Business context and reporting period
Integrated Management Information, Inc. (IMI Global) filed this unaudited Form 10-Q for the quarter and nine months ended September 30, 2011. The filing describes a provider of verification, traceability, auditing and related services for the agriculture, livestock and food industries, including the “Where Food Comes From” labeling program. The issuer named in the filing differs from the company name in the request metadata.
Financial performance and position
| Metric | Q3 2011 | Q3 2010 | Nine months 2011 | Nine months 2010 |
|---|---|---|---|---|
| Revenue | $1,250,071 | $923,701 | $3,197,363 | $2,403,014 |
| Gross profit | $671,143 | $490,030 | $1,800,414 | $1,324,954 |
| Gross margin | 53.7% | 53.1% | 56.3% | 55.1% |
| Operating income | $210,786 | $113,290 | $579,575 | $235,822 |
| Net income | $203,950 | $105,517 | $558,317 | $211,701 |
Revenue grew 35.3% in Q3 and 33.1% year to date. Third-party verification revenue rose 30.2% and 31.5%, respectively; hardware sales rose 47.5% and 37.2%. Other revenue, primarily labeling-program fees, increased from a small base. SG&A increased 22.2% in Q3 and 12.1% year to date, partly reflecting consulting, marketing and advertising spending. Basic and diluted EPS were $0.01 for Q3 and $0.03 year to date in 2011. No income tax expense was recorded; the company reported a valuation allowance against deferred tax assets.
For the nine months, operating cash flow was $639,803, compared with $383,514 a year earlier; investing cash outflow was $7,155; financing cash inflow was $71,645. Cash increased to $1,217,369 at September 30 from $513,076 at year-end 2010. Working capital was $1,218,743, versus $555,074. Accounts receivable increased to $373,296 from $222,480.
Total notes payable were $458,030, including $36,012 current and $422,018 long term, compared with $340,817 at year-end 2010. The company obtained a $200,000 SBA loan in April, secured by company assets and personally guaranteed by the founders, with a 5.75% effective rate at quarter-end and maturity in 2021. Related-party unsecured debt was $250,000; its rate was reduced from 9% to 6% and maturity extended to March 31, 2014. Stockholders’ equity was $874,186.
Outlook, commentary and risks
Management said it believed the company would achieve profitability for 2011 and had sufficient cash to execute its business plan, while acknowledging it could give no assurance. It cited continued sales growth, opportunities in international markets and retailer demand for verification, including animal-welfare and non-hormone-treated-cattle programs. Management also said consumer awareness and demand are important to future growth of the Where Food Comes From program; its marketing investment may not produce future revenue. Results are seasonal, with significant revenue typically in the second and third quarters, and interim results may not indicate full-year performance.
The company renewed its headquarters lease for five years, with disclosed minimum lease commitments of $514,800. It reported no off-balance-sheet arrangements and no material changes to previously disclosed risk factors. Ordinary-course legal proceedings were not expected by management to have a material adverse effect. Management reported effective disclosure controls at a reasonable-assurance level, but noted limited segregation of duties due to the small workforce.
Important facts for investors to verify
- Confirm the issuer’s identity: the filing is for Integrated Management Information, Inc., while the request metadata names Where Food Comes From, Inc.
- Assess whether receivables and operating cash conversion remain manageable as sales grow; receivables rose materially during the period.
- Review the terms, collateral, guarantees and covenants of the SBA and related-party loans, and the related-party relationship.
- Evaluate the sustainability of revenue growth and margins, including seasonal effects and the return on marketing spending for the labeling program.
- Review the company’s valuation allowance and its ability to realize deferred tax assets, as well as the disclosed lease commitments and limited segregation of duties.
- Note the options activity: 220,000 options were granted and 6,737,500 options or warrants were canceled during the period; verify the nature and circumstances of the cancellations.