Interview with: Donald F. Mardak, Chairman, President and CEO - featuring: their Continental Trade Exchange, one of the world's largest barter systems, which permits companies and individuals to exchange goods and services utilizing an electronic currency known as "trade dollars" (T$), which are used in lieu of cash to purchase the various offerings of other members of the barter network.

International Monetary Systems Ltd. (INLM-OTC: BB)

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International Monetary Systems is the only publicly traded independent barter company. Their relationships with people in the industry—many of whom are looking for exits—is providing a great opportunity for acquisitions and growth.

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Business Services

International Monetary Systems Ltd.

16901 West Glendale Drive
New Berlin, WI 53151
Phone: 262-780-3640

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Donald F. Mardak
Chairman, President and CEO

Interview conducted by:
Lynn Fosse, Senior Editor
April 20, 2006

Donald F. Mardak

Chairman of the Board, President, CEO

Donald F. Mardak has been the Chief Executive Officer, President, and a director of IMS since our inception in 1989. 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 has served two terms as president of the National Association of Trade Exchanges, the principal barter industry trade association, in 1995-96 and again in 1999-2000.

Company Profile:
International Monetary Systems, Ltd. (OTCBB: INLM) was incorporated in 1989 for the purpose of acquiring, owning, managing, and operating trade exchanges and other related businesses. Through its initial public offering which was completed in December of 2001, complemented by several private placements, IMS has raised more than $2.5 million. The Company used the proceeds from these offerings for working capital purposes and to acquire strategically located, synergistic trade exchanges.

Trade exchanges, or barter networks, are financial service firms that permit companies and individuals to exchange goods and services utilizing an electronic currency known as "trade dollars" (T$), which are used in lieu of cash to purchase the various offerings of other members of the barter network. Because trade exchanges enable companies to generate new business, conserve cash, and convert excess inventory and capacity into needed goods or services, the barter industry continues to grow at a consistent pace.

IMS' subsidiary, Continental Trade Exchange, is one of the world's largest barter systems, serving more than 9,500 business and service professionals throughout the U.S. Led by Don Mardak, former chairman of the National Association of Trade Exchanges (NATE), IMS has a seasoned management team with more than sixty years of combined industry experience. Through its customer-driven business model, the Company has grown more than 350% in the last five years and is well positioned to capitalize on a highly fragmented market. By expanding its network through strategic acquisitions, IMS expects to become the dominant player in the barter industry.

CEOCFO: Mr. Mardak, what was your vision when you started the company, and how has that developed?
Mr. Mardak: “ When I founded the company, it was 1985, so we have been in business for over 20 years now. I learned about the barter industry through an associate, and I saw a great potential to build something substantial because it was such a unique idea and concept. When we speak of a bartering company, we are referring to an organization that makes it possible for business people of all walks of life to trade their goods and services on an ongoing basis; but they never have to trade directly with each other. When you think of bartering or trading, it usually means I have apples and you have oranges, so let’s swap. Well the problem with that is, if I am allergic to oranges, I cannot accept your trade offer because I cannot use the oranges. That is what happens in many cases. Two parties do not have a common need at the exact same moment. So a trade exchange like ours has been created to make these trades possible, without people having to deal directly with each other. This is accomplished because we have created a proprietary, electronic currency, which we refer to as trade dollars. Our trade dollars become the medium of exchange within the barter system. Participating clients earn trade dollars each time they sell something to another party in the system, and they, in turn, can spend those dollars anywhere else in the network. As a result, there is a continuous flowing of products and services in what is virtually an alternative economy, an alternative or complementary payment system. We think of ourselves as not just a barter network, but also as another payment system, much like MasterCard, Visa, or American Express."

