Where Food Comes From, Inc. - Annual Report: 2010 (Form 10-K)

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

x  ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Fiscal Year Ended December 31, 2010

 

o   TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from          to          

 

Commission File No. 333-133634

 

INTEGRATED MANAGEMENT INFORMATION, INC.

 

 

221 Wilcox, Suite A

Castle Rock, CO 80104

(Address of principal executive offices, including zip code)

 

Issuer’s telephone number, including area code:

(303) 895-3002

 

Securities registered pursuant to Section 12(b) of the Act: None

 

Securities registered pursuant to Section 12(g) of the Act:

 

Common Stock, $0.001 par value

(Title of Class)

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x

 

Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

 

Check if disclosure of delinquent filers in response to Item 405 of Regulation S-K is not contained in this form, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

 

The number of shares of the registrant’s common stock, $.001 par value per share, outstanding as of February 10, 2011 was 20,788,450. The aggregate market value of the voting stock held by non-affiliates of the registrant on June 30, 2010, the last business day of our most recently completed second fiscal quarter was $1,600,183.

 

DOCUMENTS INCORPORATED BY REFERENCE: None

 

 

Table of Contents

 

TABLE OF CONTENTS

 

				PAGE
		PART I
ITEM 1.		BUSINESS		3
ITEM 1A.		RISK FACTORS		9
ITEM 1B.		UNRESOLVED STAFF COMMENTS		12
ITEM 2.		PROPERTIES		12
ITEM 3.		LEGAL PROCEEDINGS		12
		PART II
ITEM 5.		MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES		13
ITEM 7.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		14
ITEM 8.		FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA		21
ITEM 9.		CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE		42
ITEM 9A.		CONTROLS AND PROCEDURES		42
ITEM 9B.		OTHER INFORMATION		43
		PART III
ITEM 10.		DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE		43
ITEM 11.		EXECUTIVE COMPENSATION		45
ITEM 12.		SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS		46
ITEM 13.		CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE		47
ITEM 14.		PRINCIPAL ACCOUNTANT FEES AND SERVICES		48
ITEM 15.		EXHIBITS AND FINANCIAL STATEMENT SCHEDULES		49
		SIGNATURES		50

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INDUSTRY BACKGROUND

 

As the livestock and food industry has matured and expanded internationally, there has been an increasing need to record, manage, report and audit information regarding the source, age, genetic background,  animal treatment, nutrition, and other credence attributes of livestock for the benefit of producers, processors, distributors, retailers, consumers, and regulators.

 

Demand for livestock identification, traceability and verification solutions further accelerated in recent years due to industry and consumer concerns regarding bovine spongiform encephalopathy (mad cow disease), governmental and industry regulations regarding recordkeeping for livestock, and technology, and technology advances, including radio frequency ID tags for livestock and web-based systems facilitating real-time data entry, reporting, and auditing. The demand for verification continues to grow and present other opportunities for our business in light of the many recent product recalls in fresh produce and with the advent of the new legislation concerning country of origin labeling (COOL).

 

Many of the world’s largest beef and other livestock exporting countries, including Brazil, Argentina, and Australia, have established mandatory traceability and verification standards. Other countries have issued voluntary animal identification and traceability standards. Overall, the United States lags with regards to meeting this market demand, as the United States government has not to date established mandatory traceability standards.

 

Initiatives under the United States Department of Agriculture

 

To support industry driven marketing programs and to comply with trade agreements established with international export partners, the United States Department of Agriculture (USDA), Agriculture Marketing Service, Audit, Review and Compliance Branch has established the voluntary Quality System Assessment, Non Hormone Treated Cattle (NHTC), and Process Verified programs based on ISO 9001 Instructions. These programs provide guidelines and structure to enable suppliers of agricultural products and services to assure customers of their ability to provide consistent quality products or services by having their processes audited by independent, third-party auditors using USDA approved methodologies and programs.

 

The USDA’s Quality System Assessment (QSA) program is a documented quality management system and verification trail that can support specific product claims or customer requirements, as well as confirm compliance with export standards. The approved QSA must show that characteristics of the product are being monitored and measured accurately. Approved QSA programs are audited by the USDA at least twice per year.

 

The USDA’s Process Verified Program (PVP) is similar to the QSA program, but broader in scope. Like the QSA, PVP ensures that companies deliver products that meet stated product claims. In addition, it provides the livestock and food industry with a verifiable marketing tool. Once marketing claims are verified by the USDA, the company may use the “USDA Process Verified” shield on its marketing materials.

 

Both of the USDA’s QSA and PVP programs are applicable to a company’s entire program or certain portions of its programs where specified producer or product requirements are supported by a document quality management system and the documented delivery processes are verified through an independent, third party audit. To operate an approved program, suppliers must submit a documented quality management system to the Audit Review and Compliance Branch of the USDA Livestock and Seed Program and successfully pass a document review and an on-site audit.

