Where Food Comes From, Inc. — requested 2011 Q2 summary
Filing identity: The supplied 10-Q is for Integrated Management Information, Inc. (IMI Global), not an issuer named Where Food Comes From, Inc. “Where Food Comes From” is described as one of IMI’s consumer labeling programs. Confirm the issuer and filing before relying on this summary.
Business context and reporting period
This unaudited quarterly report covers the three and six months ended June 30, 2011, with comparisons to the same 2010 periods. IMI provides verification, traceability, auditing, consulting, web-based services, and related hardware for the agriculture, livestock, and food industries. The company says its business is seasonal, with significant revenue typically in the second and third quarters.
Financial performance and position
| Metric | Q2 2011 | Q2 2010 | Six months 2011 | Six months 2010 |
|---|---|---|---|---|
| Revenue | $1,125,472 | $799,130 | $1,947,291 | $1,479,313 |
| Gross profit | $677,198 | $433,482 | $1,129,270 | $834,924 |
| Gross margin | 60.2% | 54.2% | 58.0% | 56.4% |
| Operating income | $283,723 | $73,772 | $368,788 | $122,531 |
| Net income | $276,944 | $65,604 | $354,367 | $106,184 |
| Diluted EPS | $0.01 | Less than $0.01 | $0.02 | $0.01 |
- Reported revenue growth was 40.8% for Q2 and 31.6% year to date. Third-party verification revenue increased 44% in Q2 and 32.4% year to date; hardware revenue rose 26.9% and 28%, respectively.
- SG&A was $393,475 in Q2, up 9.4%, and $760,482 year to date, up 6.8%. Management attributed some of the increase to consulting, marketing, and advertising.
- Year-to-date operating cash flow was $303,390, versus $165,718 in 2010. Investing used $5,891; financing provided $105,202. Cash rose to $915,777 from $513,076 at year-end 2010.
- At June 30, current assets were $1,265,181 and current liabilities $237,804; reported working capital was $1,027,377. Total assets were $1,359,400 and stockholders’ equity $693,341.
- Notes payable totaled $464,088, including $35,833 current and $428,255 long-term, compared with $340,817 at December 31, 2010. The filing reports no income tax expense; management says deferred tax assets remain subject to a valuation allowance.
Material changes, outlook, and risks
- Management attributed improved margins to higher verification-audit volume, absorption of fixed costs across greater sales, and changes in sales mix. It cited demand for USVerified services, animal-welfare audits, and non-hormone-treated cattle verification.
- In April 2011, IMI obtained a $200,000 Great Western Bank SBA loan, maturing May 1, 2021, at prime plus 2.5% (5.75% effective at origination), with monthly payments and collateral over company assets. The founders personally guaranteed it and pledged 3 million personally owned shares.
- A related-party note was amended to reduce its interest rate from 9% to 6% and extend maturity to March 31, 2014. The filing describes the lender as a major shareholder related to a director.
- Management said it expected to achieve profitability for full-year 2011 and believed cash on hand and financing were sufficient for its current business plan, while cautioning that it could give no assurance. It planned continued marketing investment and an increased focus on international markets; marketing may not generate future revenue.
- Risks and caveats include seasonality; dependence on continued sales growth and financing; uncertainty over returns from the “Where Food Comes From” marketing program; livestock-tag purchases primarily from Allflex; and ordinary-course legal matters that management did not expect to be material. The headquarters lease had expired and continued month-to-month at $5,221 per month while a new agreement was pending.
- Management reported disclosure controls effective at a reasonable assurance level and no material quarterly change in internal control. It also disclosed limited segregation of duties due to its small staff. The filing states there were no material changes to the risk factors in its 2010 annual report.
Important facts for investors to verify
- Confirm that this Integrated Management Information, Inc. filing is the intended issuer filing, given the requested company-name discrepancy.
- Review the composition, maturity schedule, covenants, collateral, and related-party terms of the $464,088 total notes payable.
- Assess whether verification revenue growth and improved gross margins persisted beyond this seasonally strong quarter.
- Monitor receivables growth, cash conversion, and the results of spending on the consumer-labeling program.
- Check subsequent filings for the 2011 full-year outcome, lease renewal, and any changes in liquidity, debt, or legal contingencies.