CEOCFO: Why not just buy what you want with cash?
Mr. Mardak: “If you were a young dentist who just graduated from college, spent hundreds of thousands of dollars to open up an office, borrowed money for your equipment, and were sitting there with no patients, how do you get yourself launched? How do you even get people to know that you are there? If you join the barter system, we can bring you new patients who most likely would not have come to you. One of the most important things that a barter system does for its clients is bring them new business that they would not otherwise have had. So step one is: you get new customers. Secondly, after you get those customers, you can sell your products and services at a full retail price. And since you have a mark-up, or profit margin, on your products or services, you are effectively buying all the other products at wholesale—the wholesale cost of your own merchandise. For example, if you have a clothing store, and sell everything in your store at a keystone mark-up, a list-price $400 suit, costs you just $200. If you could trade that $400 suit for a root canal—which the dentist prices at $400—you have saved $200, or purchased that dental work at a wholesale price. That is a remarkable economic benefit, because even Bill Gates could not do that. If he walked into that dentist and was going to have a root canal done, the dentist would expect $400 from him. Yet you, as a clothing merchant who had participated in a trade exchange, could get your dental work done for half price.

Every time you trade your own products and services in the system, you are benefiting from what we refer to as barter leverage, which is the ability to buy other products and services at the wholesale cost of your own products and services—and that is a powerful economic tool. So two things have happened as a result of your participation in our barter system: We brought you a customer that you would not have had otherwise, and the revenue that you earned from that sale is spendable in a way that is only half the cost that it would have been if you were taking the dollars out of your checking account. I often use the following example: Let’s assume that you own a restaurant, and you want to do an advertising campaign for $20,000. Would you rather write a check for $20,000, or issue some gift certificates for meals at your restaurant? If you think about that, there is only one answer. Why would you write a check if, instead, you could keep all the money in your bank account and issue gift certificates? By issuing gift certificates, you are obligating yourself to serve some meals to the people that may come into your restaurant, but that could happen over a long period of time. And even if every single certificate was redeemed at face value, you would have a built-in profit margin. Serving those meals would only cost you the wholesale price of your food. If you serve a $25 steak, it does not cost you $25; most likely, your cost would be $10 to $12. There is a markup built into that meal. If you pay for your advertising by serving meals, you save at least half, if not more on the cost of the $20,000 campaign. Your out-of-pocket cost may be as little as $8000 or $10,000 dollars. That is a substantial savings and becomes a tremendous economic tool for your business."

CEOCFO: A win-win for the barterers; how do you win?
Mr. Mardak: “We receive various fees as the processor of all the trades and transactions. We receive fees for our work just as eBay Inc. (NASDAQ: EBAY) does when you list your product online with them, and as MasterCard does when they process a transaction—except that our commissions are a lot larger than theirs are. First of all, we have a one-time membership fee to join the program and that is $595.00. Once a client has signed on and opened a barter account, we then charge them $12.00 a month in cash and $12.00 a month in trade just to be in the system. The biggest revenue drivers for us, though, are our transaction fees. We receive a cash fee ranging from 6 to 7.5% on each side of a transaction; the buyer and seller each pay us that fee. As a result, we receive between 12 and 15% on very transaction that goes down. In describing how we generate our revenue, I like to refer to the real estate industry. If we were a RE/MAX International office, we might state that we sold $100 million worth of homes last year. If we did that, and if we were getting a 6% commission, we would have had $6 million in revenue. The two numbers are $100 million in home sale and $6 million in commissions and revenue. In our case, like the home sales, we refer to how many trade dollars we turned, how many transactions we processed, and at what value. That number for us last year happened to be $52 million. We have grown from as little as $5-10 million a few years ago, to $22 million, $28 million, $39 million, and $52 million this past year. That has translated to revenue of $6.3 million for us. And that number is increasing at a very impressive rate. We have been growing at about 30-40% each year in revenue stream.”

CEOCFO: How do get new customers?
Mr. Mardak: “We have an outside staff of sales people, and we believe very much in internal, or organic growth. The greatest way to achieve organic growth is to sign up new members. We have a national sales manager who is overseeing our sales people at our various offices and currently we have either fourteen or fifteen full-time sales people who are making a living selling memberships in our system; it is much like selling a membership in the Chamber of Commerce or Better Business Bureau. But our greatest growth has come through acquisitions. Just as I started this business some twenty years ago in the greater Milwaukee area, there are people like me who have started up trade exchanges in most every major city in America. I believe there are somewhere between 200 and 250 independent trade exchanges across the country in the various markets. Many of us have come to know each other because we have been trading directly with each other. If one of our clients from Milwaukee wanted to take a trip to Miami, San Diego or Los Angeles, we could get them a hotel room in those cities by calling our friends in the industry who have a trade exchange there and can book hotels for us.

