochester, NY, (13) 1,455 square feet of office space at 3100
Steeles Avenue West, Concord, Ontario, Canada, (14) 1,200 square feet of office
space at 438 S. Greenwood, Wichita, Kansas, (15) 250 square feet of office space
at 3418 Frankfort Ave, Louisville, KY.,(16) 1,400 square feet of office space at
1751 2nd Avenue,
New York, NY, (18) 1.500 square feet of office space at 800 Veterans Blvd,
Hauppauge, NY, (19) 1,910 square feet of office space at One Edgewood Drive,
Norwood, MA. The leases on all other properties aside from the New Berlin,
Wisconsin facility are from unaffiliated parties and are each on a
month-to-month basis or a short term lease of less than 5 years. 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.





ITEM
3 - LEGAL PROCEEDINGS





On
January 20, 2008, Celia Greengrass filed a sexual harassment complaint with the
Equal Employment Opportunity Commission.  The claim is still under
investigation by the EEOC but IMS believes the claims to be meritless and will
vigorously defend itself.





On March
20, 2008, Joan Mansfield filed a complaint alleging age discrimination with the
Connecticut Commission on Human Rights and Opportunities and the Equal
Employment Opportunity Commission.  IMS has reached a settlement with
Ms. Mansfield and the complaints will be dismissed.





On May
29, 2008, John Lounsbury filed a claim of sexual harassment with the Connecticut
Commission on Human Rights and Opportunities and the Equal Employment
Opportunity Commission.  The claim is still under investigation by the
CHRO but IMS feels the claim is without merit and will vigorously defend
itself.





On
September 25, 2008, IMS was notified of a wage claim filed with the Canadian
Ministry of Labour by Gerard Domet in the amount of $10,400.00.  The
claim is still under review by the Ministry of Labour.  There may be
wages due to Mr. Domet; however, the amount is substantially less than the
amount claimed.





On
September 30, 2008, WRS, Inc D/B/A WRS Motion Picture and Video Laboratory filed
suit in Allegheny County, PA for breach of contract.  The complaint
seeks $38,649.58 in damages.  The complaint against IMS is meritless;
the litigation seeks payment for services provided to a former member of the
Exchange, none of the services at the heart of the litigation were provided to
IMS and therefore, no payment is due from IMS.  A motion to dismiss
this matter is pending with the court.


There are
no other material pending legal proceedings involving IMSL or any of its
properties.





ITEM
4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS





No matter
was submitted to a vote of our security holders during the fourth quarter of the
fiscal year ended December 31, 2008.





5













PART
II





ITEM
5 - MARKET FOR IMSL COMMON EQUITY AND RELATED STOCKHOLDER MATTERS





Stock.
Our initial public offering was concluded on December 31, 2001, and our Common
Stock began being quoted on the NASD's OTC Bulletin Board on June 25, 2002. For
the past 50 days ending on March 27, 2009, the trading volume has averaged
24,308 shares per day.





High
              LowFiscal
      2007First
      quarter ended March 31, 2007
              $0.98
              $0.98Second
      quarter ended June 30, 2007
              $0.81
              $0.81Third
      quarter ended September 30, 2007
              $0.62
              $0.62Fourth
      quarter ended December 31, 2007
              $0.54
              $0.53Fiscal
      2008First
      quarter ended March 31, 2008
              $0.55
              $0.51Second
      quarter ended June 30, 2008
              $0.49
              $0.42Third
      quarter ended September 30, 2008
              $0.33
              $0.28Fourth
      quarter ended December 31, 2008
              $0.20
              $0.20





As of
December 31, 2008, the approximate number of holders of record of our Common
Stock was 675.





ITEM 6 – SELECTED FINANCIAL DATA -Not
applicable.





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





The
following commentary should be read in conjunction with the financial statements
and related notes contained elsewhere in this report.





2008 was
a year filled with achievements and challenges for International Monetary
Systems. After record-setting growth in 2007 triggered by IMS’ acquisitions of
two of America’s largest trade exchanges, the Company spent much of 2008
integrating those operations and continuing to build
infrastructure.





Following
are some of the highlights of 2008:





·
            The
      Company completed its investment in new computers, monitors, printers,
      servers, and other equipment, which has enhanced the efficiency of our
      broker and sales staffs.





·
            Substantial
      progress was made in upgrading our web site, with new written content and
      graphics, new testimonials, an educational video, a client/broker blog,
      and audio clips which tell our story to prospective members. We have seen
      new traffic to our web site increase 76% from 2007. The member portal has
      been expanded with a new online barter marketplace, travel-on-trade
      booking area, and account maintenance tools. As a result we are seeing
      more and more members use the IMS web site to sell, buy, or simply input a
      transaction or check their account. We are transforming member behavior to
      positively impact our efficiency.





·
            Last
      year IMS acquired the source code for TradeWorks,our
      proprietary clearing system, then migrated the entire program from its
      original RPG format into a more current dot-net technology. This process
      is ongoing as we are nearing the official rollout of the most updated
      version of our new Trade
      Network Tracking System (TNT).The cost of this project is
      approaching $500,000.





6




·
            Our
      IT department now has five full-time employees, including a talented
      graphics designer, who are servicing the network, converting the software
      and enhancing the IMS web site.





·
            We
      have worked diligently to increase the productivity and cost-effectiveness
      of our outside sales force. Some of our losses in the first two quarters
      of 2008 were a direct result of non-productive efforts. We now have a
      leaner, more efficient group who enrolled more than 3,000 new members
      during 2008. Yet as impressive as that number seems, it barely matched the
      attrition of existing members who had stopped functioning in the barter
      system, or had ceased business
operations.





·
            Our
      annual barter expo series in November and December surpassed the
      attendance and trading volume experienced in 2007. Overall volume at these
      events increased by 16%, with aggregate sales of over $3
      million.





·
            During
      2008 IMS acquired two small exchanges in Boston, MA and Long Island, NY,
      and completed the acquisition of New York Commerce
  Group.





·
            The
      media coverage of IMS in 2008 was fortuitous. We ended the year with
      exposure from national and local television, and many different print
      outlets, big and small. During the year our CEO, Don Mardak, was
      interviewed by Neil Cavuto on the Fox Business Network, and by the
      producer of the CBS Evening News with Katie Couric. Many of the TV shows
      broadcast during 2008 also featured IMS clients who gave glowing reports
      of barter’s positive impact on their cash flow. The IMS web site home page
      features much of this coverage.





·
            During
      2008 IMS repurchased more than one million of its shares under contractual
      obligations with former owners of companies acquired in previous years.
      This increased our treasury stock to more than two million
      shares.





We
believe that all of these achievements portend a great future for International
Monetary Systems. Our confidence, however, is tempered with caution. While 2008
brought great achievements, we sustained some set-backs as a result of the
nation’s economic downturn. While cash receipts increased very slightly from
2007, that gain was offset by a sizeable trade-dollar loss from within our
corporate barter department. We do not rely on any one department to drive our
success. Our system is one that spreads the risk and reward among a large
network: when one area is down, another area is up. The same is true for the
various markets that we serve.





RESULTS OF OPERATIONS









In 2008
IMS experienced positive cash flows from operations of more than $610,000, and
operating profits (EBITDA) totaling nearly $594,000. However after deducting
amortization and impairment of our membership lists, as well as bad debt expense
and depreciation, the Company posted a net loss of $940,521, compared to a net
loss of $414,290, in 2007. The impairment loss was recorded when estimated
future cash flows were calculated as less than anticipated at the time of the
original acquisitions. Management believes that these expenses represent
investment in infrastructure that will provide substantial future organic
growth.





During
the year ended December 31, 2008 IMS processed more than $114 million in trade
sales transactions, generating gross revenue of $14,203,550, compared to
$14,772,045 in 2007. A substantial portion of the decline in revenue was
experienced in the corporate barter division, resulting in a decline in trade
revenue.





Total
operating expenses increased from $14,945,745 in 2007 to $15,448,086 for the
year ended December 31, 2008, an increase of 3.3%.





Payroll
expenses increased 2.7% from $9,228,485 in 2007 to $9,483,364 in 2008, while
occupancy expenses increased from $969,243 to $1,078,288, or 11.4%. Selling
expenses increased 22.4%, from $687,079 in 2007 to $840,926 in 2008. The
increase in selling expenses was a direct result of our expanded sales force
early in the year. However, the sales department has been reduced and expenses
in 2009 should decrease proportionately. General and administrative expenses
were reduced 13.1%, from $2,319,680 to $2,014,856.  Depreciation and
amortization expenses were increased 12.2%, from $1,465,367 to $1,643,534. This
was a mainly a result of the new exchanges acquired in 2008.





Net cash
flows from operations totaled $610,238 in 2008, compared to $945,111 in 2007.
EBITDA (earnings before interest, taxes, depreciation and amortization) totaled
$593,728 compared to EBITDA of $1,375,839 in 2007.







7






EBITDA
      Calculation2008
                  
                  
                  2007Net
      loss
                  
                  $
                  (940,521
                  )
                  
                  $
                  (414,290
                  )Interest
      expense
                  
                  
                  275,332
                  
                  
                  
                  342,855Taxes
                  
                  
                  (594,222
                  )
                  
                  
                  (54,769
                  )Depreciation
      & amortization
                  
                  
                  1,643,534
                  
                  
                  
                  1,465,367Impairment
                  
                  
                  209,605
                  
                  
                  
                  36,676Total
      EBITDA
                  
                  $
                  593,728
                  
                  
                  $
                  1,375,839







FINANCIAL
CONDITION




LIQUIDITY,
COMMITMENTS FOR CAPITAL RESOURCES, AND SOURCES OF FUNDS




In 2008
IMS experienced positive cash flows from operations of $610,238. Our principal
source of liquidity from operations has been cash earnings from membership
charges, monthly service fees and transaction processing charges. We believe
that cash from operations will be adequate to provide for our continuing
liquidity needs.





At
December 31, 2008 the Company had a working capital deficit of $1,173,807 and a
net loss of $940,521. The loss resulted in part from $1,643,534 in depreciation
and amortization expenses and an impairment charge of $209,605. As a result of
recent cuts in personnel and salaries, management believes that cash flows from
operations will increase by approximately $1,300,000.  We also
anticipate $100,000 in new financing, and an extension of a $100,000 note
payable currently due in 2009. Accordingly, management has mitigated the working
capital deficiency and does not believe that substantial doubt exists about the
Company’s ability to continue as a going concern.





In May of
2008, IMS acquired BNI of Long Island, NY for $400,000, and in July acquired
Barter Max of Boston, MA for $400,000. The Company also concluded its purchase
of New York Commerce Group in 2008. We are not currently obligated to purchase
any trade exchange or other business. However, we will continue to seek
opportunities to acquire additional quality exchanges in the
future.





Over 46%
of the current portion of long-term debt consists of notes convertible to
equity. We anticipate that some of this debt will be converted to equity.
However, existing cash flow is sufficient to meet current obligations, should
anticipated conversions not materialize.





CHANGES
IN ASSETS AND LIABILITIES




During
2008 cash balances decreased to $279,227 from $812,365 in 2007. Restricted cash
deposited in escrow accounts totaled $495,803, compared to $483,443 in 2007,
primarily to guarantee the buyback of shares related to the purchase of Alliance
Barter. If IMS’ stock price exceeds $.75 per share, these funds will revert back
to the Company in accordance with the purchase agreement.  At the end
of 2008 accounts receivable, net of allowance for doubtful accounts, totaled
$1,401,383, compared to $1,516,938 at the end of 2007. Earned trade decreased
from $314,928 to $6,991 primarily due to outlays for advertising during the
fourth quarter. As a result of these changes, total current assets decreased
from $3,392,126 on December 31, 2007 to $2,460,261 at the end of 2008. Other
assets decreased by $433,906, or 3.2%. Total assets decreased from $18,351,454
in 2007 to $16,772,946 on December 31, 2008.





Current
liabilities decreased by $344,401, or 8.6%, from $3,978,469 in 2007 to
$3,634,068 at the end of 2008. Current and long-term notes payable consist of
various notes to former owners of acquired trade exchanges, or to investors who
funded the acquisitions. At the end of 2008, long-term debt was $5,119,647
compared to $5,292,037 in 2007, a decrease of $172,390. Total liabilities
decreased 5.5%, from $9,270,506 in 2007 to $8,753,715 at the end of
2008.





Common
stock and paid-in capital increased from $10,908,001 in 2007 to $11,703,201 in
2008. Treasury stock increased from $547,241 (1,276,542 shares) in 2007 to
$1,403,216 (2,322,542 shares) in 2008. Total shareholder equity decreased 11.7%,
from $9,080,948 in 2007 to $8,019,231 on December 31, 2008.







8




BOARD
OF DIRECTORS




In 2007
the board of directors formed a Compensation Committee. The members of that
committee, as of December 31, 2008, are Wayne Dalin, Thomas Delacy, Wayne Emmer
and Gerald Van Dyn Hoven.




The Audit
Committee members are Wayne Dalin, Thomas Delacy, Wayne Emmer, Gerald Van Dyn
Hoven and Donald Mardak.




CRITICAL
ACCOUNTING POLICIES




Our
financial statements and accompanying notes are prepared in accordance with
generally accepted accounting principles in the United States. Preparing
financial statements requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenue and expenses. These
estimates and assumptions are affected by management's applications of
accounting policies. The significant accounting policies which management
believes are the most critical to aid in fully understanding and evaluating our
reported financial results include revenue recognition, intangible asset testing
and income taxes.




NEW
ACCOUNTING STANDARDS





In
December 2007, the Financial Accounting Standards Board (FASB) issued SFAS No.
160, “Noncontrolling Interests
in Consolidated Financial Statements – an amendment of ARB No. 51”. This
statement improves the relevance, comparability, and transparency of the
financial information that a reporting entity provides in its consolidated
financial statements by establishing accounting and reporting standards that
require: the ownership interests in subsidiaries held by parties other than the
parent and the amount of consolidated net income attributable to the parent and
to the noncontrolling interest be clearly identified and presented on the face
of the consolidated statement of income; changes in a parent’s ownership
interest while the parent retains its controlling financial interest in its
subsidiary be accounted for consistently; when a subsidiary is deconsolidated,
any retained noncontrolling equity investment in the former subsidiary be
initially measured at fair value; entities provide sufficient disclosures that
clearly identify and distinguish between the interests of the parent and the
interests of the noncontrolling owners. SFAS No. 160 affects those entities that
have an outstanding noncontrolling interest in one or more subsidiaries or that
deconsolidate a subsidiary. SFAS No. 160 is effective for fiscal years, and
interim periods within those fiscal years, beginning on or after December 15,
2008. Early adoption is prohibited. The adoption of this statement is not
expected to have a material effect on the Company's financial
statements.





In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement No. 133”
(SFAS161). This statement is intended
to improve transparency in financial reporting by requiring enhanced disclosures
of an entity’s derivative instruments and hedging activities and their effects
on the entity’s financial position, financial performance, and cash flows.SFAS161 applies to all derivative
instruments within the scope of SFAS 133, “Accounting for Derivative Instruments
and Hedging Activities” (SFAS 133), as well as related hedged items, bifurcated
derivatives, and nonderivative instruments that are designated and qualify as
hedging instruments. Entities with instruments subject toSFAS161 must provide more robust
qualitative disclosures and expanded quantitative disclosures.SFAS161 is effective prospectively for
financial statements issued for fiscal years and interim periods beginning after
November 15, 2008, with early application permitted. We are currently
evaluating the disclosure implications of this statement.