 

Within the United States, these USDA programs are voluntary and are primarily useful in providing the industry with a process for demonstrating source, age, and quality attributes as the product moves through

 

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the supply chain. In addition, compliance with the programs allows producers to verify claims such as “age verified,” “non-hormone treated,” or “guaranteed tender.”

 

The USDA also promotes participation in NAIS (National Animal Identification System). The purpose of the NAIS is to protect the health of U.S. livestock and poultry and the economic well-being of those industries by quickly and effectively tracing an animal disease to its source. While the federal program is voluntary, money received by some states, tribes, and non-profit entities from the USDA through cooperative agreements has been used to make parts or all of the program mandatory. Some countries have restricted the importation of some animal products because of the potential for disease. Effectively implemented, NAIS could potentially allow trace back of a disease to its origin within 48 hours, limiting the impact of a potential outbreak. This could have monetary benefits for farmers, who would lose less livestock in the case of disease.

 

Export Markets/Programs

 

To market beef and other livestock products outside of the United States, suppliers must comply with the QSA and PVP policies and procedures and address the specified product requirements addressed in the USDA Export Verification (EV) Instructions specific to each country. Regardless of final export destination or specific Export Verification program requirements, US suppliers seeking to sell beef and other livestock products must participate in a pre-approved QSA or PVP program so as to have an approved means of verifying source, age, and other specific product requirements. Therefore, though the program is voluntary, it is mandatory to gain access to many export markets.

 

Japan, Mexico, South Korea, and Europe are the world’s largest export markets. To market beef and other livestock products in these markets; beef, for example, is required to be sourced from cattle that are of a certain maximum age at the time of slaughter. The USDA’s QSA program is the standard mechanism for verifying source and age for these export markets and, therefore, is a mandatory requirement for producers, packers, and distributors to export to these key markets.

 

Current Marketplace Conditions

 

We believe the following recent events will drive our business forward effectively increasing consumer demand for third party verification services and presenting additional opportunities:

 

·      In July 2010, Korea announced that it will establish a “nationwide hog farm management system” that will enable a comprehensive farm-to-slaughter management of hogs to improve the farming environment and prevent swine fever. Earlier this year, Korea fully implemented a mandatory domestic beef tracing system. Korea also announced that by December 2010 all imported beef would also be subject to the mandatory beef tracing system. We believe this will continue to provide significant international verification opportunities in predominately Asian markets which have historically been difficult for US markets to penetrate.

 

·      In September 2009, the Democratic Party of Japan (DPJ) scored an overwhelming victory in Japan’s elections. Of particular concern for the U.S. meat industry is the fact that the DPJ has taken a relatively harder line against expanded access for beef imports from the United States (US). Thus, it looks that in the near term, with Japan focused on a transitional government, and being more protectionist in nature, the current agreement for supplying Japan—cattle must be age verified as 20 months of age or less—will stay intact. This sets the stage for continued growth in IMI’s third party source and age verification services.

 

·      U.S. beef has been largely absent from the European Union (EU) for the past 19 years. With limited domestic and Brazilian supply into the EU and a newly negotiated and implemented, as of August 2009, duty-free beef quota, there is great optimism for US beef demand in the EU. Currently the new quota is limited to non-hormone-treated beef (NHTC), which requires

 

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third party verification, but with duty-free access significantly lowering the cost of doing business in Europe, we believe that it offers significantly more potential for third party NHTC verification services and our new product line, High Quality Beef verification services.

 

·      With increased consumer consciousness generated by movies such as “Food, Inc.” and Time Magazine’s August 2009 cover article “The Real Cost of Cheap Food”, consumers are looking for answers to questions including food production practices and overall food safety and regulation. Additionally, there has been a shift in attitude within the new administration that is uniquely positioning the agricultural industry. “Know Your Farmer Know Your Food” is a new USDA initiative to help more Americans understand where their food comes from and how they can support development of local and regional food systems. We believe that as consumers become better educated they will have more confidence in their food purchase decisions. This demand should accelerate the growth of our “Where Food Comes From” labeling program.

 

SERVICE AND PRODUCT OFFERINGS

 

To address the livestock industry’s requirements to deploy and maintain identification, traceability, and verification systems and to facilitate participation in and compliance with the USDA’s Quality System Assessment, Process Verification, and Export Verification Programs, we have developed and offer a balanced portfolio of products and services. These solutions address specific requirements at each level of the livestock supply chain. In addition, we offer customized solutions to address unique customer requirements.

 

We offer a range of products and services to track, record, manage, report, and audit key data regarding livestock. Our distinct product line is USVerified™.com, a USDA Process Verified Product Line which offers the following verification solutions: USDA Process Verified, QSA, NHTC and EV Program Development for companies. Our offerings address the needs of each industry segment, and our customers span the supply chain from birth through the various stages of feeding and raising the livestock, to packing and distribution. We have no principal suppliers because most of our revenue is service related. The few products that we purchase, principally livestock identification ear tags, are purchased primarily from Allflex. However, there are numerous other companies which manufacture and market such ear tags. Our USVerified products and services offerings are tailored to the needs of each level of the beef and other livestock supply chain in support of USDA programs.