We have also joined together in a couple of national associations: one is called NATE (The National Association of Trade Exchanges) and the other is named IRTA (The International Reciprocal Trade Association). As members of those organizations, we have accreditation programs and can attend annual conventions, meetings and seminars, where we share our ideas. As a result, we have come to know each other very well, and because of all those relationships, our company is in a very unique position. We are the only publicly traded independent barter system and we have great relationships with the people in our industry, many of whom are looking for exits. They have reached retirement age, or they have hit a plateau and can’t seem to grow by themselves. Yet if they align their business with ours, we can add an impetus that they have never had before. Because of our national network, their clients will have many more opportunities for trading. They will then have a much greater travel division, a substantially larger media department, and other things of that nature. Because of our previous merger and acquisition activity, we now have a roster of more than 9000 clients in 32 different markets across America, served out of 14 specific offices.”

CEOCFO: When you take on these other companies, are you buying them out?
Mr. Mardak: “Yes, we buy them out, and in most cases, we do an asset purchase. After we acquire the company, the owner usually leaves, and we pay him or her in a combination of cash and our stock Occasionally, some trade dollars are even in the mix, because some owners want to continue having the ability to spend trade dollars after they leave the business."

CEOCFO: Will you tell us what types of businesses would benefit the most from barter?
Mr. Mardak: “We have a very complete website directory which lists all the different categories of businesses who are willing to barter their goods and services. Our listings begin with "accommodations," and end with "yoga," and cover everything in-between. We have clients in virtually every walk of life—in retail-type businesses, in the service industries, and in the professions. We are not dealing with major corporations such as Hewlett Packard Company (NYSE: HPQ) or IBM (NYSE: IBM), but smaller businesses in every individual community. Among those would be professional people such as doctors, dentists, accountants and attorneys, as well as other service professionals, including electricians, plumbers, house painters, auto mechanics and home builders. In addition, we try to enroll retail stores, office supply companies, hotels, restaurants, media companies, advertising venues, including radio stations, newspapers, billboard companies, direct mail providers, and virtually anything else of that nature. If  they have any excess capacity, every business in the community could, and should be trading their services.”

CEOCFO: You are in 32 cities; what is the common thread among the cities?
Mr. Mardak: “Barter is basically local. If a carwash or some other local business joined our system from Albuquerque, New Mexico, and we did not have another client in Albuquerque, that carwash would never get any business, because it is too localized. If a dry cleaner signed up in Fargo, North Dakota, and if a restaurant signed up in Norfolk Virginia, they are too far apart, and none of those people could trade with one another. You would rather build a nucleus of 100 members or more in a given community; that is probably the critical mass that you need. Once you get to 100 or 150 clients, you have a viable exchange going where you can generate the needed trading activity. In the IMS network, there is a synergy between the offices as well, because there are certain products that are transportable and can easily be sold across the country. The most popular of these is travel and accommodations; we have hotels in virtually every market, as do our friends in the barter industry. Clients from our various locations can travel to different parts of the country, even the Caribbean and Europe, using their trade dollars to pay for their lodging when they get there. When they arrive in a city, they can go to restaurants in that area. If they travel to Orlando, Florida they may acquire tickets to Disney World, or they may find some Six Flags amusement parks in other markets. They may have theatre tickets in New York, sporting events in Chicago, the symphony in Milwaukee . . .  all of this is available to them on barter.”