In
May 2008, the FASB issued FASB Staff Position APB 14-1 (FSP APB 14-1),
“Accounting for Convertible Debt Instruments That May Be Settled in Cash upon
Conversion (Including Partial Cash Settlement)”, which applies to all
convertible debt instruments that have a “net settlement feature”, which means
that such convertible debt instruments, by their terms, may be settled either
wholly or partially in cash upon conversion. FSP APB 14-1 requires issuers
of convertible debt instruments that may be settled wholly or partially in cash
upon conversion to separately account for the liability and equity components in
a manner reflective of the issuers’ nonconvertible debt borrowing rate. FSP APB
14-1 is effective for financial statements issued for fiscal years beginning
after December 15, 2008 and interim periods within those fiscal
years. Early adoption is not permitted and retroactive application to all
periods presented is required. We continue to evaluate the application of
FSP APB 14-1 on our financial statements.





9




In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles.” SFAS No. 162 identifies the sources of accounting
principles and provides entities with a framework for selecting the principles
used in preparation of financial statements that are presented in conformity
with GAAP. The current GAAP hierarchy has been criticized because it is directed
to the auditor rather than the entity, it is complex, and it ranks FASB
Statements of Financial Accounting Concepts, which are subject to the same level
of due process as FASB Statements of Financial Accounting Standards, below
industry practices that are widely recognized as generally accepted but that are
not subject to due process. The Board
believes the GAAP hierarchy should be directed to entities because it is the
entity (not its auditors) that is responsible for selecting accounting
principles for financial statements that are presented in conformity with GAAP.
SFAS 162 is effective 60 days following the SEC’s approval of PCAOB Auditing
Standard No. 6, Evaluating Consistency of Financial Statements (AS/6). The
adoption of FASB 162 is not expected to have a material impact on the Company’s
financial position.





In May,
2008, FASB issued SFAS No. 163, "Accounting for Financial Guarantee Insurance
Contracts-an interpretation of FASB Statement No. 60" ("SFAS 163"). SFAS 163
requires that an insurance enterprise recognize a claim liability prior to an
event of default (insured event) when there is evidence that credit
deterioration has occurred in an insured financial obligation. SFAS 163 also
clarifies how Statement 60 applies to financial guarantee insurance contracts,
including the recognition and measurement to be used to account for premium
revenue and claim liabilities. SFAS 163 is effective for financial statements
issued for fiscal years beginning after December 15, 2008, and interim periods
within those fiscal years. The Company does not expect the proposed guidance
will have an impact on its consolidated financial statements.







OFF
BALANCE SHEET ARRANGEMENT





We do not
have any off balance sheet arrangements or other relationships with
unconsolidated entities.





ITEM
7A – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK





Not
applicable because we are a small reporting company.





ITEM
8 - FINANCIAL STATEMENTS





Our
consolidated financial statements and related notes, and the report of Webb and
Company, P.A., independent auditors, with respect thereto, as described in the
Index to Financial Statements, appear elsewhere in this report at pages F-1
through F-31.





ITEM
9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE





During
IMSL's two most recent fiscal years of IMSL's engagement of Webb and Company
P.A. ("Webb"), neither IMSL nor anyone on behalf of IMSL consulted with Webb
regarding either (i) the application of accounting principles to a specified
transaction, either completed or proposed, or the type of audit opinion that
might be rendered on IMSL's consolidated financial statements; or (ii) any other
matter that was either the subject of a disagreement (as defined in Regulation
S-K Item 304(a)(1)(iv)) or a reportable event (as described in Regulation S-K
Item 304(a)(1)(v)).





ITEM
9A(T) - CONTROLS AND PROCEDURES





Disclosure
Controls and Procedures





An
evaluation of the effectiveness of the Company’s “disclosure controls and
procedures” (as such term is defined in Rules 13(a)-15(e) of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of
December 31, 2008 was carried out by the Company under the supervision and
with the participation of the Company’s Chief Executive Officer (“CEO”) and
Chief Financial Officer (“CFO”).





10




During
the review of the Company’s operating results for the period covered by this
report, our CEO and CFO determined that, as of December 31, 2008, our
disclosure controls and procedures were effective in providing reasonable
assurance that information we are required to disclose in reports we file or
submit under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified by the Securities and Exchange Commission
rules and forms. Our management reached this conclusion after identifying
our system to capture disclosure items, our internal process of review for
account reconciliations, our documentation of internal controls and our internal
process for preparing our annual report on Form 10-K for the fiscal year
ended December 31, 2008 as being adequate to provide such
assurance.




Management’s
Annual Report on Internal Control Over Financial Reporting




Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Exchange Act
Rule 13a-15(f). Internal control over financial reporting cannot provide
absolute assurance of achieving financial reporting objectives because of its
inherent limitations. Internal control over financial reporting is a process
that involves human diligence and compliance and is subject to lapses in
judgment and breakdowns resulting from human failures. Internal control over
financial reporting also can be circumvented by collusion or improper management
override. Because of such limitations, there is a risk that material
misstatements may not be prevented or detected on a timely basis by internal
control over financial reporting. However, these inherent limitations are known
features of the financial reporting process. Therefore, it is possible to design
into the process safeguards to reduce, though not eliminate, the risk. Also,
projections of any evaluation of effectiveness to future periods are subject to
the risk that controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may
deteriorate.




Under the
supervision and with the participation of our management, including our CEO and
CFO, we have conducted an evaluation of the effectiveness of our internal
control over financial reporting as of December 31, 2008, based upon the
framework in “Internal Control-Integrated Framework” issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Based on this evaluation,
management has concluded that our internal control over financial reporting was
effective as of December 31, 2008.




This
annual report does not include an attestation report of the company’s registered
public accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by the company’s registered
public accounting firm pursuant to temporary rules of the Securities and
Exchange Commission that permit the company to provide only management’s report
in this annual report.





Changes
in Internal Control Over Financial Reporting




No change
in our internal control over financial reporting occurred during the fiscal
quarter ended December 31, 2008 that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.








11




PART
III





ITEM
10 - DIRECTORS AND EXECUTIVE OFFICERS





Executive
Officers and Directors


The
following table sets forth information concerning our executive officers and
directors, including their names, ages and the positions they held with IMSL, as
of December 31, 2008.
  Name
                  Age
                  
                  PositionDonald
      F. Mardak
                  72
                  
                  Chief
      Executive Officer, President and DirectorDanny
      W. Weibling
                  60
                  
                  Treasurer
      and Chief Financial OfficerJohn
      E. Strabley
                  45
                  
                  Executive
      Vice President and DirectorDale
      L. Mardak
                  48
                  
                  Senior
      Vice President and DirectorPatricia
      A. Katisch
                  63
                  
                  Corporate
      SecretaryWayne
      Emmer
                  54
                  
                  DirectorGerald
      Van Dyn Hoven
                  52
                  
                  DirectorThomas
      Delacy
                  44
                  
                  DirectorWayne
      Dalin
                  64
                  
                  DirectorStephen
      Webster
                  64
                  
                  Director
 Donald F. Mardak has been the
Chief Executive Officer, President and a director of IMSL since our inception in
1988. From 1970 to 1974, Mr. Mardak was a partner in Learning Unlimited, a
division of Hal Leonard Publishing Corp. In 1974, he founded Don Mardak Piano
& Organ Centers, Ltd., a chain of retail piano and organ stores in the
Greater Milwaukee area. In 1985, Mr. Mardak founded the Continental Trade
Exchange barter network under the name "Continental Trading Company", a sole
proprietorship. Continental Trading Company was incorporated in 1988 as
Continental Trade Exchange, Ltd. and is now our primary operating subsidiary.
Mr. Mardak is a two-term president of NATE, the National Association of Trade
Exchanges (1995-96 and 1999-2000) and served on the board of directors of the
organization for seven years. NATE is the principal barter industry trade
association.





John E. Strabley has been the
Executive Vice President of IMSL since 1992 and a director since 1997. Mr.
Strabley joined Continental Trade Exchange, Ltd. as a trade broker in 1991. In
1992, he was promoted to General Manager and, in August of that year, was
appointed as Vice President of Continental Trade Exchange and IMSL. In 1995, Mr.
Strabley passed the barter industry certification examination and was awarded
with the industry's highest designation of CTB - Certified Trade Broker. In
1997, Mr. Strabley became a director of both Continental Trade Exchange, Ltd.
and IMSL.





Dale L. Mardak has been Senior
Vice President of IMSL since 1995, and a director since 1997. He joined
Continental Trade Exchange, Ltd. in 1993 as a trade broker and was appointed
trade director in 1995. In 1997, he was appointed Treasurer and a director of
both Continental Trade Exchange, Ltd. and IMSL. In 1999, Mr. Mardak received the
designation of CTB - Certified Trade Broker.





Danny W. Weibling is a
Certified Public Accountant and, along with his wife Lisa, was the former owner
of Trade Systems Interchange, the Rohnert Park, CA barter network that IMSL
acquired in April of 2001. Mr. Weibling is also the developer and programmer of
TradeWorks, a leading barter industry software program, and he served six years
as treasurer of the National Association of Trade Exchanges. He became Treasurer
and Chief Financial Officer of IMSL in April of 2001.





Patricia A. Katisch is
currently the owner of Katisch & Associates, a marketing consulting and
public relations firm. From 1998 - 2001, Ms. Katisch was an Associate Dean in
the College of Professional Studies at Marquette University. Previous to that,
she founded and published the Women's Yellow Pages of Greater Milwaukee and was
the producer of the Wisconsin World of Women Show.





Wayne Emmer is currently the
President of Illinois Cement Co., a position he has held since August of 1998.
Wayne is also a former member of the Parkview Christian Academy School
Board.





Gerald Van Dyn Hoven is
currently the president of the Van Dyn Hoven Automotive Group. Jerry is a
director of American National Bank - Fox Cities, and is a member of the Board of
Trustees of Equitable Reserve Association.





Thomas Delacy is currently the
president and CEO of Independent Inspections, Ltd., a company that provides
municipal inspection services for several cities. Tom has a degree in geology
from the University of Wisconsin - LaCrosse.





12




Wayne Dalin is a Certified
Public Accountant and is a principle in Dalin, Lindseth &
Company.





Stephen Webster was the former
owner of Alliance Barter, of Rochester New York. He is a past president of the
National Association of Trade Exchanges (NATE) and the International Reciprocal
Trade Association (IRTA). Steve is also a member of the Barter Hall of
Fame.





Donald F.
and Judy E. Mardak are husband and wife. John E. Strabley 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, is also employed as IMS
travel director and reciprocal accounts manager.





All of
our directors are serving three-year terms. Messrs. Van Dyn Hoven, Strabley and
Webster serve a three-year term expiring at the 2010 annual meeting of
shareholders. Mr. Donald F. Mardak, Messrs. Emmer and Dalin are serving
three-year terms expiring at the 2008 annual meeting of shareholders. And
Messrs. Delacy and Dale L. Mardak serve a three-year term expiring at the 2009
annual meeting of shareholders.





Director's
Compensation





While we
do not have an established compensation policy for our directors, from time to
time we may issue members of our outside Board of Directors shares of stock as
compensation for their services to us in those positions. During 2008 we issued
an aggregate of 60,000 shares of our common stock valued at $21,000 to Messrs.
Gerald Van Dyn Hoven, Wayne Emmer, Thomas Delacy, Wayne Dalin, Stephen Webster
and Patricia Katisch as compensation for their services.





Compliance
with Section 16(a) of the Exchange Act





Section
16(a) of the Securities Exchange Act of 1934 requires our directors, executive
officers and persons who own more than ten percent of a registered class of our
equity securities to file with the Securities and Exchange Commission ("SEC")
initial reports of ownership and reports of changes in ownership of our Common
Stock and other IMSL equity securities. Officers, directors and beneficial
owners of more than ten percent of such equity securities are required by SEC
regulations to furnish us with copies of all Section 16(a) reports filed by
them.





Based
solely upon review of the copies of such reports furnished to us and written
representations that no other reports were required, IMSL believes that there
was compliance for the fiscal year ended December 31, 2008 with all Section
16(a) reports filed by them.










13








ITEM 11 - EXECUTIVE
COMPENSATION.





The
following table summarizes the compensation paid to or accrued by our chief
executive officer (principal executive officer) and the two most highly
compensated executive officers other than the principal executive officer, who
were serving as executive officers at the end of December 31, 2008, for the
fiscal years ended December 31, 2008 and 2007:











SUMMARY
COMPENSATION TABLE





Pension
      ValueandNonqualifiedDeferred
                
                
                Non-EquityStock
                
                
                Option
                
                
                Compensation
                
                
                Incentive
      Plan
                
                
                All
      OtherName
      and
                
                
                Salary
                
                
                Bonus
                
                
                Awards
                
                
                Awards
                
                
                Earnings
                
                
                Compensation
                
                
                Compensation
                
                
                TotalPrinciple
      Position
                Year
                
                ($)
                
                
                ($)
                
                
                ($)
                
                
                ($)
                
                
                ($)
                
                
                ($)
                
                
                ($)
      (1)
                
                
                ($)Donald
      F. Mardak,
                2008
                
                
                230,000
                
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                10,367
                
                
                
                240,367Chief
      Executive
                2007
                
                
                200,000
                
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                6,960
                
                
                
                206,960Officer
      & PresidentDanny
      W. Weibling,
                2008
                
                
                190,000
                
                
                
                2,500
                
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                4,367
                
                
                
                196,867Chief
      Financial
                2007
                
                
                165,000
                
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                3,975
                
                
                
                168,975Officer
      & TreasurerJohn
      E. Strabley,
                2008
                
                
                175,000
                
                
                
                2,500
                
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                6,092
                
                
                
                183,592Executive
      Vice
                2007
                
                
                150,000
                
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                4,706
                
                
                
                154,706President
      & Director


(1)
Represents auto allowances.








14




Employment
Agreements





On March
10, 2007, we renewed the employment agreements with Donald F. Mardak, our
president, Danny W. Weibling, our Chief Financial Officer and John E. Strabley,
and Dale L. Mardak our senior vice presidents, pursuant to which these employees
will receive base salaries in 2008 of $230,000, $190,000, $175,000 and $165,000,
respectively, plus commissions and bonuses, if any, to be determined by our
chief executive officer at his discretion. On November 20, 2008 we amended the
contracts to freeze the compensation schedule at the above 2008 salaries. Each
contract was modified to add one additional year to the original three year
terms. Each of these contracts will be automatically extended for additional
one-year periods thereafter, unless terminated by either IMSL or the employee.
Each agreement further provides that, for eighteen months after the termination
thereof, the employee will not, either directly or indirectly, compete with the
businesses of International Monetary Systems, Ltd. Each employee also agrees to
maintain the confidentiality of trade secrets and other information concerning
IMSL. Each receives an annual auto allowance of from $4,000-$12,000. On March
31, 2009, each of the above officers agreed to a 10% reduction in
salary.





Each of
the agreements provides for stock options at the discretion of Management. All
agreements contain a change of control provision. In the event of a merger,
acquisition of IMSL or sale of substantially all of its assets, Donald Mardak's
contract provides for compensation equal to two years' salary plus a lump sum
payment of $400,000, Danny Weibling's, John Strabley's and Dale Mardak's
contracts provide for compensation equal to one year's salary plus a lump sum
payment of $200,000.





















15





OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR END
 
 The
following table provides information concerning unexercised options and stock
that has not vested for each of our Named Executive Officers for the fiscal year
ended December 31, 2008.
 