 

Suppliers (Cow/Calf Producers)

 

Supply Verified is a verification and auditing service offered to livestock and food industry suppliers that enables them to demonstrate their ability to efficiently and accurately track key data related to the source and age of livestock. The USDA has informed us that our Supply Verified program was the industry’s first USDA approved offsite evaluation process for cattle and other livestock suppliers to meet requirements under the USDA’s QSA and PVP programs.

 

Under the Supply Verified program, suppliers provide documentation to us about their processes and records. This documentation is evaluated and audited by us and, if warranted, we provide a certificate that the producer meets the requirements of source and age verification. We charge each supplier a fixed annual fee for performing the audit and providing the certification. In order to maintain certification, a supplier must participate in the annual audits.

 

Our VerifiedGreen™ Verification program caters to producers and consumers who are committed to reducing their carbon footprint. Such a program is expected to appeal to forward-thinking producers and retailers who are both environmentally conscious and looking for a marketing edge as well as to consumers who want to support producers practicing good environmental stewardship.

 

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Feed Yards

 

We offer solutions to enable feed yards to comply with USDA’s verification requirements. Initially, we work with the feed yard to implement the required systems and procedures to track key data regarding the cattle and other livestock that move through the operation, including source and age as well as additional health and nutritional information. This service is provided and priced to feed yards on a packaged basis, which includes access to our proprietary web based applications and processes, completion of a USDA program compliant manual, implementation services, and initial training. In addition, we offer a monthly service to maintain the USDA compliant manual and web host the data.

 

Packers

 

We offer solutions to meat packers, processors and distributors to demonstrate that their products comply with USDA’s QSA requirements, Export Verification (EV) requirements as well as the USDA’s Process Verified Program (PVP), which is broader in scope than the QSA program. Suppliers with approved USDA Process Verified Programs are able to make marketing claims associated with their process verified points — such as age, source, feeding practices, or other raising and production claims. This service is provided and priced to meat packers on a packaged basis, which includes access to our proprietary web based applications and processes, completion of a USDA program compliant manual, obtaining USDA approval, implementation services, and initial training. In addition, we offer a monthly service to maintain the USDA compliant manual and web host the data.

 

SALES

 

Our revenues are generated from sales of our USVerified identification and verification solutions, consulting services, web-based development and hardware sales. We sell our products and services directly to customers at various levels in the livestock supply chain. Our customers include some of the largest U.S. beef and pork packers, however no single customer generates more than 10% of our revenue.

 

Third Party Verification Services

 

Services that qualify for compliance with the USDA’s Quality System Assessment, Process Verification, and Export Verification Programs are:

 

·      USVerified™ Source and Age Verification

·      USVerified™ Non-Hormone Treated Cattle (NHTC)

·      Verified Natural Beef™

·      Verified Green™

·      Individual Animal Identification and Tag Allocation

 

We offer other verification programs including:

 

·      Where Food Comes From® - our consumer labeling program for all of our verification services

·      High Quality Beef — a program designed for the European Union

·      Verified Humane

·      Verified Grassfed — our program was approved for a USDA claim in Febuary 2010

·      Verified Pork — our program was approved for a USDA claim in February 2010

 

All of our programs qualify for our WhereFoodComesFrom® verification seal of approval. As a third-party verification service provider, we must review each individual producer or food company’s claim and system to ensure that 100 percent of the supply is managed through a third party verification program recognized by the USDA, ISO and/or another internationally recognized standards.

 

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We also offer consulting, program development and web-based development services on a customized basis to meet special customer requirements. For the years-ended December 31, 2010 and 2009, our third party verification programs provided approximately 80% and 82% of our total revenue, respectively.

 

Hardware Sales

 

In support of our third party verification service offerings, we offer hardware products (primarily identification cattle ear tags) to our customers. While these hardware products have lower profit margins compared with our proprietary offerings, they allow us to offer our customers a comprehensive solution. Approximately 20% and 18% of our total revenue was provided by the sale of hardware during the years-ended December 31, 2010 and 2009, respectively.

 

MARKETING

 

Our marketing strategy includes direct marketing, advertising, event sponsorship, and trade show participation. From a public relations perspective, our staff is frequently quoted in industry trade journals and requested as speakers at various industry events as subject matter experts on the topics of animal identification, traceability, branding, and the USDA QSA, EV and PVP programs. We maintain strong affiliations with breed associations, US Meat Export Federation, The National Meat Association, The National Cattlemen’s Beef Association, and Livestock Marketing Association.

 

In order to reach additional customers, we continually develop strategic marketing partnerships with leading companies in the industry with complementary abilities and products. We do not currently rely on any third party contracts with distributors, licenses or manufacturers in conducting our business.