CEOCFO: You must have a good retention rate!
Mr. Mardak: “Very good! Usually people leave if they die or go out of business and move to another market. Very few people stop trading once they get started; in fact in many cases, once they have become active in the system, they may have 3, 5 or $7 thousand in their barter or trade account, and they really cannot just quit until they have at least spent all of those trade dollars. Usually they are selling more as they go along, and it is a continuously revolving process. Our key revenue driver is the generation of trade dollar volume; we call that velocity. We are always trying to generate velocity in the system. You have asked me to speak about International Monetary Systems, which is a holding company that owns and operates the barter network. The holding company is a publicly traded stock, trading under the symbol INLM on the over-the-counter bulletin board. I feel it is one of the finest small-cap stocks that is out there today, because we are not just a start-up with a dream that maybe someday after three trials our drug is going to work, or that we are going to begin selling something in China that nobody else has sold there before or, even worse, that everybody else is already selling there. We have a model that works. We have been in business for more than 20 years; we are in a unique industry, and we have an opportunity to roll up that industry . . . and that is not something that happens everyday, where a relatively small business can really accomplish something of that nature.”

CEOCFO: Do you have enough funds for the roll up?
Mr. Mardak: “Yes, we do. We have a good deal of funding available to us. We have been discovered by some private investors who love our concept and model, and they have provided us with most of the money that we need at very good terms.”

CEOCFO: You do not have much overhead!
Mr. Mardak: “The highest percentage of our overhead is still salary and payroll. We do have one area of employment that I have not yet spoken about in this interview. Once the clients are enrolled by the outside sales people, they are then assigned to an inside customer service representative who we refer to as a trade broker. Currently, approximately 35 members of our staff are these trade brokers. Each broker is assigned from 250 to 300 clients that he or she deals with on a regular basis. The brokers service these people by making them aware of what is available in the system and bringing new business to them. The clients can also search for the various listings on the IMS website. For example, if we are in a major city where there is a professional sports team, we may be offered a sky box at some baseball or football game that weekend, and we may need to tell them that it is available. We could have some client who decides to put his boat or motorcycle into the program. He may be a dentist who normally is known only for drilling teeth, and yet he has a boat, motorcycle or bike for sale. The brokers are constantly keeping their clients informed and function as their problem solver. A client may ask for something that we do not have. We use that as a perfect opportunity to sign up a new member. Once we have a request for something that is not available in our system, our sales people can go out and call on merchants in that field, being able to offer them a transaction right from the start. We call that our purchase-order close. We can tell the new prospect: "If you will do business with us, I have somebody that will use your services tomorrow.”

CEOCFO: What are your challenges ahead?
Mr. Mardak: “We always have to police the system so that some client isn’t trying to take advantage of either our company or another client. We work diligently to prevent overpricing. One of the most basic principles of barter is that all trades are transacted at list price for list price. You are not necessarily looking for discounts, because you have the barter leverage—the ability to purchase everything in the system at the reduced cost of the wholesale price of your own product. If you sell clothing and you trade that for camera equipment, you are buying camera equipment at the wholesale cost of your clothing. The merchant that sells the camera equipment has a mark-up of 40-50%. So when he buys something else such as staying at a resort in Hawaii, he is getting those rooms at half price. If he uses his trade dollars for an airline ticket, he again is getting the tickets at half price. It is important that we deal at list prices for everybody, but nobody should be overpricing. Another challenge is hiring good people who can work for us. Outside sales is one of the most important and most difficult areas for us to work in, because it is not easy to hire and pay salespeople. Ours is unlike other businesses that sell hard goods—homes for example, or automobiles, or furniture—where there is a product involved. When somebody purchases those, there is money on the table. In that scenario, you can pay a commission to the sales person. But when you sell an intangible, or a membership, such as in the Chamber of Commerce, the only money on the table at the closing is the membership fee. A sales person has to collect the membership fee from the new client, and that is how they derive their income; they receive a percentage of that fee. We market our services in a very professional manner, because we are offering a tremendous benefit to our clients. That is key ingredient for us: to have good sales people doing that.”