 
 Option
      Awards
                  
                  
                  Stock
      AwardsEquity
                  
                  
                  Equityincentive
                  
                  
                  incentiveNumber
                  
                  
                  Market
                  
                  
                  plan
                  
                  
                  plan
      awards:Equity
                  
                  
                  
                  
                  
                  
                  
                  
                  of
                  
                  
                  value
                  
                  
                  awards:
                  
                  
                  Market
      orincentive
                  
                  
                  
                  
                  
                  
                  
                  
                  shares
                  
                  
                  of
                  
                  
                  number
      of
                  
                  
                  payoutplan
                  
                  
                  
                  
                  
                  
                  
                  
                  or
                  
                  
                  shares
                  
                  
                  unearned
                  
                  
                  value
      ofawards:
                  
                  
                  
                  
                  
                  
                  
                  
                  units
                  
                  
                  or
      units
                  
                  
                  shares
      or
                  
                  
                  unearnedNumber
      of
                  
                  
                  Number
      of
                  
                  
                  Number
      of
                  
                  
                  
                  
                  
                  
                  
                  
                  of
                  
                  
                  of
                  
                  
                  units
      or
                  
                  
                  shares,securities
                  
                  
                  securities
                  
                  
                  securities
                  
                  
                  
                  
                  
                  
                  
                  
                  stock
                  
                  
                  stock
                  
                  
                  other
                  
                  
                  units
      orunderlying
                  
                  
                  underlying
                  
                  
                  underlying
                  
                  
                  
                  
                  
                  
                  
                  
                  that
                  
                  
                  that
                  
                  
                  rights
                  
                  
                  otherunexercised
                  
                  
                  unexercised
                  
                  
                  unexercised
                  
                  
                  Option
                  
                  
                  
                  
                  
                  have
                  
                  
                  have
                  
                  
                  that
      have
                  
                  
                  rightsoptions
                  
                  
                  options
                  
                  
                  unearned
                  
                  
                  exercise
                  
                  
                  Option
                  
                  
                  not
                  
                  
                  not
                  
                  
                  not
                  
                  
                  that
      haveexercisable
                  
                  
                  unexercisable
                  
                  
                  options
                  
                  
                  price
                  
                  
                  expiration
                  
                  
                  vested
                  
                  
                  vested
                  
                  
                  vested
                  
                  
                  not
      vestedName
                  
                  
                  (#
                  )
                  
                  
                  (#
                  )
                  
                  
                  (#
                  )
                  
                  ($)
                  
                  
                  date
                  
                  
                  
                  (#
                  )
                  
                  ($)
                  
                  
                  
                  (#
                  )
                  
                  ($)Donald
      F.Mardak
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --Danny
      W.Weibling
                  
                  
                  400,000
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  0.15
                  
                  
                  Jan
      .2009
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --John
      E.Strabley
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --











16







Compensation
of Directors





We pay
our outside directors cash of $200 to $300 per board meeting and an annual fee
of 10,000 shares of IMS stock. Our Named Executive Officers or other employees
are not compensated additionally as board members. No stock options have been
issued to our outside directors.





The table
below summarizes the total compensation paid by us to our outside directors for
the fiscal year ended December 31, 2008.





NonqualifiedNon-Equity
                
                
                DeferredFees
      Earned or
                
                
                Stock
                
                
                Option
                
                
                Incentive
      Plan
                
                
                Compensation
                
                
                All
      OtherPaid
      in Cash
                
                
                Awards
                  (1)
                
                
                Awards
                
                
                Compensation
                
                
                Earnings
                
                
                Compensation
                
                
                TotalName
                
                ($)
                
                
                ($)
                
                
                ($)
                
                
                ($)
                
                
                ($)
                
                
                ($)
                
                
                ($)Wayne
      Dalin
                
                
                1,200
                
                
                
                3,500
                
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                4,700Thomas
      Delacy
                
                
                900
                
                
                
                3,500
                
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                4,400Wayne
      Emmer
                
                
                700
                
                
                
                3,500
                
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                4,200Gerald
      Van Dyn Hoven
                
                
                900
                
                
                
                3,500
                
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                4,400Stephen
      Webster
                
                
                900
                
                
                
                3,500
                
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                4,400





(1) For
all directors, this is the fair value of the 10,000 shares of stock issued, at
the date of issue.





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 for 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.










17






CODE
OF ETHICS





The Board
of Directors has adopted a Code of Business Conduct and Ethics that applies to,
among other persons, our President (being our principal executive officer) as
well as all employees. As adopted, our Code of Business Conduct and Ethics sets
forth written standards that are designed to deter wrongdoing and to
promote:


honest
      and ethical conduct, including the ethical handling of
    actualor
      apparent conflicts of interest between personal and
      professionalrelationships;full,
      fair, accurate, timely, and understandable disclosure
inreports
      and documents that we file with, or submit to, the SEC
  andin
      other public communications made by us;compliance
      with applicable governmental laws, rules and
  regulations;the
      prompt internal reporting of violations of the Code of
      BusinessConduct
      and Ethics to an appropriate person or persons identified
    inthe
      Code of Business Conduct and Ethics; andaccountability
      for adherence to the Code of Business Conduct and
Ethics
 Our Code
of Business Conduct and Ethics requires, among other things, that all of our
company's personnel are accorded full access to our President with respect to
any matter that may arise relating to the Code of Business Conduct and Ethics.
Further, all of our company's personnel are to be accorded full access to our
Board of Directors if any such matter involves an alleged breach of the Code of
Business Conduct and Ethics by our President.





In
addition, our Code of Business Conduct and Ethics emphasizes that all employees,
and particularly managers and/or supervisors, have a responsibility for
maintaining financial integrity within our company, consistent with generally
accepted accounting principles, and federal, provincial and state securities
laws. Any employee who becomes aware of any incidents involving financial or
accounting manipulation or other irregularities, whether by witnessing the
incident or being told of it, must report it to his or her immediate supervisor
or to our company's President. If the incident involves an alleged breach of the
Code of Business Conduct and Ethics by the President, the incident must be
reported to any member of our Board Of Directors. Any failure to report such
inappropriate or irregular conduct of others is to be treated as a severe
disciplinary matter. It is against our company policy to retaliate against any
individual who reports in good faith the violation or potential violation of our
company's Code of Business Conduct and Ethics by another.





We will
provide a copy of the Code of Business Conduct and Ethics to any person without
charge, upon request. Requests can be sent to 16901 West Glendale Drive, New
Berlin, WI 53151.










18


ITEM
12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT





The
following table provides certain information with respect to the beneficial
ownership of our common stock, as of December 31, 2008, by:





·each
      person known by us to beneficially own more than 5% of our common
      stock;·each
      of our directors and our named executive officers; 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.





Shares
      beneficially ownedas
      of December 31, 2008Name
      of Beneficial Owner
                
                Number
                
                
                PercentDonald
      F. Mardak (1)
                
                
                17,707,800
                
                
                
                28.73
                %Dale
      L. Mardak (2)
                
                
                1,392,000
                
                
                
                2.26
                %John
      E. Strabley (3)
                
                
                676,000
                
                
                
                1.10
                %Danny
      W Weibling (4)
                
                
                393,500
                
                
                
                0.64
                %Stephen
      Webster
                
                
                2,714,000
                
                
                
                4.40
                %Thomas
      Delacy
                
                
                560,000
                
                
                
                0.91
                %Gerald
      Van Dyn Hoven
                
                
                442,000
                
                
                
                0.72
                %Wayne
      Emmer
                
                
                260,000
                
                
                
                0.42
                %Wayne
      Dalin
                
                
                243,460
                
                
                
                0.40
                %Patricia
      Katisch
                
                
                68,000
                
                
                
                0.11
                %All
      directors and executive officersas
      a group (10 persons)
                
                
                24,456,760
                
                
                
                39.69
                %Other
      Beneficial OwnerPraetorian
      Capital Management LLC  (5)
                
                
                8,957,793
                
                
                
                14.54
                %







(1)
            Does
      not include 676,000 shares held by his wife, Judy E. Mardak, as to which
      Mr. Mardak disclaims beneficial ownership. All shares owned by Donald F.
      and Judy E. Mardak are now held in a revocable living
    trust.





(2)
            Does
      not include 8,400 shares held by his wife, Lisa L. Mardak, as to which Mr.
      Mardak disclaims beneficial
ownership.





(3)
            Does
      not include 1,280,000 shares held by his wife, Kimberly A. Strabley, as to
      which Mr. Strabley disclaims beneficial
  ownership.





(4)
            Does
      not include 246,000 shares held by his wife, Alesia Peters, as to which
      Mr. Weibling disclaims beneficial ownership. Does not include 400,000
      shares of exercisable options.





(5)
            Does
      not include 2,200,000 shares of exercisable
  warrants.





19




ITEM
13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS





Certain
Transactions





We
currently lease our executive offices and principal operating facilities,
consisting of 11,000 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, officers and directors of our company, under a triple net lease which
commenced in October, 2008 and expires September 30, 2010. For the fiscal year
ended December 31, 2007, we made rental payments of $90,000 and in the fiscal
year ended December 31, 2008, we made rental payments of $90,000 to Glendale
Investments, LLC. We believe that the rental payments required and other terms
of our lease are comparable to those available for similar space from
unaffiliated, third-party lessors in the area.





On August
3, 2007, the company issued 75,000 shares to Danny W. Weibling, Chief Financial
Officer of IMS, in exchange for a copy of the source code of the software
package called TradeWorks which he developed. The cost of the source code was
$50,000. Shares were issued from the company’s treasury stock.





In 2008
and 2007, Patricia Katisch, our Corporate Secretary, was paid $500 and $480
respectively to produce and distribute the corporate minutes.





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 IMSL 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
IMSL 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 IMSL at the time it is authorized or approved by our directors.





ITEM
14 - PRINCIPAL ACCOUNTANT FEES AND SERVICES





Webb
& Company, P.A. served as our independent registered public accounting firm
for fiscal years 2008 and 2007. The following table shows the fees that were
billed for the audit and other services provided by each of these firms for the
2008 and 2007 fiscal years.





2008
                
                
                2007Audit
      Fees
                
                $
                47,167
                
                
                $
                55,741Audit-Related
      Fees
                
                
                0
                
                
                
                955Tax
      Fees
                
                
                0
                
                
                
                0All
      Other Fees
                
                
                0
                
                
                
                0Total
                
                $
                47,167
                
                
                $
                56,696








20




Audit
Fees -- This category includes the audit of our annual financial statements,
review of financial statements included in our Form 10-Q Quarterly Reports and
services that are normally provided by the independent auditors in connection
with engagements for those fiscal years. This category also includes advice on
audit and accounting matters that arose during, or as a result of, the audit or
the review of interim financial statements.





Audit-Related
Fees -- This category consists of assurance and related services by the
independent auditors that are reasonably related to the performance of the audit
or review of our financial statements and are not reported above under "Audit
Fees." The services for the fees disclosed under this category include
consultation regarding our correspondence with the SEC and other accounting
consulting.





Tax Fees
-- This category consists of professional services rendered by our independent
auditors for tax compliance and tax advice. The services for the fees disclosed
under this category include tax return preparation and technical tax
advice.





All Other
Fees -- This category consists of fees for other miscellaneous
items.





Our Board
of Directors has adopted a procedure for pre-approval of all fees charged by our
independent auditors. Under the procedure, the Board approves the engagement
letter with respect to audit, tax and review services. Other fees are subject to
pre-approval by the Board, or, in the period between meetings, by a designated
member of Board. Any such approval by the designated member is disclosed to the
entire Board at the next meeting. The audit fees paid to the auditors with
respect to fiscal year 2008 were pre-approved by the entire Board of
Directors.








ITEM
15 - EXHIBITS LIST AND REPORTS ON FROM 8-K





(a)
Exhibits:





ExhibitNumber
            Description3.1
            Articles
      of Incorporation of the Registrant *3.2
            Articles
      of Amendment of the Registrant *3.3
            Bylaws
      of the Registrant *10.1
            Lease
      Agreement, between Glendale Investments, LLC. and the Registrant
      *23.1
            Consent
      of Independent Registered Public Accounting Firm31.1
            Certificate
      of the Chief Executive Officer pursuant to Section 302
  ofthe
      Sarbanes-Oxley Act of 2002 **31.2
            Certificate
      of the Chief Financial Officer pursuant to Section 302
  ofthe
      Sarbanes-Oxley Act of 2002 **32.1
            Certificate
      of the Chief Executive Officer to Section 906 ofthe
      Sarbanes-Oxley Act of 2002 **32.2
            Certificate
      of the Chief Financial Officer to Section 906 ofthe
      Sarbanes-Oxley Act of 2002 ***  Incorporated
      by reference to the registration statement of thecompany
      on Form SB-2 File No. 333-94597**
      Filed herein








(b)
Reports on Form 8-K





None.
















21







SIGNATURES





Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.








INTERNATIONAL
MONETARY SYSTEMS, LTD.











Dated:  April 6, 2009
                
                By:
                /s/
      DONALD F.
      MARDAKDonald
      F. Mardak, President(Principal
      Executive Officer)Dated:  April 6, 2009
                
                By:
                /s/
      DANNY W. WEIBLING,
      CPADanny
      W. Weibling, Treasurer(Principal
      Financial Officer)








In
accordance with the requirements of the Exchange Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates stated.








SIGNATURE
                  
                  TITLE
                  
                  DATE/s/
      DONALD F.
      MARDAK
                  
                  Chief
      Executive Officer,
                  
                  April
      6, 2009President
      (PrincipalDonald
      F. Mardak
                  
                  Executive
      Officer)and
      Director/s/
      DALE L.
    MARDAK
                  
                  Senior
      Vice President
                  
                  April
      6, 2009and
      DirectorDale
      L. Mardak/s/
      JOHN E.
      STRABLEY
                  
                  Executive
      Vice President
                  
                  April
      6, 2009and
      DirectorJohn
      E. Strabley








22


INTERNATIONAL
MONETARY SYSTEMS, LTD.
 AND
SUBSIDIARIES
 
 CONSOLIDATED
FINANCIAL STATEMENTS
 and
 REPORT
OF INDEPENDENT
 REGISTERED
PUBLIC ACCOUNTING FIRM
 For the
Years Ended December 31, 2008 and 2007
  
  INTERNATIONAL
MONETARY SYSTEMS, LTD.
 AND
SUBSIDIARIES
 
 
 
 
 TABLE
OF CONTENTS
 PageREPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
                1FINANCIAL
      STATEMENTSConsolidated Balance
      Sheets
                2 -
      3Consolidated Statements of
      Operations and Comprehensive Income (Loss)
                4Consolidated Statements of
      Changes in Stockholder Equity
                5Consolidated Statements of Cash
      Flows
                6 -
      7Notes to Consolidated Financial
      Statements
                8 -
      30
 
  
  REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 
 
 
 
 
 To the
Shareholders and Board of Directors
 International
Monetary Systems, Ltd. and Subsidiaries
 
 We have
audited the accompanying consolidated balance sheets of International Monetary
Systems, Ltd. and Subsidiaries as of December 31, 2008 and December 31,
2007, and the related consolidated statements of operations and comprehensive
income (loss), changes in stockholder equity, and cash flows for the years then
ended. These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
 
 We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits 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 consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of International
Monetary Systems, Ltd. and Subsidiaries at December 31, 2008 and
December 31, 2007, and the results of its operations and comprehensive
income (loss),  and cash flows for the years then ended in conformity
with accounting principles generally accepted in the United States of
America.
 