 

In February 2010, we announced our alliance with cowboy poet Baxter Black to promote our verification, identification and traceability solutions on RFD-TV’s “Cattlemen to Cattlemen” television program, a 60-minute news magazine focused on the cattle industry. We believe that Baxter Black is a high profile, beloved figure with enormous credibility in the agricultural community. He is an in-demand public speaker who has built a highly successful career exposing the flaws and foibles of everyday cowboy life.  He is known nationwide through his print column, National Public Radio appearances, books, CDs, videos and commercial radio.

 

In July 2010, Leann Saunders, our president, was a featured guest in an episode of Lifetime Television’s “The Balancing Act” to discuss our latest effort to connect consumers with the farmers that raise their food. For a replay of the video/television coverage, checkout this link: www.imiglobal.com/media/videogallery.asp.

 

COMPETITION

 

Of the 775,000 independent suppliers of cattle in the United States, we estimate that only approximately 40,000 use some form of verification program. We currently provide tracking information for approximately 6,000 of the most significant independent suppliers which we believe supply greater than 50% of the beef and other livestock products available for export markets.

 

We believe we differentiate ourselves from our competitors by providing better, more flexible solutions to all segments of the supply chain. We are also the market leader in the area of diversifying to the Non-Hormone Treated Cattle Verification Program and the USDA’s Never Ever 3 Verification Program.

 

Our key competitors for our SupplyVerified Program are: AgInfolink, MicroBeef Technologies, and Sterling Solutions.

 

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SEASONALITY

 

Our business is subject to seasonal fluctuations. Significant portions of our revenues are typically realized during the second and third quarters of the fiscal year when the calf marketings are at their peak. Because of the seasonality of the business and our industry, results for any quarter are not necessarily indicative of the results that may be achieved for any other quarter or for the full fiscal year.

 

INTELLECTUAL PROPERTY

 

We create, own and maintain a variety of intellectual property assets that we believe are among our most valuable assets. Our intellectual property assets include patents and patent applications related to our innovations, products and services, trademarks related to our brands, products and services, and other property rights. We also have licensing arrangements when features from our programs are desirable to incorporate into either a new or an existing technology we offer. We seek to protect our intellectual property right assets through patent, copyright, trade secret, trademark and other laws of the United States and other countries, and through contractual provisions. Additional information regarding certain risks related to our intellectual property is included in Part I, Item 1A “Risk Factors” of this Annual Report on Form 10-K.

 

EMPLOYEES

 

As of December 31, 2010 we had 16 employees all of which are full-time. Our future success is substantially dependent upon the performance of our key senior management personnel, as well as our ability to attract and retain highly qualified technical personnel. Additional information regarding certain risks related to our employees is included in Part I, Item 1A “Risk Factors” of this Annual Report on Form 10-K.

 

AVAILABLE INFORMATION

 

Our website is located at www.imiglobal.com. We make available free of charge on our investor relations website under “SEC Filings” our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to those reports as soon as reasonably practicable after we electronically file or furnish such materials to the U.S. Securities and Exchange Commission (SEC). Further, a copy of this annual report on Form 10-K is located at the SEC’s Public Reference Room at 100 F Street, NE, Room 1580, Washington, D.C. 20549. Information on the operation of the Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements and other information regarding our filings at http://www.sec.gov.

 

ITEM 1A.               RISK FACTORS

 

In addition to the other information included in this report and our other public filings and releases, the following factors should be considered when evaluating our business, financial condition, results of operations and prospects:

 

We have had a history of operating losses and negative cash flows from operations. There is no assurance that we will continue to achieve profitability in the future, or that we will be able to raise additional capital or continue as a going concern.

 

We have a history of operating losses. It is uncertain if our future prospects will continue to result in profitable operations. If we experience losses, the value of an investment in our common stock could decline significantly.

 

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If we are unable to grow the sales of our products and services in the next twelve months and if our business operations continue at their current levels, we may be unable to generate sufficient cash for our planned operations. We may need to raise additional capital and/or further reduce operating costs. We can give no assurances that additional capital will be available to us on favorable terms, or at all. Our inability to obtain additional capital, if and when needed, could have a material adverse effect upon our financial condition and our ability to continue as a going concern.

 

We operate in a highly competitive industry with a limited market characterized by changing technology, frequent introductions of new products, product enhancements, and evolving industry standards.

 

We compete with many other vendors of products and services designed for tracking cattle and other livestock and for herd management. Our competitors range from small start-up companies to multi-national firms. Our competitors may have significantly greater financial, technical and marketing resources. Competition is likely to intensify as current competitors expand their product offerings and as new companies enter the market. Increasing competition may result in reduced margins and the loss of market share. Our competitors may offer broader product lines or technologies that are more commercially attractive and gain greater market acceptance than our current or future products. Additionally, new technology may render our products obsolete.

 

The success of our business model depends on the broad acceptance of our technologies into markets that are continuing to develop as a result of the increasing focus on food safety and assurance.