CEOCFO: Why should investors be interested and what do they miss when they look at the company?
Mr. Mardak: “The biggest handicap we face is that we are in the micro-cap arena, with a stock trading on the over-the-counter bulletin board. Some people find it more difficult to purchase stocks that are on the pink sheets or bulletin board, as opposed to NYSE, NASDAQ, or the AMEX. Some brokers will not even talk about stocks in this range, or stocks under $5.00 a share. Our shares are trading at only at a quarter to thirty cents today, which, in my opinion, is very undervalued for us. That is a challenge that we face in trying to get the stock marketed. But once people really hear our story, they become extremely intrigued by the fact that we are one of the few micro-caps that truly has fundamentals. At this present price, we are trading at less than two times our revenue of last year and probably one and a half times what we are doing this year in revenue. We are trading at about three or four times our book value. These are remarkable multiples for a micro-cap stock. We have revenue, which many micro-caps do not have. We do not have a rate of burn; we are not losing money. We are cash-flow positive. We will be right around the break-even mark for two years in a row here, but we expect that this will be our breakout year and we will start showing serious bottom-line profits. We are already profitable from the standpoint of operating income, or EBITDA (earnings before interest, taxes, depreciation and amortization). I believe that we could earn as much as $600-$800 thousand this year, which represents about two cents a share in EBITDA. Because of S.E.C. accounting changes and some non-cash expenses, such as accelerated depreciation on our membership list, we will not show a large bottom-line profit in 2005, but will be right around the break-even mark. But anyone who looks at our financial statements should realize that all those other expenses are non-cash charges and have no affect on our true operations or our cash flow. We have a compelling story to tell and are functioning in a very unique and interesting industry. IMS is a micro-cap stock that has some wonderful fundamentals, and people should look at it very seriously.”

CEOCFO: Do you focus on reaching potential investors?
Mr. Mardak: “We are always working in that area, but it is quite a challenge. You may remember the classic statement from the movie Field of Dreams that "if you build it, they will come." It is not quite like that here; you have to get the story out. Investor awareness is one of our greatest challenges.”

CEOCFO: What surprises you most on how your vision developed over the years?
Mr. Mardak: “I do not think I would have envisioned it growing to this level. When I first started out, I was just going to have another trade exchange like my friends and peers have. Shortly after our company's inception, when we first began attending the conventions, we were one of the smaller companies. But now, I am a two-time past president of the National Association of Trade Exchanges. We have a great reputation among our peers. Once we started the roll-up process and acquired a few trade exchanges, amazing things began to happen. The first two acquisitions were almost by accident. But we immediately saw the synergies that took place and the economies of scale. One of the reasons why banks merge is because when they open branch offices, those offices do not all have to be  full-service operations. And they do not need the entire bank’s accounting staff in every office. They usually have just a few tellers, loan officers, and maybe a securities specialist. In our case, it is much like that; we do not need the whole staff of administrative people in every office, we do not need the travel department or our media department. They can work out of one central corporate office and do all of their work from there servicing the entire network.”

CEOCFO: Do you have any final thoughts for our readers?
Mr. Mardak: “I would mention our two websites. The first is, that is the site our clients use primarily as a directory and to transact business. They can get online authorizations 24/7 and process transactions online. We have a second website for the parent company: That is our investor relations site that lists all of our press releases, presents our management team, and provides all other information that relates to the stock itself.”


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“When you think of bartering or trading, it usually means I have apples and you have oranges, so let’s swap. Well the problem with that is, if I am allergic to oranges, I cannot accept your trade offer because I cannot use the oranges. That is what happens in many cases. Two parties do not have a common need at the exact same moment. So a trade exchange like ours has been created to make these trades possible, without people having to deal directly with each other. This is accomplished because we have created a proprietary, electronic currency, which we refer to as trade dollars. Our trade dollars become the medium of exchange within the barter system. Participating clients earn trade dollars each time they sell something to another party in the system, and they, in turn, can spend those dollars anywhere else in the network. As a result, there is a continuous flowing of products and services in what is virtually an alternative economy, an alternative or complementary payment system. We think of ourselves as not just a barter network, but also as another payment system, much like MasterCard, Visa, or American Express." - Donald F. Mardak does not purchase or make
recommendation on stocks based on the interviews published.