 
 
 
 
 WEBB
& COMPANY, P. A.
 Boynton
Beach, Florida
 March 21,
2009, except for Note 14,
 To which
the date is April 4, 2009
    
 The
accompanying notes are an integral part of the audited consolidated financial
statements.
 F
-1
 
 INTERNATIONAL
      MONETARY SYSTEMS, LTD.
                        AND
      SUBSIDIARIESCONSOLIDATED
      BALANCE SHEETSDecember
      312008
                      
                      
                      2007ASSETS
                      
                      
                      
                      
                      (restated)Current
      assetsCash
                      
                      $
                      279,227
                      
                      
                      $
                      812,365Restricted
      cash
                      
                      
                      495,803
                      
                      
                      
                      483,443Marketable
      securities
                      
                      
                      84,808
                      
                      
                      
                      118,380Accounts
      receivable, net of allowance for doubtfulaccounts
      of $796,261 in 2008 and $739,540 in 2007
                      
                      
                      1,401,383
                      
                      
                      
                      1,516,938Refundable
      income taxes
                      
                      
                      48,500
                      
                      
                      
                      -Earned
      trade account
                      
                      
                      6,991
                      
                      
                      
                      314,928Prepaid
      expenses
                      
                      
                      109,710
                      
                      
                      
                      112,233Inventory
                      
                      
                      33,839
                      
                      
                      
                      33,839Total
      current assets
                      
                      
                      2,460,261
                      
                      
                      
                      3,392,126Property
      and equipment, net
                      
                      
                      1,056,526
                      
                      
                      
                      1,269,263Other
      assetsMembership
      lists, net
                      
                      
                      9,577,257
                      
                      
                      
                      9,962,154Goodwill
                      
                      
                      3,435,479
                      
                      
                      
                      3,435,479Deferred
      tax asset
                      
                      
                      75,000
                      
                      
                      
                      -Covenant
      not to compete, net
                      
                      
                      -
                      
                      
                      
                      14,883Purchase
      option
                      
                      
                      -
                      
                      
                      
                      112,500Assets
      held for investment
                      
                      
                      99,298
                      
                      
                      
                      99,298Investment
      in real estate
                      
                      
                      26,000
                      
                      
                      
                      28,695Cash
      surrender value
                      
                      
                      43,125
                      
                      
                      
                      37,056Total
      other assets
                      
                      
                      13,256,159
                      
                      
                      
                      13,690,065Total
      assets
                      
                      $
                      16,772,946
                      
                      
                      $
                      18,351,454
  The
accompanying notes are an integral part of the audited consolidated financial
statements.
 F
-2
  INTERNATIONAL
      MONETARY SYSTEMS, LTD.
                              AND
      SUBSIDIARIESCONSOLIDATED
      BALANCE SHEETSDecember
      312008
                            
                            
                            2007LIABILITIES
      AND STOCKHOLDER EQUITY
                            
                            
                            
                            
                            (restated)Current
      liabilitiesAccounts
      payable
                            
                            $
                            245,579
                            
                            
                            $
                            324,808Accrued
      compensation
                            
                            
                            298,317
                            
                            
                            
                            377,515Accrued
      payroll taxes
                            
                            
                            103,150
                            
                            
                            
                            99,602Accrued
      sales taxes
                            
                            
                            33,702
                            
                            
                            
                            51,807Accrued
      income taxes
                            
                            
                            8,150
                            
                            
                            
                            149,000Trade
      payable
                            
                            
                            321,476
                            
                            
                            
                            -Credit
      lines
                            
                            
                            340,736
                            
                            
                            
                            -Current
      portion of notes payable
                            
                            
                            838,992
                            
                            
                            
                            785,460Current
      portion of convertible notes payable
                            
                            
                            175,466
                            
                            
                            
                            1,195,277Current
      portion of common stock subject to guarantees
                            
                            
                            1,268,500
                            
                            
                            
                            995,000Total
      current liabilities
                            
                            
                            3,634,068
                            
                            
                            
                            3,978,469Long-term
      liabilitiesNotes
      payable, less current portion
                            
                            
                            154,334
                            
                            
                            
                            716,037Convertible
      notes payable, less current portion
                            
                            
                            1,306,813
                            
                            
                            
                            -Common
      stock subject to guarantees, less current portion
                            
                            
                            1,359,500
                            
                            
                            
                            1,890,000Deferred
      compensation
                            
                            
                            260,000
                            
                            
                            
                            136,000Deferred
      income taxes
                            
                            
                            2,039,000
                            
                            
                            
                            2,550,000Total
      long-term liabilities
                            
                            
                            5,119,647
                            
                            
                            
                            5,292,037Total
      liabilities
                            
                            
                            8,753,715
                            
                            
                            
                            9,270,506COMMITMENTS
      AND CONTINGENCIES
                            
                            
                            -
                            
                            
                            
                            -STOCKHOLDER
      EQUITYPreferred
      stock, $.0001 par value; 20,000,000 sharesauthorized,
      none outstanding
                            
                            
                            -
                            
                            
                            
                            -Common
      stock, $.0001 par value; 280,000,000 sharesauthorized,
      61,625,436 and 60,565,436 sharesissued
      and outstanding, respectively
                            
                            
                            6,163
                            
                            
                            
                            6,057Paid
      in capital
                            
                            
                            11,697,038
                            
                            
                            
                            10,901,944Treasury
      stock, 2,322,542 and 1,276,542 sharesoutstanding,
      respectively
                            
                            
                            (1,403,216
                            )
                            
                            
                            (547,241
                            )Subscription
      receivable
                            
                            
                            -
                            
                            
                            
                            (31,196
                            )Deferred
      compensation
                            
                            
                            (25,467
                            )
                            
                            
                            -Accumulated
      other comprehensive income
                            
                            
                            (50,840
                            )
                            
                            
                            15,310Accumulated
      deficit
                            
                            
                            (2,204,447
                            )
                            
                            
                            (1,263,926
                            )Total
      stockholder equity
                            
                            
                            8,019,231
                            
                            
                            
                            9,080,948Total
      liabilities and stockholder equity
                            
                            $
                            16,772,946
                            
                            
                            $
                            18,351,454
  The
accompanying notes are an integral part of the audited consolidated financial
statements.
 F
-3
 INTERNATIONAL
      MONETARY SYSTEMS, LTD.AND
      SUBSIDIARIESCONSOLIDATED
      STATEMENTS OF OPERATIONS
                              AND
      COMPREHENSIVE INCOMEFor
      the Years Ended December 312008
                            
                            
                            2007Revenue
                            
                            $
                            14,203,550
                            
                            
                            $
                            14,772,045Operating
      expensesPayroll,
      related taxes and employee benefits
                            
                            
                            9,483,364
                            
                            
                            
                            9,228,485General
      and administrative
                            
                            
                            2,014,856
                            
                            
                            
                            2,319,680Occupancy
                            
                            
                            1,078,288
                            
                            
                            
                            969,243Selling
                            
                            
                            840,926
                            
                            
                            
                            687,079Depreciation
      and amortization
                            
                            
                            1,643,534
                            
                            
                            
                            1,465,367Impairment
      of membership list
                            
                            
                            209,605
                            
                            
                            
                            36,676Provision
      for bad debts
                            
                            
                            177,513
                            
                            
                            
                            239,215Total
      operating expenses
                            
                            
                            15,448,086
                            
                            
                            
                            14,945,745Net
      loss from operations
                            
                            
                            (1,244,536
                            )
                            
                            
                            (173,700
                            )Other
      income (expense)Interest
      income
                            
                            
                            8,910
                            
                            
                            
                            47,496Loss
      on disposal of fixed assets
                            
                            
                            (23,786
                            )
                            
                            
                            -Interest
      expense
                            
                            
                            (275,332
                            )
                            
                            
                            (342,855
                            )Total
      other income (expense)
                            
                            
                            (290,208
                            )
                            
                            
                            (295,359
                            )Loss
      before income taxes
                            
                            
                            (1,534,744
                            )
                            
                            
                            (469,059
                            )Income
      tax expense (benefit)
                            
                            
                            (594,222
                            )
                            
                            
                            (54,769
                            )Net
      loss
                            
                            $
                            (940,521
                            )
                            
                            $
                            (414,290
                            )Basic
      earnings per common share
                            
                            $
                            (0.02
                            )
                            
                            $
                            (0.01
                            )Diluted
      earnings per common share
                            
                            $
                            (0.02
                            )
                            
                            $
                            (0.01
                            )Weighted
      average shares outstanding, basic
                            
                            
                            59,560,197
                            
                            
                            
                            57,061,451Weighted
      average shares outstanding, diluted
                            
                            
                            59,560,197
                            
                            
                            
                            57,061,451Comprehensive
      (loss)
                            
                            2008
                            
                            
                            2007Net
      loss
                            
                            $
                            (940,521
                            )
                            
                            $
                            (414,290
                            )Comprehensive
      income:Foreign
      currency translation loss
                            
                            
                            (24,046
                            )
                            
                            
                            12,863Unrealized
      loss on available for sale investments
                            
                            
                            (42,104
                            )
                            
                            
                            2,447Comprehensive
      loss
                            
                            $
                            (1,006,671
                            )
                            
                            $
                            (398,980
                            )
   The
accompanying notes are an integral part of the audited consolidated financial
statements.
 F
-4
  INTERNATIONAL
      MONETARY SYSTEMS, LTD. AND SUBSIDIARIESCONSOLIDATED
      STATEMENTS OF CHANGES IN STOCKHOLDER EQUITYFor
      the Years Ended December 31Accumulated
                  
                  
                  
                  
                  
                  
                  
                  
                  Treasury
                  
                  
                  TotalPreferred
      Stock
                  
                  
                  Common
      Stock
                  
                  
                  Paid
      in
                  
                  
                  Subscription
                  
                  
                  Comprehensive
                  
                  
                  Deferred
                  
                  
                  Accumulated
                  
                  
                  Stock
                  
                  
                  StockholderShares
                  
                  
                  Amount
                  
                  
                  Shares
                  
                  
                  Amount
                  
                  
                  Capital
                  
                  
                  Receivable
                  
                  
                  Income
                  
                  
                  Compensation
                  
                  
                  Deficit
                  
                  
                  Shares
                  
                  
                  Amount
                  
                  
                  EquityBalance,
      December 31, 2006
                  
                  
                  -
                  
                  
                  $
                  -
                  
                  
                  
                  52,623,769
                  
                  
                  $
                  5,263
                  
                  
                  $
                  9,291,988
                  
                  
                  $
                  (42,017
                  )
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  (849,363
                  )
                  
                  
                  (1,566,542
                  )
                  
                  $
                  (626,241
                  )
                  
                  $
                  7,779,537Foreign
      currency translation adjustment
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  12,863
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  12,863Unrealized
      gain on available for salesecurities
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  2,447
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  2,447Net
      loss for 2007
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (414,290
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (414,290
                  )Total
      comprehensive loss
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (398,980
                  )Stock
      issued for services
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  75,000
                  
                  
                  
                  8
                  
                  
                  
                  48,242
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  48,250Stock
      issued for software
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  75,000
                  
                  
                  
                  50,000
                  
                  
                  
                  50,000Shares
      issued in conjunction withthe
      acquisition of businesses
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  3,683,333
                  
                  
                  
                  368
                  
                  
                  
                  2,849,632
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  2,850,000Warrants
      redeemed
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  750,000
                  
                  
                  
                  75
                  
                  
                  
                  412,425
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  412,500Options
      exercised
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  190,000
                  
                  
                  
                  29,000
                  
                  
                  
                  29,000Options
      exercised for 2004, unissued
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  25,000
                  
                  
                  
                  -
                  
                  
                  
                  -Shares
      issued on conversion ofnotes
      payable
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  3,433,334
                  
                  
                  
                  343
                  
                  
                  
                  1,029,657
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,030,000Subscription
      receivable
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  10,821
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  10,821Reclassification
      of shares released atguaranteed
      prices to liabilities
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (2,730,000
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (2,730,000
                  )Balance
      December 31, 2007
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  60,565,436
                  
                  
                  
                  6,057
                  
                  
                  
                  10,901,944
                  
                  
                  
                  (31,196
                  )
                  
                  
                  15,310
                  
                  
                  
                  -
                  
                  
                  
                  (1,263,926
                  )
                  
                  
                  (1,276,542
                  )
                  
                  
                  (547,241
                  )
                  
                  
                  9,080,948Foreign
      currency translation adjustment
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (24,046
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (24,046
                  )Unrealized
      loss on available for salesecurities
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (42,104
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (42,104
                  )Net
      loss for 2008
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (940,521
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (940,521
                  )Total
      comprehensive loss
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (1,006,671
                  )Stock
      issued for services
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  310,000
                  
                  
                  
                  31
                  
                  
                  
                  85,669
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (25,467
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  60,233Shares
      issued in conjunction withthe
      acquisition of businesses
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  200,000
                  
                  
                  
                  20
                  
                  
                  
                  149,980
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  150,000Warrants
      redeemed
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  550,000
                  
                  
                  
                  55
                  
                  
                  
                  302,445
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  302,500Treasury
      stock purchases
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (1,046,000
                  )
                  
                  
                  (855,975
                  )
                  
                  
                  (855,975
                  )Subscription
      receivable written off
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  31,196
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  31,196Reclassification
      of shares released atguaranteed
      prices to liabilities
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  257,000
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  257,000Balance
      December 31, 2008
                  
                  
                  -
                  
                  
                  $
                  -
                  
                  
                  
                  61,625,436
                  
                  
                  $
                  6,163
                  
                  
                  $
                  11,697,038
                  
                  
                  $
                  -
                  
                  
                  $
                  (50,840
                  )
                  
                  $
                  (25,467
                  )
                  
                  $
                  (2,204,447
                  )
                  
                  
                  (2,322,542
                  )
                  
                  $
                  (1,403,216
                  )
                  
                  $
                  8,019,231
  The
accompanying notes are an integral part of the audited consolidated financial
statements.
 F
-5
   INTERNATIONAL
      MONETARY SYSTEMS, LTD.AND
      SUBSIDIARIESCONSOLIDATED
      STATEMENTS OF CASH FLOWSFor
      the Years Ended December 312008
                      
                      
                      2007CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      loss
                      
                      $
                      (940,521
                      )
                      
                      $
                      (414,290
                      )Adjustments
      to reconcile net loss to net cashprovided
      by operating activitiesDepreciation
      and amortization
                      
                      
                      1,643,534
                      
                      
                      
                      1,465,263Impairment
      loss
                      
                      
                      209,605
                      
                      
                      
                      36,676Provision
      for bad debts
                      
                      
                      177,513
                      
                      
                      
                      239,215Stock
      issued for services
                      
                      
                      60,233
                      
                      
                      
                      98,250Loss
      on disposal of fixed assets
                      
                      
                      23,786
                      
                      
                      
                      4,216Accretion
      of discount on notes payable
                      
                      
                      4,723
                      
                      
                      
                      37,097Deferred
      compensation
                      
                      
                      124,000
                      
                      
                      
                      15,000Amortization
      of deferred compensation
                      
                      
                      26,196
                      
                      
                      
                      -Changes
      in operating assets and liabilities:Accounts
      receivable
                      
                      
                      (30,957
                      )
                      
                      
                      48,418Refundable
      income taxes
                      
                      
                      (48,500
                      )
                      
                      
                      -Earned
      trade account
                      
                      
                      257,937
                      
                      
                      
                      (761,228
                      )Prepaid
      expense
                      
                      
                      2,523
                      
                      
                      
                      115,602Deferred
      tax asset
                      
                      
                      (75,000
                      )
                      
                      
                      -Accounts
      payable
                      
                      
                      (79,229
                      )
                      
                      
                      16,637Accrued
      compensation
                      
                      
                      (79,198
                      )
                      
                      
                      58,550Accrued
      payroll taxes
                      
                      
                      3,548
                      
                      
                      
                      47,464Accrued
      sales taxes
                      
                      
                      (18,105
                      )
                      
