Business Context and Reporting Period
Company: Integrated Management Information, Inc. (IMI Global), also referred to as "Where Food Comes From, Inc." in the request metadata.
Reporting Period: Fiscal year ended December 31, 2009.
Business Overview: IMI Global provides verification, traceability, and communication solutions for the agriculture, livestock, and food industries. Core services include USDA Quality System Assessment (QSA), Process Verified Program (PVP), and Export Verification (EV) compliance. The company offers web-based applications and auditing services to verify claims regarding source, age, genetic background, and animal treatment (e.g., non-hormone treated cattle). In March 2010, the company introduced the "Where Food Comes From" consumer labeling program.
Key Financial Metrics
| Metric | 2009 | 2008 |
|---|---|---|
| Total Revenue | $2,660,530 | $2,402,830 |
| Gross Profit | $1,345,847 | $1,329,502 |
| Gross Margin | 50.6% | 55.3% |
| Net Income (Loss) | $(153,191) | $149,658 |
| Operating Cash Flow | $102,678 | $(438,537) |
| Adjusted EBITDA | $112,260 | $(67,698) |
| Cash and Equivalents | $214,329 | $154,044 |
| Total Debt (Notes Payable) | $369,338 | $300,000 |
| Working Capital | $263,989 | $387,901 |
Material Changes vs. Prior Period
- Revenue Growth: Total revenue increased 10.7% year-over-year. Third-party verification revenue grew 12.2% to $2.17 million, while hardware sales (ear tags) increased 16.5% to $466,000.
- Profitability: The company reported a net loss of $153,191 in 2009, compared to net income of $149,658 in 2008. The 2008 income included a one-time gain of approximately $358,000 from the sale of three online businesses (CattleNetwork, CattleStore, AgNetwork), which did not recur in 2009.
- Bad Debt Provision: Selling, General, and Administrative (SG&A) expenses increased slightly by 1.9% to $1.47 million. This increase was driven by a $169,555 bad debt provision related to a discontinued USDA grant-funded project. Excluding this provision, SG&A expenses decreased 9.8%.
- Cash Flow Turnaround: The company achieved positive operating cash flow of $102,678 in 2009, reversing a cash consumption of $438,537 in 2008.
- Debt: Total notes payable increased to $369,338 in 2009 from $300,000 in 2008, due to new equipment financing and additional borrowings under an existing note.
Guidance, Outlook, Risks, and Unusual Items
- Going Concern: The independent auditor's report states that conditions exist which raise substantial doubt about the company's ability to continue as a going concern unless it can generate sufficient cash flows. Management believes current cash and financing options are sufficient to execute the business plan, but offers no assurance.
- Market Outlook: Management anticipates growth driven by international export markets (Japan, EU, Korea) requiring verification for age and source. The company is focusing on international expansion and new verification programs (e.g., VerifiedGreen, High Quality Beef).
- Risks:
- Customer Concentration: No single customer exceeds 10% of revenue, but the business is highly dependent on the financial health of the livestock industry and export market access.
- Regulatory Dependence: Revenue is tied to USDA programs and export regulations. Changes in trade barriers or government funding (e.g., the discontinued grant project) directly impact sales.
- Competition: The industry is competitive with larger firms and new entrants; technology changes could render current solutions obsolete.
- Key Personnel: Success depends heavily on founders John and Leann Saunders.
- Unusual Items:
- Asset Sale (2008): A $358,000 gain on the sale of online businesses in 2008 significantly inflated prior-year earnings.
- USDA Grant Receivable: A $169,555 receivable from a discontinued USDA project was fully reserved as bad debt in 2009.
Investor Verification Checklist
- Cash Runway: Verify if the $214,329 cash balance and current revenue growth are sufficient to cover operating costs and debt service without immediate additional capital raising.
- Debt Covenants: Review the terms of the $369,338 in notes payable, specifically the $300,000 note due September 2011, to assess refinancing risks.
- USDA Grant Recovery: Confirm the status of the $169,555 bad debt provision; determine if there is any possibility of recovery from the USDA.
- Export Market Access: Monitor the status of US beef export markets (Japan, EU, Korea) as these are primary drivers for the company's verification services.
- Stock Dilution: Note that 8.6 million options and warrants are outstanding, representing significant potential dilution relative to the ~20.8 million shares outstanding.