Results of Operations

During the quarter ended September 30, 2008, International Monetary Systems processed more than $27 million in trade transactions compared to over $26 million in the third quarter of 2007, an increase of more than 4.5%. The trade volume generated gross revenues of $3,537,840, compared to revenue of $3,563,578 in the third quarter of last year, a slight decrease of .7%.

Total expenses decreased 5.5%, from $3,716,140 in the third quarter of 2007 to $3,511,054 in the current period. The decrease is the result of our efforts to consolidate administrative operations, and to streamline sales and marketing costs by more quickly identifying under-performing elements.

Despite slightly lower revenues, the Company recorded net income from operations of $26,786 in the third quarter of 2008, compared to a loss from operations of $152,562 during the same period last year. After adjusting for interest expense and the income tax benefit, the net loss for the current period was $121,516, a decrease of 9.5% over the loss of $134,232 in the third quarter of 2007.

During the nine months ended September 30, 2008, International Monetary Systems generated gross revenue of $10,596,113 compared to $10,285,250 last year, an increase of 3.0%.

Total expenses increased from $10,573,326 in the first nine months of 2007 to $11,039,616 for the same period in 2008, an increase of 4.4%. The net loss from operations was $443,503 for the first nine months of 2008, compared to a loss of $288,076 for the same period last year.

The deferred tax benefit represents the adjustment to the deferred tax liability which arises from the differences in basis of acquired membership lists for financial reporting versus tax reporting.

The income tax expense (benefit) consists of:

                           Nine Months             Nine Months
                              Ended                   Ended
                       September 30, 2008      September 30, 2007

Income tax expense     $            50,000     $            67,000
Deferred tax benefit              (269,718 )              (328,143 )

                       $          (219,718 )   $          (261,143 )

For the nine months ended September 30, 2008, net cash provided by operating activities totaled $310,428, compared to $976,872 for the same period of 2007.

Operating profit or EBITDA - earnings before interest, taxes, depreciation and amortization - totaled $791,304, a decrease of 4.35% from the $827,295 reported for the same period of 2007. EBITDA is calculated as follows:

                           Nine Months              Nine Months
                              Ended                    Ended
                        September 30, 2008      September 30, 2007

Net loss               $           (416,616 )   $          (261,594 )
Interest expense                    202,485                 271,426
Income tax (benefit)               (219,718 )              (261,143 )
Depreciation                        222,192                 180,228
Amortization                      1,002,961                 898,378

                       $            791,304     $           827,295

Liquidity, Sources of Capital and Lines of Credit

On September 30, 2008, current assets were $3,258,814, and total assets were $18,103,362. Current liabilities were $3,399,105 and total liabilities were $9,073,204, resulting in total shareholder equity of $9,030,158 and a working capital deficiency of $140,291.

At the end of the third quarter of 2008 the Company's unrestricted cash balance was $408,221 compared to $812,365 on December 31, 2007. Though operations and financing activities generated $310,428 and $61,511, respectively, we used $765,834 in cash for investing activities: $495,000 for business acquisitions, more than $70,000 for equipment purchases, nearly $11,000 for marketable securities and life insurance, and nearly $192,000 to fund restricted cash. Cash also decreased due to a foreign currency translation adjustment of $10,249 from our Canadian operation.

In March 2008, the Company drew $210,000 on a line of credit. $100,000 was used as the down payment on the accelerated acquisition of New York Commerce Group. In June of 2008, $50,000 was paid to reduce the line of credit. In total the Company has borrowed net $309,000 against lines of credit in 2008.

We believe that current cash needs can be met with the current cash balance and from working capital generated over the next 12 months.

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, revenues and expenses. These estimates and assumptions are affected by management's applications of accounting policies. Critical accounting policies for IMS include the following:

REVENUE SOURCES AND REVENUE RECOGNITION

The Company and its subsidiaries earn revenues in both traditional cash dollars and in IMS trade dollars. Cash income is earned through fees assessed when a member joins, transaction fees generated when clients earn or spend their trade dollars, monthly maintenance fees, finance charges on delinquent accounts receivable, and event fees.

Trade revenue is similarly generated through initial membership fees, monthly maintenance fees, transaction fees and event fees. 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.

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.

GOODWILL AND MEMBERSHIP LISTS

Goodwill and membership lists are stated at cost and arise when IMS acquires another company. 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. There was no impairment of goodwill or membership lists in the first nine months of 2008.

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.

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 non-controlling 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 non-controlling 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 non-controlling owners. SFAS No. 160 affects those entities that have an outstanding non-controlling 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" (SFAS 161). 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. SFAS 161 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 non-derivative instruments that are designated and qualify as hedging instruments. Entities with instruments subject to SFAS 161 must provide more robust qualitative disclosures and expanded quantitative disclosures. SFAS 161 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.

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, the FASB issued SFAS No. 163, "Accounting for Financial Guarantee Insurance Contracts-an interpretation of FASB Statement No. 60." Diversity exists in practice in accounting for financial guarantee insurance contracts by insurance enterprises under FASB Statement No. 60, Accounting and Reporting by Insurance Enterprises. This results in inconsistencies in the recognition and measurement of claim liabilities. This Statement 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. This Statement requires expanded disclosures about financial guarantee insurance contracts. The accounting and disclosure requirements of the Statement will improve the quality of information provided to users of financial statements. SFAS 163 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. The adoption of FASB 163 is not expected to have a material impact on the Company's financial position.

OFF BALANCE SHEET ARRANGEMENTS

IMS does not have any off balance sheet arrangements.