                      
                      4,241Accrued
      income taxes
                      
                      
                      (140,850
                      )
                      
                      
                      99,000Deferred
      income taxes
                      
                      
                      (511,000
                      )
                      
                      
                      (165,000
                      )Net
      cash provided by operating activities
                      
                      
                      610,238
                      
                      
                      
                      945,111CASH
      FLOWS FROM INVESTING ACTIVITIES(Increase)
      decrease in restricted cash
                      
                      
                      (12,360
                      )
                      
                      
                      (483,443
                      )(Increase)
      decrease in marketable securities
                      
                      
                      (8,531
                      )
                      
                      
                      (9,000
                      )Capital
      expenditures
                      
                      
                      (89,985
                      )
                      
                      
                      (768,588
                      )Cash
      received in business acquisitions
                      
                      
                      -
                      
                      
                      
                      498,453Cash
      payments for business acquisitions
                      
                      
                      (495,000
                      )
                      
                      
                      -Proceeds
      from sale of real estate
                      
                      
                      2,695
                      
                      
                      
                      5,000Increase
      in cash surrender value
                      
                      
                      (6,069
                      )
                      
                      
                      (5,600
                      )Net
      cash used in investing activities
                      
                      
                      (609,250
                      )
                      
                      
                      (763,178
                      )
  The
accompanying notes are an integral part of the audited consolidated financial
statements.
 F
-6
  INTERNATIONAL
      MONETARY SYSTEMS, LTD.AND
      SUBSIDIARIESCONSOLIDATED
      STATEMENTS OF CASH FLOWSFor
      the Years Ended December 312008
                          
                          
                          2007CASH
      FLOWS FROM FINANCING ACTIVITIESProceeds
      from notes payable to related parties
                          
                          
                          25,000
                          
                          
                          
                          (110,024
                          )Proceeds
      from credit lines
                          
                          
                          480,000
                          
                          
                          
                          -Proceeds
      from convertible notes payable
                          
                          
                          300,000
                          
                          
                          
                          -Payments
      on notes payable to related parties
                          
                          
                          (25,000
                          )
                          
                          
                          -Payments
      on credit lines
                          
                          
                          (139,264
                          )
                          
                          
                          -Payments
      on notes payable
                          
                          
                          (956,095
                          )
                          
                          
                          (655,689
                          )Payments
      on convertible notes payable
                          
                          
                          (17,721
                          )
                          
                          
                          -Purchase
      of treasury stock
                          
                          
                          (484,499
                          )
                          
                          
                          -Proceeds
      from subscription receivable
                          
                          
                          5,000
                          
                          
                          
                          10,820Proceeds
      from issuance of stock
                          
                          
                          302,500
                          
                          
                          
                          441,500Net
      cash used in financing activities
                          
                          
                          (510,079
                          )
                          
                          
                          (313,393
                          )Effect
      of exchange rate changes
                          
                          
                          (24,047
                          )
                          
                          
                          12,863Net
      decrease in cash
                          
                          
                          (533,138
                          )
                          
                          
                          (118,597
                          )Cash
      at beginning of year
                          
                          
                          812,365
                          
                          
                          
                          930,962Cash
      at end of year
                          
                          $
                          279,227
                          
                          
                          $
                          812,365SUPPLEMENTAL
      DISCLOSURESCash
      paid for interest
                          
                          $
                          280,107
                          
                          
                          $
                          332,891Cash
      paid for income taxes
                          
                          $
                          181,128
                          
                          
                          $
                          11,231NON
      CASH FINANCING AND INVESTING ACTIVITIESAcquisitions:Fair
      value of assets acquired
                          
                          $
                          1,155,424
                          
                          
                          $
                          4,095,000Less:
      liabilities assumed
                          
                          
                          -
                          
                          
                          
                          (130,000
                          )Stock
      issued
                          
                          
                          (150,000
                          )
                          
                          
                          (2,850,000
                          )Purchase
      option
                          
                          
                          (112,500
                          )
                          
                          
                          -Issuance
      of long-term debt
                          
                          
                          (397,924
                          )
                          
                          
                          -Deferred
      tax liability
                          
                          
                          -
                          
                          
                          
                          (650,000
                          )Net
      cash paid for acquisitions
                          
                          $
                          495,000
                          
                          
                          $
                          465,000Stock
      issued for services
                          
                          $
                          60,233
                          
                          
                          $
                          98,250Treasury
      stock redeemed for fixed assets
                          
                          $
                          -
                          
                          
                          $
                          50,000Unrealized
      net gain (loss) on equity investments
                          
                          $
                          (42,103
                          )
                          
                          $
                          2,447Stock
      guarantees on acquisitions
                          
                          $
                          300,000
                          
                          
                          $
                          2,500,000Stock
      guarantees released
                          
                          $
                          557,000
                          
                          
                          $
                          -Payment
      of long-term debt with stock
                          
                          $
                          -
                          
                          
                          $
                          1,030,000Treasury
      stock acquired with trade payable
                          
                          $
                          321,476
                          
                          
                          $
                          -
  The
accompanying notes are an integral part of the audited consolidated financial
statements.
 F
-7
 INTERNATIONAL
MONETARY SYSTEMS, LTD.
 AND
SUBSIDIARIES
 
 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 Wisconsin holding company
      located in New Berlin, Wisconsin, with three wholly-owned operating
      subsidiaries: Continental Trade Exchange, Ltd (CTE) and National Trade
      Association, both of which operate a barter (trade) exchange in the United
      States, and INLM CN Inc., which operates a barter (trade) exchange in
      Canada.
 
 B.       LIQUIDITY
AND OTHER MATTERS
 
 At December 31, 2008 the Company
      had a working capital deficit of $1,173,807 and a net loss of $940,521.
      The loss resulted in part from $1,643,534 in depreciation and amortization
      expenses and an impairment charge of $209,605. As a result of recent cuts
      in personnel and salaries, management believes that cash flows from
      operations will increase by approximately $1,300,000.  We also
      anticipate $100,000 in new financing, and an extension of a $100,000 note
      payable currently due in 2009. Accordingly, management has mitigated the
      working capital deficiency and does not believe that substantial doubt
      exists about the Company’s ability to continue as a going
      concern.
 
 C.       OPERATIONS
OF BARTER EXCHANGES
 
 A
      barter (trade) exchange is a business network, a membership organization
      comprised of businesses that buy and sell among the network without using
      cash. It is a small, private economy with a unique currency called a
      barter dollar or trade dollar. It is a third-party record keeper which
      provides an alternative payment
system.
 
 Member
      businesses do not actually engage in direct barter. Rather, they sell
      products or services to other members, accepting payment in trade dollars
      which they then use to buy the products or services of other members of
      the network. Transactions are recorded through manual and electronic data
      transmission using a 24-hour telephone and Internet authorization system.
      Some members consign their products to the barter exchange to hold as
      saleable inventory. Others sell gift certificates or tickets that are
      redeemable for their goods or
services.
 
 The
      barter exchange maintains the accounting records for all sales and
      purchases, provides monthly statements, files annual tax forms 1099B,
      enrolls businesses to the network, proactively markets member products and
      services, maintains a member web site, facilitates transactions, and
      provides personal customer support services to members and
      clients.
 
 D.       CASH
EQUIVALENTS
 
 For
      purposes of the statement of cash flows, the Company considers all highly
      liquid debt instruments purchased with a maturity of three months or less
      to be cash equivalents to the extent the funds are not held for investment
      purposes.
  30
 F
-8
 INTERNATIONAL
MONETARY SYSTEMS, LTD.
 AND
SUBSIDIARIES
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  
 E.       RESTRICTED
CASH
 
 As
      a condition to issuing the guarantee on the purchase of certain exchanges,
      IMS agreed to deposit a monthly amount into an escrow account for the
      repurchase of common stock under guaranteed transactions. As of December
      31, 2008 the Company has made all required deposits into the escrow
      account.
 
 F.       FAIR
VALUE OF FINANCIAL INSTRUMENTS
 
 The
      carrying amounts of the Company’s cash and cash equivalents, accounts
      receivable, restricted cash, prepaid expense and other assets, accounts
      payable, accrued liabilities, notes payable and deferred compensation
      approximate their fair value due as of December 31, 2008 because of their
      short-term natures.
 
  Fair
      Value Measurements
  Effective
January 1, 2008, the Company adopted Statement of Financial Accounting
Standards (“SFAS”) No. 157, Fair Value Measurements
(“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring
fair value and enhances disclosures about fair value measurements.
  SFAS 157
defines fair value as the exchange price that would be received for an asset or
paid to transfer a liability (an exit price) in the principal or most
advantageous market for the asset or liability in an orderly transaction between
market participants on the measurement date. SFAS 157 also establishes a fair
value hierarchy which requires an entity to maximize the use of observable
inputs and minimize the use of unobservable inputs when measuring fair value.
The standard describes three levels of inputs that may be used to measure fair
value:
  Level 1:
Observable inputs such as quoted prices (unadjusted) in active markets for
identical assets or liabilities.
  Level 2:
Inputs other than quoted prices that are observable for the asset or liability,
either directly or indirectly. These include quoted prices for similar assets or
liabilities in active markets; quoted prices for identical or similar assets or
liabilities that are not active; and model-driven valuations whose inputs are
observable or whose significant value drivers are observable. Valuations may be
obtained from, or corroborated by, third-party pricing services.
  Level 3:
Unobservable inputs to measure fair value of assets and liabilities for which
there is little, if any market activity at the measurement date, using
reasonable inputs and assumptions based upon the best information at the time,
to the extent that inputs are available without undue cost and
effort.
  In
February 2008, the Financial Accounting Standards Board (“FASB”) issued FASB
Staff Position (“FSP”) No. FAS 157-2, Effective Date of FASB Statement
No. 157. This FSP delays the effective date of FAS 157 for all
nonfinancial assets and nonfinancial liabilities, except those that are
recognized or disclosed at fair value on a recurring basis (at least annually)
to fiscal years beginning after November 15, 2008. The impact of adoption
had no effect on the Company.
  In
October 2008, the FASB issued FASB Staff Position No. 157-3, Determining the Fair Value of a
Financial Asset When the Market for That Asset Is Not Active. This FASB
Staff Position clarifies the application of SFAS 157, in determining the fair
value of a financial asset when the market for that financial asset is not
active. This FASB Staff Position was effective upon issuance.
  F
-9
 INTERNATIONAL
MONETARY SYSTEMS, LTD.
 AND
SUBSIDIARIES
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  
  Securities
Available for Sale
  Where
quoted prices are available in an active market, securities are classified
within level 1 of the valuation hierarchy. Level 1 securities include highly
liquid government bonds, certain mortgage products and exchange-traded
equities.
  
 G.       REVENUE
SOURCES AND REVENUE RECOGNITION
 
 The
      Company and its subsidiaries earn revenues in both traditional dollars
      (cash income) and in trade dollars. Cash income is earned through fees
      assessed when a member joins, through transaction fees generated when
      clients earn or spend trade dollars, through monthly maintenance fees,
      finance charges on delinquent accounts receivable, event fees, and
      inventory sales.
 
 Trade
      revenue is similarly generated through initial membership fees, monthly
      maintenance fees, transaction fees, event fees, and inventory sales.
      Occasionally the Company will accept a favorable trade ratio in lieu of a
      cash fee. The Company uses earned trade dollars to purchase various goods
      and services required in its operations. All barter transactions are
      reported at the estimated fair value of the products or services
      received.
 
 Revenues
      are recognized when persuasive evidence of an arrangement exists, delivery
      has occurred or services have been rendered, the price is fixed or
      determinable, and collectability is reasonably
  assured.
 
 Transaction
      fees are recognized upon receipt of transactional information accumulated
      by our systems or reported by our clients. Membership fees, monthly
      maintenance fees, finance charges, and other fees are billed monthly to
      members’ accounts, and are recognized in the month the revenue is
      earned.
 
 H.       PRINCIPLES
OF CONSOLIDATION
 
 The
      consolidated financial statements for 2008 and 2007 include the accounts
      of the Company and its wholly owned subsidiaries Continental Trade
      Exchange, Ltd., National Trade Association, Inc., and INLM CN, Inc. (from
      the acquisition date of February 1, 2007 through December 31, 2008).
      Significant inter-company accounts and transactions have been eliminated
      in consolidation.
 
 I.       USE
OF ESTIMATES
 
 The
      preparation of financial statements in conformity with generally accepted
      accounting principles requires management to make estimates and
      assumptions that affect the amounts reported in the financial statements
      and accompanying notes. Actual results may differ from those
      estimates.
 
 J.       MARKETABLE
SECURITIES
 
 Marketable
      equity securities are classified into three categories: (1)
      held-to-maturity securities reported at amortized cost, (2) trading
      securities reported at fair value with unrealized gains and losses
      included in earnings, and (3) available-for-sale securities reported at
      fair value with unrealized gains and losses reported in other
      comprehensive income (loss). Costs are determined by the specific
      identification method.
  F
-10
 INTERNATIONAL
MONETARY SYSTEMS, LTD.
 AND
SUBSIDIARIES
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  
 K.       RECEIVABLES
AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
 
 Accounts
      receivable are stated at face value, net of the allowance for bad debts.
      Finance charges on receivables are calculated using the simple interest
      method on the amount outstanding.
 
 The
      allowance for bad debts is maintained at a level that is management’s best
      estimate of probable bad debts incurred as of the balance sheet date.
      Management’s determination of the adequacy of the allowance is based on an
      evaluation of the accounts receivable, past collection experience, current
      economic conditions, volume, growth and composition of the accounts
      receivable, and other relevant factors. Actual results may differ from
      these estimates. The allowance is increased by provisions for bad debts
      charged against income.
 
 L.       INVENTORY
 
 Inventory
      consists primarily of jewelry and other merchandise held for sale by the
      Company. Inventory is carried at the lower of actual cost or fair market
      value.
 
 M.       EARNED
TRADE ACCOUNT
 
 As
      part of the operations of the subsidiaries, the Company earns trade
      dollars which are used to purchase goods and services required in
      operations. This account is increased principally for service, membership
      and transaction fees, and is decreased by the Company’s purchase of goods
      and services. An impairment loss is recognized if it becomes apparent that
      the fair value of the trade dollars in the account is less than the
      carrying amount, or if it is probable that the Company will not use all of
      the balance.
 
 N.       PROPERTY
AND EQUIPMENT
 
 Property
      and equipment are stated at cost less accumulated depreciation.
      Depreciation is computed using straight line methods over the estimated
      useful lives of five to thirty-nine
years.
 
 O.       GOODWILL
AND MEMBERSHIP LISTS
 
 Goodwill
      and membership lists are stated at cost and arise when additional
      exchanges are purchased. Membership lists are amortized over the estimated
      life of ten years.
 
 In
      2002 the Company adopted Statement of Financial Accounting Standards
      (SFAS) No. 142, “Goodwill and Other Intangibles,” which requires that
      goodwill and intangible assets with indefinite lives be tested annually
      for impairment. In 2008 the Company recorded an impairment loss of
      $209,605 on membership lists related to its Modesto, CA, Chattanooga, TN,
      Las Vegas, NV, and Louisville, KY operations. In 2007 the Company recorded
      an impairment loss of $36,676 on membership lists related to its Virginia,
      Memphis, TN and Indiana operations.
 
 P.       ASSETS
HELD FOR INVESTMENT
 
 Assets
      held for investment consist of various works of art which are valued at
      the lower of cost or fair market
value.
  F
-11
 INTERNATIONAL
MONETARY SYSTEMS, LTD.
 AND
SUBSIDIARIES
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  
 Q.       INVESTMENT
IN REAL ESTATE
 
 Investment
      in real estate includes two parcels of undeveloped land valued at $26,000.
      Both are valued at the lower of cost or fair market
  value.
 