 

We are currently benefiting from a slow but growing movement among U.S. and international beef and other livestock producers to source and age verify products. This emerging trend is fueled in part by consumers focus on food safety and assurance. However, we can offer no assurances that there will be market acceptance of our technologies. Furthermore, some of our primary target segments within the livestock and food industry are experiencing unpredictable economic conditions and are expected to continue to struggle with supply, trade and profitability issues in the near term. Although we believe that our products, if adopted on a wide-scale basis, would have a significant impact on improving the safety, quality and confidence in our nation’s food supply, our customers for these products historically have been very slow to change and reluctant to adopt new technologies and business practices.

 

Our business may be negatively impacted by international export market activities, including trade barriers to US beef and other livestock exports and customer acceptance of US beef and other livestock products.

 

In prior years, the Japanese and Korean beef and other livestock markets were closed to the U.S. as a result of mad cow disease in at least one animal in the United States. Currently, the Japanese and Korean markets are the largest beef and other livestock export markets for U.S. producers. Both markets require verification, which is important to the sale of our products. Because the U.S. market does not mandate verification, there is limited incentive for beef and other livestock producers to purchase our products. Therefore, international trade barriers and limited consumer acceptance of U.S. beef and other livestock products can significantly impair our sales and profitability.

 

In the event that market demand for beef and other livestock products declines, our customers may not be able to generate sufficient revenues to justify purchase of our verification solutions and consulting services.

 

Public attitudes towards beef and other livestock products may be influenced by claims that these products are unsafe for consumption or pose unknown health risks. Decreased demand for beef and other livestock products could have a material adverse affect on the operating results and financial condition of our existing or prospective customers. If operating results of our customers are impaired, the resources that our customers can devote to building information systems for tracking cattle and other livestock and

 

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herd management would be reduced which in turn would limit purchases of our verification solutions and consulting services. Therefore, our ability to generate revenue is subject to the risks and uncertainties relating to the financial condition of its customers.

 

We look for opportunities to expand our presence in international markets in which we may have limited experience and inherently international operations are subject to increased risks which could harm our business, operating results and financial condition.

 

We continually seek to expand our product and service offerings in international markets. As we expand into new international markets, we will have only limited experience in marketing and operating our products and services in such markets. In other instances, we may rely on the efforts and abilities of foreign business partners in such markets. Certain international markets may be slower than domestic markets and our operations in international markets may not develop at a rate that supports our level of investment.

 

In addition to uncertainty about our ability to expand into international markets, there are certain risks inherent in doing business internationally, including:

 

·                  trade barriers and changes in trade regulations;

·                  difficulties in developing, staffing and simultaneously managing a large number of varying foreign operations as a result of distance, language and cultural differences;

·                  stringent local labor laws and regulations;

·                  longer payment cycles;

·                  currency exchange rate fluctuations;

·                  political or social unrest or economic instability;

·                  import or export restrictions;

·                  seasonal volatility in business activity;

·                  risks related to government regulation or required compliance with local laws in certain jurisdictions, including those more fully described above; and

·                  potentially adverse tax consequences.

 

One or more of these factors could harm our future international operations and consequently, could harm our brand, business, operating results and financial condition.

 

Our future success depends upon our ability to obtain and enforce patents; prevent others from infringing on our patents, trademarks and other intellectual property rights; and operate without infringing upon the patents and proprietary rights of others.

 

We will be able to protect our intellectual property from unauthorized use of third parties only to the extent that it is covered by valid and enforceable patents and trademarks. Patent protection generally involves complex legal and factual issues and, therefore, the enforceability of patent rights cannot be predicted with certainty. Moreover, the laws of some foreign countries do not protect proprietary rights to the same extent as the laws of the United States. In the event that patents owned by us do not provide adequate protection, we may not be able to prevent competitors from offering substantially similar products and services.

 

Failure to protect our proprietary rights could seriously impair our competitive position.

 

In the event that third parties claim that our current or future products or services infringe upon their intellectual property, we may face litigation and be prevented from selling the products and services at issue. Infringement or other claims could be asserted or prosecuted against us in the future, and it is possible that past or future assertion or prosecutions could harm our business. Litigation either in defense of our intellectual property rights or in response to infringement claims made by others may be, both expensive and time consuming, which in turn would adversely affect our business.

 

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Our future success depends to a significant degree upon the continued service of key senior management personnel, in particular, John and Leann Saunders.

 

Both John and Leann Saunders’ reputation and prominence in the field provide us with a strong competitive advantage. While they are currently bound by employment agreements, we can offer no assurance that John and or Leann Saunders will be able to continue to work for us in the event of an unforeseen accident, severe injury or major disease, or on a long-term basis. The loss of key personnel could have a material adverse effect on our business and operating results.

 

Because we are not presently subject to the same corporate governance standards as companies listed on registered stock exchanges or NASDAQ, our officers and Directors may have interests adverse to those of the Shareholders.

