WFCF

Business Context and Reporting Period

Company: Integrated Management Information, Inc. (IMI Global)

Reporting Period: Quarterly Report (Form 10-Q) for the period ended September 30, 2010.

Business Overview: IMI Global provides verification, traceability, and communication solutions for the agriculture, livestock, and food industries. Key offerings include the "USVerified" product line for export compliance (e.g., age and source verification for Japan), the "VerifiedGreen" carbon footprint program, and the "Where Food Comes From" consumer labeling program launched in March 2010 to connect consumers with verified food sources.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Revenues increased 18.6% in Q3 2010 and 26.3% year-to-date compared to 2009. Growth was driven by the USVerified NHTC product line and supply chain coordination efforts.
• Profitability Turnaround: The company achieved net income for the third consecutive quarter. Year-to-date results show a swing from a net loss of $42,317 in 2009 to a net income of $211,701 in 2010.
• Margin Expansion: Gross margins improved by 3.3 basis points in Q3 and 5.9 basis points year-to-date, attributed to fixed cost absorption over higher sales volume and a shift toward higher-margin supply chain services.
• Cash Flow: Net cash provided by operating activities increased significantly to $375,014 year-to-date in 2010, compared to $112,175 in the same period in 2009.
• Expense Increases: Selling, general, and administrative (SG&A) expenses rose 22.3% in Q3 and 13.7% year-to-date, primarily due to heavy investment in marketing the "Where Food Comes From" program.

Guidance, Outlook, and Risks

• Management Outlook: Management believes the company will achieve profitability for the full year ended December 31, 2010. Future growth is expected to be driven by international markets (Korea, Japan, EU) requiring third-party verification for beef imports and increased consumer demand for food transparency.
• Strategic Focus: Continued heavy investment in marketing the "Where Food Comes From" brand to build consumer awareness. Management anticipates benefits from this investment in 2011 and beyond, though no assurance is given.
• Liquidity: The company reports sufficient cash on hand ($488,363) to execute its current business plan. Historically funded by convertible debt and private placements, the company continues to evaluate funding options.
• Risks and Contingencies:
  • Valuation Allowance: Despite current profitability, the company maintains a full valuation allowance against deferred tax assets due to historical losses and uncertainty regarding future taxable income.
  • Related Party Debt: A significant portion of debt ($320,000) is owed to a major shareholder related to a director, bearing 9% interest.
  • Internal Controls: Management acknowledges a lack of segregation of duties due to the small number of employees, though they deem the risk low.
  • Seasonality: Results are subject to seasonal fluctuations, with significant revenue typically realized in Q2 and Q3.

Investor Verification Checklist

• Debt Maturity: Verify the terms of the $320,000 related-party note payable, which was extended to September 12, 2012, and the company's ability to service this debt.
• Marketing ROI: Assess the return on the significant SG&A spend for the "Where Food Comes From" program, as management explicitly states no guarantee of future revenue from this investment.
• Tax Position: Review the justification for the continued full valuation allowance on deferred tax assets despite the recent return to profitability.
• Revenue Concentration: Confirm the sustainability of the 26.3% year-to-date revenue growth and the reliance on specific international export verification mandates (e.g., Japan, Korea).
• Stock Activity: Note the issuance of 110,000 shares for investor relations services and the ongoing stock buyback program (57,700 shares repurchased in 2010).