 R.       INCOME
TAXES
 
 The
      Company accounts for income taxes under the Statement of Financial
      Accounting Standards No. 109, “Accounting for Income
      Taxes” (“SFAS 109”).  Under SFAS 109, deferred tax assets
      and liabilities are recognized for the future tax consequences
      attributable to differences between the financial statement carrying
      amounts of existing assets and liabilities and their respective tax
      bases.  Deferred tax assets and liabilities are measured using
      enacted tax rates expected to apply to taxable income in the years in
      which those temporary differences are expected to be recovered or
      settled.  Under SFAS 109, the effect on deferred tax assets and
      liabilities of a change in tax rates is recognized in income in the period
      that includes the enactment date.
 
 S.       CONCENTRATIONS
OF CREDIT RISK
 
 Cash
 Cash
      includes deposits at financial institutions with maturities of three
      months or less. The Company at times has cash in banks in excess of FDIC
      insurance limits and places its temporary cash investments with high
      credit quality financial institutions. At December 31, 2008 and 2007,
      respectively, the Company had approximately $198,000 and $835,000 in cash
      balances at financial institutions which were in excess of the FDIC
      insured limits. The FDIC insured limits at December 31, 2008 and 2007,
      respectively, were $250,000 and
$100,000.
 
 Accounts
      Receivable
 The
      Company grants credit to its customers, all of whom are members of
      Continental Trade Exchange, National Trade Association and INLM CN.
      Customers are principally located throughout California, Colorado,
      Connecticut, Illinois, Indiana, Kansas, Kentucky, Louisiana, Maryland,
      Massachusetts, Michigan, Nevada, New York, Ohio, Tennessee, Virginia,
      Washington DC, Wisconsin, and Toronto, Canada. The Company routinely
      assesses the financial strength of its customers and, therefore, believes
      that its accounts receivable credit risk exposure is
    limited.
 
 T.       SEGMENT
REPORTING
 
 The
      Company operates in one segment and, therefore, segment information is not
      presented.
 
 U.       ADVERTISING
 
 Advertising
      costs, which are principally included in selling expenses, are expensed as
      incurred. Advertising expense was $503,997 and $334,028 for the years
      ended December 31, 2008 and 2007,
  respectively.
  F
-12
 INTERNATIONAL
MONETARY SYSTEMS, LTD.
 AND
SUBSIDIARIES
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  
 V.       COMPREHENSIVE
INCOME
 
 FAS
      No. 130, Reporting Comprehensive Income (SFAS 130) establishes rules for
      reporting and displaying comprehensive income and its components.
      Comprehensive income is the sum of net loss as reported in the
      consolidated statements of operations and other comprehensive income
      transactions as reported in the consolidated statement of changes in
      stockholders' equity. Other comprehensive income transactions that
      currently apply to the Company result from unrealized gains or losses on
      equity investments and from changes in exchange rates used in translating
      the financial statements of its wholly owned subsidiary INLM CN, Inc. of
      Canada.
 
 W.       FOREIGN
CURRENCY TRANSLATION
 
 The
      financial statements of the Company's foreign subsidiary have been
      translated into U.S. dollars in accordance with SFAS No. 52, Foreign
      Currency Translation (SFAS 52). All balance sheet accounts have been
      translated using the exchange rate in effect at the balance sheet date.
      Income statement amounts have been translated using an appropriately
      weighted average exchange rate for the year. The translation gains and
      losses of $(24,046) and $12,863 resulting from the changes in exchange
      rates during 2008 and 2007, respectively, have been reported in
      accumulated other comprehensive income, except for gains and losses
      resulting from the translation of intercompany receivables and payables,
      which are included in earnings for the
period.
 
 X.       LOSS
PER SHARE
 
 Basic
      and diluted net loss per common share is computed based upon the weighted
      average common shares outstanding as defined by Financial Accounting
      Standards No. 128, “Earnings Per Share.” As of December 31, 2008 and 2007
      there were 7,301,161 and 6,477,528 common share equivalents outstanding
      which consisted of:
 
 2008
                    
                    
                    2007Shares
      issuable upon theconversion
      of notes payable
                    
                    
                    4,441,161
                    
                    
                    
                    2,907,528Shares
      issuable upon theexercise
      of warrants
                    
                    
                    2,200,000
                    
                    
                    
                    2,750,000Shares
      issuable upon theconversion
      of stock options
                    
                    
                    660,000
                    
                    
                    
                    820,0007,301,161
                    
                    
                    
                    6,477,528
 
 These
      shares were not included in the computations of loss per share because
      their effect was anti dilutive.
  F
-13
 INTERNATIONAL
MONETARY SYSTEMS, LTD.
 AND
SUBSIDIARIES
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  
 Y.       RECENT
ACCOUNTING PRONOUNCEMENTS
 
 In
      December 2007, the Financial Accounting Standards Board (FASB) issued SFAS
      No. 160, “Noncontrolling
      Interests in Consolidated Financial Statements – an amendment of ARB No.
      51”. This statement improves the relevance, comparability, and
      transparency of the financial information that a reporting entity provides
      in its consolidated financial statements by establishing accounting and
      reporting standards that require: the ownership interests in subsidiaries
      held by parties other than the parent and the amount of consolidated net
      income attributable to the parent and to the noncontrolling interest be
      clearly identified and presented on the face of the consolidated statement
      of income; changes in a parent’s ownership interest while the parent
      retains its controlling financial interest in its subsidiary be accounted
      for consistently; when a subsidiary is deconsolidated, any retained
      noncontrolling equity investment in the former subsidiary be initially
      measured at fair value; entities provide sufficient disclosures that
      clearly identify and distinguish between the interests of the parent and
      the interests of the noncontrolling owners. SFAS No. 160 affects those
      entities that have an outstanding noncontrolling interest in one or more
      subsidiaries or that deconsolidate a subsidiary. SFAS No. 160 is effective
      for fiscal years, and interim periods within those fiscal years, beginning
      on or after December 15, 2008. Early adoption is prohibited. The adoption
      of this statement is not expected to have a material effect on the
      Company's financial statements.
 
 In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement No. 133”
(SFAS161). This statement is intended
to improve transparency in financial reporting by requiring enhanced disclosures
of an entity’s derivative instruments and hedging activities and their effects
on the entity’s financial position, financial performance, and cash flows.SFAS161 applies to all derivative
instruments within the scope of SFAS 133, “Accounting for Derivative Instruments
and Hedging Activities” (SFAS 133), as well as related hedged items, bifurcated
derivatives, and nonderivative instruments that are designated and qualify as
hedging instruments. Entities with instruments subject toSFAS161 must provide more robust
qualitative disclosures and expanded quantitative disclosures.SFAS161 is effective prospectively for
financial statements issued for fiscal years and interim periods beginning after
November 15, 2008, with early application permitted. We are currently
evaluating the disclosure implications of this statement.
 
 In
May 2008, the FASB issued FASB Staff Position APB 14-1 (FSP APB 14-1),
“Accounting for Convertible Debt Instruments That May Be Settled in Cash upon
Conversion (Including Partial Cash Settlement)”, which applies to all
convertible debt instruments that have a “net settlement feature”, which means
that such convertible debt instruments, by their terms, may be settled either
wholly or partially in cash upon conversion. FSP APB 14-1 requires issuers
of convertible debt instruments that may be settled wholly or partially in cash
upon conversion to separately account for the liability and equity components in
a manner reflective of the issuers’ nonconvertible debt borrowing rate. FSP APB
14-1 is effective for financial statements issued for fiscal years beginning
after December 15, 2008 and interim periods within those fiscal
years. Early adoption is not permitted and retroactive application to all
periods presented is required. We continue to evaluate the application of
FSP APB 14-1 on our financial statements.
  F
-14
 INTERNATIONAL
MONETARY SYSTEMS, LTD.
 AND
SUBSIDIARIES
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  
 In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles.” SFAS No. 162 identifies the sources of accounting
principles and provides entities with a framework for selecting the principles
used in preparation of financial statements that are presented in conformity
with GAAP. The current GAAP hierarchy has been criticized because it is directed
to the auditor rather than the entity, it is complex, and it ranks FASB
Statements of Financial Accounting Concepts, which are subject to the same level
of due process as FASB Statements of Financial Accounting Standards, below
industry practices that are widely recognized as generally accepted but that are
not subject to due process. The Board believes the GAAP hierarchy should be
directed to entities because it is the entity (not its auditors) that is
responsible for selecting accounting principles for financial statements that
are presented in conformity with GAAP. SFAS 162 is effective 60 days following
the SEC’s approval of PCAOB Auditing Standard No. 6, Evaluating Consistency
of Financial Statements (AS/6). The adoption of FASB 162 is not expected to have
a material impact on the Company’s financial position.
 
 
 In May,
2008, FASB issued SFAS No. 163, "Accounting for Financial Guarantee Insurance
Contracts-an interpretation of FASB Statement No. 60" ("SFAS 163"). SFAS 163
requires that an insurance enterprise recognize a claim liability prior to an
event of default (insured event) when there is evidence that credit
deterioration has occurred in an insured financial obligation. SFAS 163 also
clarifies how Statement 60 applies to financial guarantee insurance contracts,
including the recognition and measurement to be used to account for premium
revenue and claim liabilities. SFAS 163 is effective for financial statements
issued for fiscal years beginning after December 15, 2008, and interim periods
within those fiscal years. The Company does not expect the proposed guidance
will have an impact on its consolidated financial statements.
 
 NOTE
2 - MARKETABLE SECURITIES
 
 SFAS No.
115 "Accounting for Certain Investments in Debt and Equity Securities," requires
that all applicable investments be classified as trading securities,
available-for-sale securities or held-to-maturity securities. The Company has
classified certain of its investments as trading securities which are reported
at fair value, which is defined as the last closing price for the listed
securities. The unrealized gains and losses which the Company recognizes from
its trading securities are included in earnings. The Company also has
investments classified as available-for-sale, which are also required to be
reported at fair value, with unrealized gains and losses excluded from earnings
and reported as a separate component of stockholders' equity (net of the effect
of income taxes). Fair value is also defined as the last closing price for the
listed security. Due to the size of certain of the Company's investments and
their limited trading volume, there can be no assurance that the Company will
realize the value which is required to be used by SFAS No. 115.
  F
-15
 INTERNATIONAL
MONETARY SYSTEMS, LTD.
 AND
SUBSIDIARIES
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  
 The
amortized cost of equity securities as shown in the accompanying balance sheet
and their estimated market value at December 31, 2008 and 2007 are as
follows:
 
 2008
                          
                          
                          2007Available
      for sale securities:Cost
                          
                          $
                          98,966
                          
                          
                          $
                          90,434Unrealized
      gain or (loss)
                          
                          
                          (14,158
                          )
                          
                          
                          27,946Marketable
      equity securitiesclassified
      as current
                          
                          $
                          84,808
                          
                          
                          $
                          118,380
 
 The
changes in unrealized gains (losses) from available-for-sale securities included
as a component of equity for the years ended December 31, 2008 and 2007 were as
follows:
 
 2008
                  
                  
                  2007Unrealized
      gain (loss)
                  
                  $
                  (42,104
                  )
                  
                  $
                  2,447
 
 The
investment in marketable equity securities has been pledged to secure the
liability for deferred compensation (Note 8).
 
 NOTE
3 - ACQUISITIONS
 
 A.
              On
      February 1, 2007 the Company entered into a Share-Exchange agreement for
      the acquisition of all outstanding shares of Alliance Barter, Inc., a New
      York corporation with offices in Rochester, NY and Toronto, Canada, for
      $2,500,000. IMS issued 3,333,333 shares of common stock guaranteed at
      $2,500,000 ($.75 per share).
 
 Purchase
      price
                    
                    $
                    2,500,000Cash
                    
                    $
                    498,452Accounts
      receivable
                    
                    
                    116,972Furniture
      and equipment
                    
                    
                    87,235Member
      lists
                    
                    
                    1,927,341Goodwill
                    
                    
                    650,000Liabilities
      assumed
                    
                    
                    (130,000
                    )Deferred
      tax liability
                    
                    
                    (650,000
                    )Net
      assets acquired
                    
                    $
                    2,500,000
 
  F
-16
 INTERNATIONAL
MONETARY SYSTEMS, LTD.
 AND
SUBSIDIARIES
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  
 B.
              On
      September 1, 2007, the Company purchased selected assets of Barter
      Partners of St. Joseph, Michigan for $50,000. IMS issued 50,000 shares of
      common stock guaranteed at $50,000 ($1.00 per
  share).
 
 
 Purchase
      price
                    
                    $
                    50,000Accounts
      receivable
                    
                    $
                    4,400Member
      list
                    
                    
                    45,600Total
      assets acquired
                    
                    $
                    50,000
 
 
 C.
              On
      September 30, 2007, the Company purchased selected assets of Kansas Trade
      Exchange of Wichita, Kansas for $600,000. Terms of the acquisition
      included a note payable for $300,000 with 36 monthly payments of $9,126,
      and 300,000 shares of IMS common stock guaranteed at $300,000 ($1.00 per
      share). The shares will be issued in three annual installments starting in
      January 2008.
 
 Purchase
      price
                    
                    $
                    600,000Accounts
      receivable
                    
                    $
                    27,400Furniture
      and equipment
                    
                    
                    8,000Member
      list
                    
                    
                    564,600Total
      assets acquired
                    
                    $
                    600,000
 
 
 
 Purchase
      price
                    
                    $
                    165,000Accounts
      receivable
                    
                    $
                    11,500Furniture
      and equipment
                    
                    
                    5,000Member
      list
                    
                    
                    148,500Total
      assets acquired
                    
                    $
                    165,000
 
  F
-17
 INTERNATIONAL
MONETARY SYSTEMS, LTD.
 AND
SUBSIDIARIES
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  
 E.
              On
      April 4, 2008, IMS exercised its option to purchase specific assets from
      New York Commerce Group (NYCG) pursuant to an agreement from September
      2006, for $405,424. IMS paid NYCG $100,000 on April 8, 2008. Payments made
      prior to this date totaled $132,500. The balance due of $172,924 is
      payable over the next 8 months with interest at 6% per
    annum.
 
 Purchase
      price
                    
                    $
                    405,424Accounts
      receivable (net)
                    
                    $
                    4,501Furniture
      and equipment
                    
                    
                    5,000Membership
      list
                    
                    
                    395,923Total
      assets acquired
                    
                    $
                    405,424
 
 
 F.
              On
      May 2, 2008, IMS acquired the assets of Business Network, Inc. of
      Hauppauge, New York for $400,000. Terms include a down payment of $200,000
      and a $100,000 note to the seller, payable over 18 months with interest at
      6% per annum, starting June 10, 2008. In addition IMS issued 133,333
      shares of common stock guaranteed to a value of $100,000 ($.75 per
      share).
 
 Purchase
      price
                    
                    $
                    400,000Accounts
      receivable (net)
                    
                    $
                    12,600Furniture
      and equipment
                    
                    
                    6,000Membership
      list
                    
                    
                    381,400Total
      assets acquired
                    
                    $
                    400,000
 
 G.
              On
      July 31, 2008, IMS completed its acquisition of the assets of Bartermax of
      Norwood, Massachusetts for $400,000. Terms include a cash down payment of
      $175,000, $50,000 in IMS trade dollars, and a $125,000 note to the seller,
      payable over 24 months with interest at 6% per annum, starting September
      20, 2008. In addition IMS issued 66,667 shares of IMS common stock
      guaranteed to a value of $50,000 ($.75 per
  share).
 