 

Registered stock exchanges and NASDAQ have enhanced corporate governance requirements that apply to issuers that list their securities on those exchanges. For example, we are not required to have any independent directors or to adopt a code of ethics. In certain circumstances, management may not have the same interests as the shareholders and conflicts of interest may arise. We do not presently have a policy to resolve conflicts of interest. Notwithstanding the exercise of their fiduciary duties as directors and executive officers and any other duties that they may have to us or our shareholders in general, these persons may have interests different than yours which could adversely affect your investment.

 

ITEM 1B.               UNRESOLVED STAFF COMMENTS

 

None

 

ITEM 2.                  PROPERTIES

 

We lease approximately 3,100 square feet of office space in a one story office facility in Castle Rock, Colorado which is used as our corporate headquarters. Our lease expires on June 18, 2011. Our rent for the facility in Castle Rock, Colorado is $5,221 per month, which includes CAM charges.

 

`ITEM 3.                LEGAL PROCEEDINGS

 

We are and may be involved in various unresolved legal actions, administrative proceedings and claims in the ordinary course of business. Although it is not possible to predict with certainty the outcome of these unresolved actions, we do not believe, based on current knowledge, that any legal proceeding or claim is likely to have a material adverse effect on our financial position, results of operations or cash flows.

 

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PART II

 

ITEM 5.                                                     MARKET FOR COMMON EQUITY’ RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

Market Information for Common Stock

 

Since the inception of the public trading of our securities on November 15, 2006, our common stock has been listed on the over-the-counter electronic bulletin board (“OTC:BB”) under the symbol “INMG”. The following table sets forth the range of high and low bid prices since the debut of public trading in our shares. The quotations reflect inter-dealer prices without retail mark-up, mark-down or commission and may not represent actual transactions.

 

		2010						2009
		High			Low			High			Low
First quarter		$	0.17		$	0.10		$	0.30		$	0.07
Second quarter		$	0.19		$	0.12		$	0.20		$	0.09
Third quarter		$	0.22		$	0.11		$	0.15		$	0.05
Fourth quarter		$	0.24		$	0.10		$	0.19		$	0.06

 

Stockholders

 

As of February 10, 2011, we estimate that there were 234 beneficial and actual owners of our Common Stock. A significant number of the outstanding shares of common stock which are beneficially owned by individuals and entities are registered in the name of Cede & Co. Cede & Co. is a nominee of The Depository Trust Company, a securities depository for banks and brokerage firms.

 

Dividends

 

We have not declared or paid any cash dividends on our common stock. We presently do not have plans to pay any cash dividends in the future.

 

Recent Sales of Unregistered Securities

 

During 2010, we granted 110,000 of fully vested common stock at $0.13 per share with an aggregate value of $14,300 in connection with investor relations services performed by Pfeiffer High.

 

The issuance of these shares of our common stock described above was pursuant to the exemption from registration provided by Section 4(2) of the Securities Act of 1933, as amended and related state private offering exemptions. All of the investors were Accredited Investors as defined in the Securities Act who took their shares for investments purposes without a view to distribution and had access to information concerning the company and its business prospects, as required by the Securities Act. In addition, there was no general solicitation or advertising for these shares. All certificates for these shares issued pursuant to Section 4(2) contain a restrictive legend. Finally, our stock transfer agent has been instructed not to transfer any of such shares, unless such shares are registered for resale or there is an exemption with respect to their transfer.

 

Issuer Purchases of Equity Securities

 

On January 7, 2008, we announced our intention to buy back up to one million shares of our common stock from the open market. As of December 31, 2010, we have repurchased a total of 250,556 shares at an average price of $0.19 per share under the Stock Buyback Plan. The repurchased shares are recorded as part of treasury stock and are accounted for under the cost method.

 

Our stock buyback plan has been and will be used to return capital to shareholders and to minimize the dilutive impact of stock options and other share-based awards. In the future, we may consider additional

 

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share repurchases under our plan based on several factors, including our cash position, share price, operational liquidity, and planned investment and financing needs.

 

ITEM 7.                                                 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Forward-Looking Statements

 

This annual report on Form 10-K contains forward-looking statements within the meaning of the federal securities laws. These forwarding-looking statements include without limitation statements regarding our expectations and beliefs about the market and industry, our goals, plans, and expectations regarding our operations and properties and results, our intentions and strategies regarding future operations, acquisitions and sales of properties, our intentions and strategies regarding the formation of strategic relationships, our beliefs regarding the future success of our operations, our expectations and beliefs regarding competition, competitors, the basis of competition and our ability to compete, our beliefs and expectations regarding our ability to hire and retain personnel, our beliefs regarding period to period results of operations, our expectations regarding revenues, our expectations regarding future growth and financial performance, our beliefs and expectations regarding the adequacy of our facilities, and our beliefs and expectations regarding our financial position, ability to finance operations and growth and the amount of financing necessary to support operations. These statements are subject to risks and uncertainties that could cause actual results and events to differ materially. We undertake no obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this annual report on Form 10-K.

 

As used in this annual report on Form 10-K, unless the context otherwise requires, the terms “we,” “us,” “the Company,” “IMI” and “IMI Global” refer to Integrated Management Information, Inc., a Colorado corporation.