 Purchase
      price
                    
                    $
                    400,000Accounts
      receivable (net)
                    
                    $
                    13,900Furniture
      and equipment
                    
                    
                    8,500Member
      list
                    
                    
                    377,600Total
      assets acquired
                    
                    $
                    400,000
 
  F
-18
 INTERNATIONAL
MONETARY SYSTEMS, LTD.
 AND
SUBSIDIARIES
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  
 The table below summarizes the
unaudited pro forma information of the results of operations as though the
acquisitions had been completed as of January 1, 2008 and January 2007,
respectively:
 
 2008
                      
                      
                      2007Gross
      revenue
                      
                      $
                      14,631,508
                      
                      
                      $
                      15,341,572Total
      expenses
                      
                      
                      (16,084,089
                      )
                      
                      
                      (15,361,959
                      )Net
      income (loss) before taxes
                      
                      $
                      (1,452,581
                      )
                      
                      $
                      (20,387
                      )Earnings
      per share
                      
                      $
                      (0.02
                      )
                      
                      $
                      0.00
 
 NOTE
4 -  INTANGIBLE ASSETS
 
 Intangible
      assets consist of membership lists, goodwill and a covenant not to
      compete, and for the years ended December 31, 2008 and 2007 are as
      follows:
 
 2008
                        
                        
                        2007Membership
      lists
                        
                        $
                        13,635,423
                        
                        
                        $
                        12,517,176Impairment
                        
                        
                        (209,605
                        )
                        
                        
                        (36,676
                        )Accumulated
      amortization
                        
                        
                        (3,848,561
                        )
                        
                        
                        (2,518,346
                        )Net
                        
                        $
                        9,577,257
                        
                        
                        $
                        9,962,154Covenant
      not to compete
                        
                        $
                        89,300
                        
                        
                        $
                        89,300Accumulated
      amortization
                        
                        
                        (89,300
                        )
                        
                        
                        (74,417
                        )Net
                        
                        $
                        -
                        
                        
                        $
                        14,883Goodwill
                        
                        $
                        3,448,602
                        
                        
                        $
                        3,448,602Accumulated
      amortization
                        
                        
                        (13,123
                        )
                        
                        
                        (13,123
                        )Net
                        
                        $
                        3,435,479
                        
                        
                        $
                        3,435,479
  F
-19
 INTERNATIONAL
MONETARY SYSTEMS, LTD.
 AND
SUBSIDIARIES
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  
 Aggregate
      amortization expense was $1,345,098 and $1,222,041 for the years ended
      December 31, 2008 and 2007, respectively. In 2008 the Company
      recorded an impairment loss of $209,605 on membership lists related to its
      California, Kentucky, Nevada and Tennessee operations.  In 2007
      the Company recorded an impairment loss of $36,676 on membership lists
      related to its Virginia, Memphis, Tennessee and Indiana operations.
      Estimated future amortization expense is as
  follows:
 
 2009
                    
                    $
                    1,343,7932010
                    
                    
                    1,343,7932011
                    
                    
                    1,329,2662012
                    
                    
                    1,285,7422013
                    
                    
                    1,195,046thereafter
                    
                    
                    3,079,617$
                    9,577,257
 
 NOTE
5 - PROPERTY AND EQUIPMENT
 
 Property
      and equipment consist of the following as of December 31, 2008 and
      2007:
 
 2008
                    
                    
                    2007Office
      furniture, equipment,computers
      and software
                    
                    $
                    1,753,839
                    
                    
                    $
                    1,724,643Leasehold
      improvements
                    
                    
                    211,202
                    
                    
                    
                    211,2021,965,041
                    
                    
                    
                    1,935,845Accumulated
      depreciation
                    
                    
                    (908,515
                    )
                    
                    
                    (666,582
                    )$
                    1,056,526
                    
                    
                    $
                    1,269,263
 
 Depreciation
expense during the years ended December 31, 2008 and 2007 was $298,436 and
$243,326, respectively.
 
 
 NOTE
6 -  CREDIT LINES, NOTES AND CONVERTIBLE NOTES PAYABLE
 
 CREDIT
LINES:
 
 CTE has a
revolving credit line of $500,000 with a financial institution, with no maturity
date and an interest rate of Prime plus 1%. The note is secured by the assets of
the Company. As of December 31, 2008 the balance of the note is $248,658 and as
of December 31, 2007 it was $0.
 
 CTE has
an unsecured business credit line of $122,000 with a financial institution, with
no maturity date and an interest rate of prime plus 6%. As of December 31, 2008
the balance of the note is $92,078 and as of December 31, 2007 it was
$0.
  F
-20
 INTERNATIONAL
MONETARY SYSTEMS, LTD.
 AND
SUBSIDIARIES
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  
 NOTES
      PAYABLE:
 
 In
      connection with the purchase of Barternet in 2003, the Company assumed an
      unsecured note payable to an individual with maturity in February 2010 and
      monthly payments of $2,500. The face value of the original note was
      $207,500, discounted at 7.5% to $161,510. The balance as of December 31,
      2008 is $35,000, discounted to $33,412, and $65,000, discounted to $59,821
      as of December 31, 2007. The discount is being amortized over the life of
      the promissory notes as additional interest expense. During the years
      ended December 31, 2008 and 2007, the Company recorded interest expense
      from the discounts of $3,591 and $5,493,
  respectively.
 
 In
      connection with the acquisition of Barter Business Unlimited, Inc., CTE
      issued an unsecured note payable to the former owner, with maturity in
      June 2008 and monthly payments of $9,722. The face value of the original
      note was $350,000, discounted at 7.5% to $312,500. The balance as of
      December 31, 2008 is $0, and as of December 31, 2007 was $58,333,
      discounted to $57,076. The discount was amortized over the life of the
      note as additional interest expense. During the years ended December 31,
      2008 and 2007 the Company recorded interest expense from the discount of
      $1,257 and $8,728, respectively.
 
 In
connection with the acquisition of Barter Business Unlimited, Inc., CTE issued
an unsecured note payable for a covenant not to compete with maturity in June
2008 and monthly payments of $2,778. The face value of the original note was
$100,000, discounted at 7.5% to $89,300. The balance as of December 31, 2008 is
$0, and as of December 31, 2007 was $16,667, discounted to $16,308. The discount
was amortized over the life of the note as additional interest expense. During
the years ended December 31, 2008 and 2007 the Company recorded interest expense
from the discount of $359 and $2,490, respectively.
 
 In 2006
IMS issued an unsecured note payable to a private investor in the amount of
$1,465,000 with a maturity date of December 2009, monthly payments of $45,000,
and interest at 10%. The balance outstanding was $475,702 and $943,370 as of
December 31, 2008 and 2007, respectively.
 
 In 2007
in connection with the acquisition of Kansas Trade Exchange, CTE issued an
unsecured note payable for $300,000 to the former owners. Terms include
thirty-six monthly payments of $9,267 including interest at 6% beginning January
10, 2008. The balance outstanding was $205,922 and $300,000 as of December 31,
2008 and 2007, respectively.
 
 In 2007
in connection with the acquisition of Synergy Trade Exchange, CTE issued an
unsecured note payable for $155,000 to the former owners. Terms include fifteen
monthly payments of $10,751 including interest at 6% beginning October 20, 2007.
The balance outstanding was $124,921 as of December 31, 2007. The balance was
paid in full as of December 31, 2008.
 
 In 2008
in connection with the acquisition of New York Commerce Group, CTE issued an
unsecured note payable for $172,924 to the former owner. Terms included monthly
payments ranging from $10,000 to $15,000 per month plus interest of 6% beginning
May 5, 2008. The balance outstanding was $72,924 as of December 31,
2008.
  F
-21
 INTERNATIONAL
MONETARY SYSTEMS, LTD.
 AND
SUBSIDIARIES
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  
 In 2008
in connection with the acquisition of BNI of Long Island, CTE issued an
unsecured note payable for $100,000 to the former owner. Terms include eighteen
monthly payments of $5,823 including interest at 6% beginning June 10, 2008. The
balance outstanding was $62,174 as of December 31, 2008.
 
 In 2008
in connection with the acquisition of Bartermax, CTE issued an unsecured note
payable for $125,000 to the former owner. Terms include twenty four monthly
payments of $5,540 including interest at 6% beginning September 20, 2008. The
balance outstanding was $105,192 as of December 31, 2008.
 
 In 2008
in CTE issued two unsecured notes payable for $25,000 each in exchange shares of
IMS stock issued and guaranteed for the purchase of Barter Partners of Michigan.
Terms include seven monthly payments of $3,000 each and a final payment of
$4,000, plus interest at 6% beginning November 10, 2008. The balance outstanding
of each note was $19,000 (total of $38,000) as of December 31,
2008.
 
 CONVERTIBLE NOTES
PAYABLE:
 
 In 2005,
two private investors loaned $1,050,000 to IMS. Due dates of the notes ranged
from March to November 2007, with quarterly interest payments of 10%. The notes
were convertible to 3,500,000 shares of IMS stock at $.30 per share at the
holder’s option. The value of the convertible feature on the notes was
calculated to be $84,333 and treated as a discount and amortized over the life
of the notes. During 2007 all of the notes were converted to 3,500,000 shares of
IMS common stock at $.30 per share. As of December 31, 2008 and 2007 the
discounted balance of the notes was $0.
 
 In 2006 a
private investor loaned $1,200,000 to IMS. The due dates of the notes range from
March to September 2008, with quarterly interest payments of 10%. The notes are
convertible to 1,883,334 shares of IMS stock at $.30 per share, and 1,024,194
shares of IMS stock at $.62 per share, at the option of the holder. The value of
the convertible feature on the notes was calculated to be $39,833 and treated as
a discount which is being amortized over the life of the note. As of December
31, 2007 the discounted balance of the notes is $1,195,277.
 
 In
September 2008, the notes in the previous paragraph were converted to an
amortized note in the amount of $1,200,000, with 60 monthly payments of $15,858
including interest of 10%, and a balloon payment of $746,367 due September 2013.
The investor has the option to convert the principle balance to shares of IMS
commons stock at $.31 per share. As of December 31, 2008 the balance of the note
is $1,182,279.
 
 In 2008 a
private investor loaned $100,000 and $200,000 to IMS. The due dates of the notes
are July 2009 to April 2010, with quarterly interest payments of 10%. The notes
are convertible to 250,000 shares of IMS stock at $.40 per share, and 377,358
shares of IMS stock at $.53 per share, at the option of the holder. As of
December 31, 2008 the outstanding balance of the notes was
$300,000.
  F
-22
 INTERNATIONAL
MONETARY SYSTEMS, LTD.
 AND
SUBSIDIARIES
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  
 A summary of the Company’s credit
lines, notes and convertible notes payable is as follows:
 
 Balance
      as of
                    
                    
                    Current
                    
                    
                    Long-termDecember
      31, 2008
                    
                    
                    Portion
                    
                    
                    PortionFinancial
      institutions credit lines
                    
                    $
                    340,736
                    
                    
                    $
                    340,736
                    
                    
                    $
                    -Individual
      – note payable
                    
                    
                    475,702
                    
                    
                    
                    475,702
                    
                    
                    
                    -Individual
      – note payable
                    
                    
                    205,922
                    
                    
                    
                    99,881
                    
                    
                    
                    106,041Individual
      – note payable
                    
                    
                    105,192
                    
                    
                    
                    61,852
                    
                    
                    
                    43,340Individual
      – note payable
                    
                    
                    72,924
                    
                    
                    
                    72,924
                    
                    
                    
                    -Individual
      – note payable
                    
                    
                    62,174
                    
                    
                    
                    62,174
                    
                    
                    
                    -Individual
      – note payable
                    
                    
                    33,412
                    
                    
                    
                    28,459
                    
                    
                    
                    4,953Individuals
      – notes payable
                    
                    
                    38,000
                    
                    
                    
                    38,000
                    
                    
                    
                    -Individuals
      –  convertible notes
                    
                    
                    1,482,279
                    
                    
                    
                    175,466
                    
                    
                    
                    1,306,8132,816,341
                    
                    
                    
                    1,355,194
                    
                    
                    
                    1,461,147Discounts
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -$
                    2,816,341
                    
                    
                    $
                    1,355,194
                    
                    
                    $
                    1,461,147
 
 The
aggregate amount of maturities of long-term debt for each of the next five years
is as follows:
 
 2009
                    
                    $
                    1,355,1942010
                    
                    
                    437,7022011
                    
                    
                    92,0982012
                    
                    
                    101,7422013
                    
                    
                    829,605$
                    2,816,341
 
 Interest
expense for the years ended December 31, 2008 and 2007 was $275,332 and
$342,855, respectively.
 
 NOTE
7 -  NOTES PAYABLE, RELATED PARTY
 
 From
      time to time officers and stockholders of the Company have loaned funds to
      IMS.
 
 2008
                    
                    
                    2007Balance
      January 1
                    
                    $
                    -
                    
                    
                    $
                    110,024New
      loans during the year
                    
                    
                    25,000
                    
                    
                    
                    -Repayments
      during the year
                    
                    
                    (25,000
                    )
                    
                    
                    (110,024
                    )Balance
      December 31
                    
                    $
                    -
                    
                    
                    $
                    -
 
 These
      loans were paid in full during the year ended December 31,
      2008.
  F
-23
 INTERNATIONAL
MONETARY SYSTEMS, LTD.
 AND
SUBSIDIARIES
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  
 NOTE
8 -  DEFERRED COMPENSATION
 
 As
      part of the acquisition of Tradecard, Inc., the Company assumed a deferred
      compensation liability of $2,500 per month for 120 months, payable to
      a key employee after her
retirement.
 
 The
      value of future payments required under the agreement is being charged to
      operations over the period of active employment until the employee reaches
      her retirement date in approximately four
years.
 
 Assets
      intended to fund this liability include an investment in marketable
      securities (Note 2) with a balance of $84,808 and $118,380 as of
      December 31, 2008 and 2007, respectively, and a life insurance policy
      with a $300,000 death benefit and a cash surrender value as of
      December 31, 2008 and 2007, of $43,125 and $37,056, respectively. All
      incidents of ownership accrue to the Company, which is the designated
      beneficiary. There are no loans outstanding on the insurance policy, but
      the cash surrender value has been pledged by the Company to secure the
      liability for deferred
compensation.
 
 NOTE
9 - INCOME TAXES
 
 Income
      tax expense for the years ended December 31, 2008 and 2007 reflect a
      higher or lower effective tax rate due to certain expenses that are not
      deductible for tax purposes, such as the impairment loss of the membership
      list and 50% of meals and entertainment. The difference between actual and
      expected tax liability also includes the effects of timing differences in
      deducting certain expenses such as charitable contributions and
      depreciation, as well as the permanent effects of different financial
      accounting and tax bases of certain
assets.
 
 Income
      tax expense consists of the following
  components:
 
 Years
      Ended December 312008
                    
                    
                    2007Currently
      payable - state
                    
                    $
                    8,150
                    
                    
                    $
                    27,000Currently
      payable - Federal
                    
                    
                    -
                    
                    
                    
                    122,000Currently
      refundable - Federal
                    
                    
                    (48,500
                    )
                    
                    
                    -Deferred
      tax asset
                    
                    
                    (75,000
                    )
                    
                    
                    -Deferred
      - state
                    
                    
                    (100,250
                    )
                    
                    
                    (36,669
                    )Deferred
      - federal
                    
                    
                    (378,622
                    )
                    
                    
                    (167,100
                    )$
                    (594,222
                    )
                    
                    $
                    (54,769
                    )
 
  F
-24
 INTERNATIONAL
MONETARY SYSTEMS, LTD.
 AND
SUBSIDIARIES
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  
 The following table reconciles the
reported income taxes and the income taxes that would be computed byapplying the
Company’s normal tax rate to income before taxes for the periods ended December
31:
 
 Years
      Ended December 312008
                    
                    
                    2007Federal
      income tax
                    
                    $
                    (522,000
                    )
                    
                    $
                    (170,650
                    )State
      income tax
                    
                    
                    (92,100
                    )
                    
                    
                    (32,850
                    )Tax
      effects of:Nondeductible
      impairment loss
                    
                    
                    83,800
                    
                    
                    
                    15,050Disallowed
      meals
                    
                    
                    9,700
                    
                    
                    
                    10,300Change
      in allowance fordoubtful
      accounts
                    
                    
                    22,700
                    
                    
                    
                    -Charitable
      contributions carryover
                    
                    
                    900
                    
                    
                    
                    (1,800
                    )Depreciation
      and amortizationvariances
      due to tax basisand
      useful life differences
                    
                    
                    (14,000
                    )
                    
                    
                    142,581Other
                    
                    
                    (83,222
                    )
                    
                    
                    -Net
      operating loss carryover
                    
                    
                    -
                    
                    
                    
                    (17,400
                    )$
                    (594,222
                    )
                    
                    $
                    (54,769
                    )
 
 
 The
      tax effects of temporary differences that give rise to significant
      portions of deferred tax assets and liabilities are as
      follows:
 
 2008
                  
                  
                  2007Deferred
      income tax asset:Net
      operating losscarryover
      to future periods
                  
                  $
                  75,000
                  
                  
                  $
                  -Deferred
      income tax liabilities:Difference
      in tax basis ofmembership
      lists and goodwill
                  
                  $
                  2,039,000
                  
                  
                  $
                  2,550,000
 
 
 NOTE
10 – STOCKHOLDER EQUITY
 
 In
      2007, 3,683,333 shares of common stock were issued as part of the purchase
      of three trade exchanges. The fair value of the shares was
      $2,850,000.
 
 On
      March 20, 2007, 750,000 warrants were exercised for IMS common stock. IMS
      received cash in the amount of $412,500 ($.55 per
  share).
 
 In
      2007, $1,030,000 of convertible notes payable was converted to 3,433,334
      shares of IMS common stock, at $.30 per
share.
  F
-25
 INTERNATIONAL
MONETARY SYSTEMS, LTD.
 AND
SUBSIDIARIES
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  
 In
      2007, 25,000 shares of common stock were issued to investor relation
      firms. 50,000 shares of common stock were issued to the outside members of
      the Board of Directors. Total fair value was
  $48,250.
 
 On
      December 18, 2007, 25,000 shares of treasury stock were issued for options
      that were exercised in 2004, but remained unissued until
    2007.
 
 In
      2007, 190,000 options were exercised for shares of IMS treasury stock. IMS
      received $29,000 in cash.
 
 On
      August 2, 2007 IMS issued 75,000 shares of IMS treasury stock to acquire
      the source code for our proprietary software, at a fair value of
      $50,000.
 
 Cash
      received on the subscription receivable in 2007 was
    $10,821.
 
 The
      stock guarantee liability was reduced by $120,000 during 2007 pursuant to
      the release from an owner of guaranteed stock. The liability increased by
      $2,850,000 for three acquisitions in 2007. The liability was increased by
      $150,000 in 2008.
 
 In
      2007 marketable securities had an unrealized gain of $4,049 and the cash
      surrender value had an unrealized loss of $1,602, resulting in other
      comprehensive income of $2,447.
 
 The
      effect of the exchange rate on the currency conversion between our U.S.
      and Canadian offices resulted in an equity adjustment increase of $12,863
      for 2007.
 
 In
      2008, 200,000 shares of common stock were issued as part of the purchase
      of two trade exchanges. The fair value of the shares was
      $150,000.
 
 On
      April 14, 2008, 550,000 warrants were exercised for IMS common stock. IMS
      received cash in the amount of $302,500 ($.55 per
  share).
 
 In
      2008, 250,000 shares of common stock were issued to investor relation
      firms. 60,000 shares of common stock were issued to the outside members of
      the Board of Directors. Total fair value was
  $60,233.
 
 In
      2008, 250,000 shares of common stock were issued to investor relation
      firms. 60,000 shares of common stock were issued to the outside members of
      the Board of Directors. Total fair value was
  $60,233.
 
 On
      December 9, 2008 IMS paid $321,476 in trade dollars for 350,000 shares of
      common stock, which were placed into treasury
  stock.
 
 In
      2008 the balance due of $26,196 on the subscription receivable was written
      off as a bad debt.
 
 The
      stock guarantee liability was reduced by $557,000 during 2008 pursuant to
      the release from owners of guaranteed stock. The liability increased by
      $150,000 for two acquisitions in 2008, and an additional $150,000 for the
      settlement of a prior years’ dispute. The net decrease was
      $257,000.
  F
-26
 INTERNATIONAL
MONETARY SYSTEMS, LTD.
 AND
SUBSIDIARIES
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  
 In
      2008 marketable securities had an unrealized loss of $42,572 and the cash
      surrender value had an unrealized gain of $468, resulting in other
      comprehensive loss of $42,104.
 The
      effect of the exchange rate on the currency conversion between our U.S.
      and Canadian offices resulted in an equity adjustment decrease of $24,046
      for 2008.
 
 Effective
      January 1, 2006 the Company adopted SFAS No. 123R, "Share-Based Payment"
      ("SFAS 123R"), a revision to SFAS No. 123 "Accounting for Stock-Based
      Compensation" ("SFAS 123"). The Company has adopted the provisions of SFAS
      123R and related interpretations as provided by SAB 107.  As
      such, compensation cost is measured on the date of grant at their fair
      value.  Such compensation amounts, if any, are amortized over
      the respective vesting periods of the option
  grant.
 
 Common
stock, stock options and common stock warrantsissued to other than
employeesor
directors are recorded on the basis of their fair value, as required by SFAS No.
123(R), which is measured as of the date required by EITF Issue 96-18,
“Accounting for Equity Instruments That Are Issued to Other Than Employees for
Acquiring, or in Conjunction with Selling, Goods or Services.” In accordance
with EITF 96-18, the stock options or common stock warrants are valued using the
Black-Scholes option pricing model on the basis of the market price of the
underlying common stock on the “valuation date,” which for options and warrants
related to contracts that have substantial disincentives to non-performance is
the date of the contract, and for all other contracts is the vesting date.
Expense related to the options and warrants is recognized on a straight-line
basis over the shorter of the period over which services are to be received or
the vesting period. Where expense must be recognized prior to a valuation date,
the expense is computed under the Black-Scholes option pricing model on the
basis of the market price of the underlying common stock at the end of the
period, and any subsequent changes in the market price of the underlying common
stock up through the valuation date is reflected in the expense recorded in the
subsequent period in which that change occurs.
 
 A
      summary of the status of Company’s fixed stock option plan as of December
      31, 2008 and 2007, and the changes during the years then ended is
      presented below:
 
 December
      31, 2008
                                  
                                  
                                  December
      31, 2007Weighted
      Average
                                  
                                  
                                  
                                  
                                  
                                  Weighted
      AverageFixed
      Options
                                  
                                  Shares
                                  
                                  
                                  Exercise
      Price
                                  
                                  
                                  Shares
                                  
                                  
                                  Exercise
      PriceOutstanding
      atbeginning
      of period
                                  
                                  
                                  820,000
                                  
                                  
                                  $
                                  0.16
                                  
                                  
                                  
                                  1,050,000
                                  
                                  
                                  $
                                  0.16Granted
                                  
                                  
                                  -
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  $
                                  -Purchased
                                  
                                  
                                  -
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  
                                  (190,000
                                  )
                                  
                                  $
                                  0.15Forfeited
                                  
                                  
                                  -
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  $
                                  -Expired
                                  
                                  
                                  (160,000
                                  )
                                  
                                  $
                                  0.15
                                  
                                  
                                  
                                  (40,000
                                  )
                                  
                                  $
                                  0.13Outstanding
      at end of period
                                  
                                  
                                  660,000
                                  
                                  
                                  $
                                  0.16
                                  
                                  
                                  
                                  820,000
                                  
                                  
                                  $
                                  0.16Options
      exercisable atperiod
      end
                                  
                                  
                                  660,000Weighted
      average fair valueof
      options granted toemployees
      during the year
                                  
                                  $
                                  -
  F
-27
 INTERNATIONAL
MONETARY SYSTEMS, LTD.
 AND
SUBSIDIARIES
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  
 As
      of December 31, 2008 there were 660,000 options outstanding and
      exercisable, with a weighted average remaining contractual life of .07
      years, and a weighted average exercise price of
  $.16.
 
 As
      of December 31, 2007 there were 820,000 options outstanding and
      exercisable, with a weighted average remaining contractual life of 1.07
      years, and a weighted average exercise price of
  $.16.
 
 Warrants
 
 In
      May 2006 the Company issued 3,500,000 fully vested warrants with an option
      price of $.55, which expire in May, 2011. 550,000 warrants were exercised
      in March 2008 with proceeds of $302,500. 750,000 warrants were exercised
      in 2007 with proceeds of $412,500. The remaining balance as of December
      31, 2008 is 2,200,000.
 
 NOTE
11 - RELATED PARTY TRANSACTIONS
 
 The
      Company leases its executive offices and principal operating facilities in
      New Berlin, Wisconsin from Glendale Investments, LLC, a Wisconsin limited
      liability company which is owned by officers and stockholders of the
      Company. The original lease commenced October 1, 2002 and extends
      through September 30, 2010. Lease payments are $7,500 monthly plus certain
      operating costs, including sales and use taxes, insurance, utilities,
      maintenance, and non-structural repairs. Total payments in 2008 and 2007
      were $90,000 and $90,000,
respectively.
 
 From
      time to time officers and stockholders of the Company have loaned funds to
      IMS.
 
 2008
                    
                    
                    2007Balance
      January 1
                    
                    $
                    -
                    
                    
                    $
                    110,024New
      loans during the year
                    
                    
                    25,000
                    
                    
                    
                    -Repayments
      during the year
                    
                    
                    (25,000
                    )
                    
                    
                    (110,024
                    )Balance
      December 31
                    
                    $
                    -
                    
                    
                    $
                    -
 
 These
      loans were paid in full in the year ended December 31,
    2008.
 
 On August
3, 2007, the company issued 75,000 shares to Danny W. Weibling, Chief Financial
Officer of IMS, in exchange for a copy of the source code of the software
package called TradeWorkswhich he developed. The cost of the source code was
$50,000. Shares were issued from the company’s treasury stock.
 
 On July
11, 2008, 60,000 of shares of IMS common stock were issued to the six outside
members of the board of directors (10,000 shares each), as annual compensation
with a fair value of $21,000 ($3,500 each).
 
 In 2008
and 2007 the Company paid $500 and $480, respectively, to Corporate Secretary
Patricia Katisch to produce and distribute the corporate
minutes.
  F
-28
 INTERNATIONAL
MONETARY SYSTEMS, LTD.
 AND
SUBSIDIARIES
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  
 NOTE
12 - COMMITMENTS AND CONTINGENCIES
 
 Leases
 
 The
      Company has various leases for office facilities and vehicles which are
      classified as operating leases, and which expire at various times through
      2014. Total rent expense for all operating leases for 2008 and 2007 is
      summarized as follows:
 
 2008
                    
                    
                    2007Related
      party lease
                    
                    $
                    90,000
                    
                    
                    $
                    90,000Office
      leases
                    
                    
                    768,405
                    
                    
                    
                    668,122Vehicle
      leases
                    
                    
                    18,157
                    
                    
                    
                    16,548$
                    876,562
                    
                    
                    $
                    774,670
 
 Minimum
      future lease commitments as of December 31, 2008, are summarized as
      follows:
 
 OfficeYear
      ending December 31
                    
                    Facilities
                    
                    
                    Vehicles2009
                    
                    
                    687,672
                    
                    
                    $
                    8,9212010
                    
                    
                    554,123
                    
                    
                    
                    5,3102011
                    
                    
                    157,422
                    
                    
                    
                    -2012
                    
                    
                    82,835
                    
                    
                    
                    -thereafter
                    
                    
                    147,265
                    
                    
                    
                    -$
                    1,629,317
                    
                    
                    $
                    14,231
 
 Employment
      Agreements
 
 The
      Company has employment agreements with key employees, including the chief
      executive officer, the chief financial officer, and the senior vice
      presidents, pursuant to which these employees will receive base salaries
      in 2009 of $230,000, $190,000, $175,000 and $165,000, plus commissions and
      bonuses at the discretion of the chief executive officer. Each contract is
      for a term of three years, and will be automatically extended for
      additional one-year periods thereafter, unless terminated by the Company
      or by the employee. On March 31, 2009, each of the above officers agreed
      to a 10% reduction in salary.
 
 The
      agreements also provide for the issuance of stock options at the chief
      executive officer’s discretion. All agreements contain a change of control
      provision. In the event of a merger, acquisition of the Company or sale of
      substantially all of its assets, the chief executive officer’s contract
      provides for compensation equal to two years' salary plus a lump sum
      payment of $400,000. The chief financial officer and senior vice
      presidents will receive compensation equal to one year's salary plus lump
      sum payments of $200,000 each.
  F
-29
 INTERNATIONAL
MONETARY SYSTEMS, LTD.
 AND
SUBSIDIARIES
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  
 NOTE
13 – RESTATED FINANCIAL STATEMENTS (restated)
 
 On April
1, 2008, the Company restated the December 31, 2007 financial statements to
reclassify the current and long-tem portions of common stock subject to
guarantees.  This reclassification had no effect on net loss, loss per
share, cash flows or stockholder equity. A summary of the changes is as
follows:
 
 
 Balance
      Sheet
                  
                  As
      Reported
                  
                  
                  As
      RestatedLIABILITIESCurrent
      liabilitiesCurrent
      portion of common stock subject to guarantees
                  
                  
                  652,664
                  
                  
                  
                  995,000Total
      current liabilities
                  
                  
                  3,636,133
                  
                  
                  
                  3,978,469Long-term
      liabilitiesCommon
      stock subject to guarantees, less current portion
                  
                  
                  2,232,336
                  
                  
                  
                  1,890.000Total
      long term liabilities
                  
                  
                  5,634,373
                  
                  
                  
                  5,292,037
 
 
 NOTE
14 - SUBSEQUENT EVENTS
 
 On
      January 2, 2009 IMS repurchased 600,000 shares of common stock at $.75 per
      share using restricted cash of $450,000, thereby releasing $450,000 of the
      common stock guarantee.
 
 On
      January 15, 2009 IMS issued notes payable totaling $300,000 in exchange
      for release of the stock guarantee on, and the return of 300,000 shares of
      IMS stock. The notes are interest only at 4.5% per annum, and annual
      principal payments begin January 21, 2009. Principal payments range from
      $0 to $120,000 at the discretion of the note
  holders.
 
 On
      March 16, 2009 IMS issued 300,000 shares of IMS stock to an investor
      relations firm. The fair value of the stock was
  $24,000.
 
 On
      March 31, 2009 IMS issued two interest only notes payable totaling
      $100,000 in exchange for cash. The notes are $50,000 each, issued to a
      board member and an officer of the Company. Interest is 8% per annum paid
      quarterly for two years.
 
 On
      March 31, 2009, an interest only note payable to a private investor with
      an original due date of July 2009, was extended for 2 years, to July
      2011.
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