 

Business Overview

 

Integrated Management Information, Inc. (“IMI Global,” “IMI,” the “Company,” “our,” “we,” or “us,”) is a leading provider of verification and communication solutions for the agriculture, livestock and food industry.

 

Management’s Strategy

 

For many quarters, management has been focusing its efforts on building a strong foundation to enhance profitability for the long term. Initially our efforts focused on our age and source verification services. Throughout 2009, we introduced a more robust offering of verification services. We also internally developed automated processes which improved our efficiency and reduced our employee headcount. As a direct result, total verification sales and hardware sales improved. We were able to provide more verification certifications (a multiple service offering) in a single audit but this type of service has marginal increases in revenue with declining profit margins as compared to our single service offerings. Interestingly enough, because our customers were seeing more profit per head from multiple verifications at a minimal increase in cost per verification service, they increased the number of cattle within each group audited. We benefitted from increased hardware sales which has higher profit margins due to our process automation.

 

In early 2009, we understood that all this work was necessary to build a solid foundation but we also recognized a “potential market saturation and decreasing profits dilemma” early on and began working toward a solution. Through our research and development, we learned that we needed to be on the cutting edge of this industry and that the most significant person to influence the food industry was the consumer. We were concerned about various food claims that the industry made without any third party verification.

 

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In response, we identified opportunities for horizontal and vertical integration. In addition to our current business structure, we knew we needed to develop a self-sustaining revenue stream with minimal management and labor costs, while simultaneously addressing food concerns near to our heart. We had built a company with strong credibility in the industry and we had the technical expertise to make our processes operate very efficiently.  The opportunities that we identified in early 2009 are built upon the verification services we provide and the solid reputation we have built.

 

In early 2010, we began to see some of the fruits of our labor. We were able to connect food processors and packers to those suppliers that provided product verified for the specific credence attributes demanded, thereby generating a new revenue stream based upon coordination within the food supply chain. We also introduced the “Where Food Comes From” (WFCF) brand. Revenue to be generated from WFCF is based upon a similar supply chain sales model. Many long hours of research went into this project and currently we are working hard to market this program to the consumer. Research indicates that transparency in food production is becoming more and more important to consumers. We believe that the future growth of verification services will be achieved only through consumer awareness and demand. WFCF is a labeling program that reconnects the consumer to the farmers and ranchers that produce the food. For the consumer, it is a seal of approval on a package or an individual product that provides assurance that those marketing claims are authentic and have been verified by an accredited, unbiased third party.

 

During 2010, management, along with the assistance of industry consulting experts, intentionally made the decision to invest heavily in marketing our services and our WFCF labeling program to build consumer awareness. In February 2010, we announced our alliance with cowboy poet Baxter Black to promote our verification, identification and traceability solutions on RFD-TV’s “Cattlemen to Cattlemen” television program. In July 2010, Leann Saunders, our president, was a featured guest in an episode of Lifetime Television’s “The Balancing Act” to discuss our latest effort to connect consumers with the farmers that raise their food. For a replay of the video/television coverage, checkout this link: www.imiglobal.com/media/videogallery.asp.

 

During the third and fourth quarters of 2010, we generated a small but consistently growing revenue stream from our WFCF program. We will continue to invest heavily in marketing our verification services and our WFCF brand to build consumer awareness and demand through the use of videos, television exposure, word-of-mouth and the internet. We believe we are positioning ourselves to benefit significantly in 2011 and beyond, but, of course, no assurance can be given that this investment will generate future revenue nor can we determine for how long, if at all.

 

Financial Highlights

 

·                  Revenues in 2010 increased 23.1% to $3.3 million compared to $2.7 million in 2009. We are experiencing significant growth in our US Verified product line and our supply chain coordination efforts.

 

·                  Profit margins in 2010 improved 4.4 basis points to 55.0% compared to 50.6% in 2009.

 

·                  For the year ended 2010 we achieved positive cash flow from operations of $430,535 compared to $102,678 for 2009. Additionally we ended the year with $513,076 in cash and cash equivalents compared to $214,329 in the prior year.

 

·                  Net income for 2010 was $327,757, or $0.02 per share, compared to net loss of $153,191 for 2009. This is our fourth consecutive quarter to achieve net income and we believe this is significant considering current economic conditions severely impacting the food industry.

 

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·                  Earnings before interest, taxes, depreciation, amortization, and other operating expenses (Adjusted EBITDA), which is calculated starting with income (loss) from continuing operations, was $442,912 for 2010 compared to $112,260 for 2009.

 

Use of Non-GAAP Financial Information

 

In addition to the results reported in accordance with accounting principles generally accepted in the United States of America (GAAP) included in this filing, we have provided certain non-GAAP financial information and Adjusted EBITDA. Management believes that the presentation of this non-GAAP financial information provides useful information to investors because this information may allow investors to better evaluate ongoing business performance and certain components of our results. This information should be considered in addition to the results presented in accordance with GAAP, and should not be considered a substitute for the GAAP results. We have reconciled the non-GAAP financial information included herein to the nearest GAAP measure in context.

 

RESULTS OF OPERATIONS

 

Year Ended December 31, 2010 Compared to Year Ended December 31, 2009

 

		Years ended December 31,						2010			2010 - 2009
Selected Financial Data		2010			2009			Improvement			% Change
Revenues		$	3,274,566		$	2,660,530		$	614,036		23.1	%
Third party verification		2,626,539			2,171,080			455,459			21.0	%
Hardware		648,027			465,985			182,042			39.1	%
Other		—			23,465			(23,465		)	*
Costs of revenues		1,474,881			1,314,683			(160,198		)	-12.2	%
Gross profit		1,799,685			1,345,847			453,838			33.7	%
Gross margin		55.0		%	50.6		%	4.4		%	*
Selling, general and administrative expenses		1,440,229			1,468,537			28,308			1.9	%
Gain on sale of online businesses		—			(4,000		)	4,000			*
Interest expense		33,389			35,507			2,118			6.0	%
Net income (loss)		327,757			(153,191		)	480,948			*

 

* calculation not meaningful for discussion purposes

 

		Years ended December 31,
Adjusted EBITDA:		2010			2009
Net income (loss)		$	327,757		$	(153,191	)
Interest expense		33,389			35,507
Income taxes		—			—
Depreciation and amortization		81,766			56,389
Adjust for non-cash items:
Gain on sale of online businesses		—			4,000
Bad debt for USDA grant project		—			169,555
Adjusted EBITDA		$	442,912		$	112,260

 

Revenues

 

Revenues are derived from sales of our USVerified identification and verification solutions, consulting services, web-based development and hardware sales. Revenues for year ended December 31, 2010 were

 

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$3,274,566 compared to $2,660,530 for 2009, an improvement of approximately 23%. We continue to experience double-digit sales growth year over year and we believe this is significant performance in light of the current economic conditions severely impacting the food industry.

 

During 2010, our third party verification revenue, which includes sales of our USVerified solutions and related consulting, program development and web-based development services, increased 21% to $2,626,539 from $2,171,080 in 2009. The improvement is due in large part to increased demand in our US Verified NHTC product line and revenue generated from our supply chain coordination efforts.

 

Revenues derived from sales of hardware, primarily sales of cattle identification ear tags, increased 39.1% to $648,027 in 2010 compared to $465,985 in 2009.

 

Cost of Sales and Gross Margin

 

Cost of sales for 2010 was $1,474,881 compared to $1,314,683 during 2009. Gross margin for 2010 improved 4.4 basis points to 55.0% of revenues in 2010 compared to 50.6% in 2009.

 

Improvement in our gross margins for 2010 over 2009 were partially due to the absorption of certain costs which are generally fixed in nature over a greater volume of sales coupled with shifts in our sales mix of higher margin supply chain coordination revenue. For a more detailed discussion regarding profitability, read “Management’s Strategy” above.

 

Selling, General and Administrative Expenses

 

Selling, general and administrative (SG&A) expenses for 2010 were $1,440,229, a decrease of $28,308, or 1.9% over the 2009 amount of $1,468,537.

 

In 2009, we recorded a bad debt provision of $169,555 for an account receivable outstanding due from the USDA that is greater than 90 days past due. The receivable was related to a special grant funded project for premise registrations throughout the USDA. This project was specific to the years ended 2007 and 2008. Midway through the USDA grant funded project, the USDA re-evaluated the project and decided to discontinue the project. Numerous times, we attempted to collect the receivable but due to the length of time it remained outstanding, the fact that the program was discontinued and the lack of response we received from those responsible for this project, we reserved the full amount outstanding as of December 31, 2009.

 

Excluding the 2009 bad debt provision of $169,555, adjusted SG&A expenses were $1,298,982 for 2009. Compared to the 2010 amount of $1,440,229, SG&A expenses actually increased 10.9% over the 2009 adjusted amount.

 

The 2010 increase was directly attributed to increased spending in consulting, marketing and advertising. During the second quarter 2010 and continuing through the 2010, management, along with the assistance of industry consulting experts, intentionally made the decision to invest heavily in marketing our “Where Food Comes From” labeling program to build consumer awareness. We believe that the future growth of verification services will be achieved only through consumer awareness and demand. We recognize that we have allocated significant funds to this effort but we are confident that we are heading in the right direction. This marketing decision and the decision to invest these funds in our future were made at a time when we recognized that our operations consistently generated sufficient cash flow. While we generated a small revenue stream from our WFCF program during the third and fourth quarters of 2010, we cannot guarantee that this investment will generate future revenue nor can we determine for how long, if at all. Therefore, this investment must be expensed in accordance with accounting principles generally accepted in the United States. For a more detailed discussion regarding our “Where Food Comes From” labeling program, read “Management’s Strategy” above.

 

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Net Income (Loss) and Per Share Information

 

As a result of the foregoing, net income for the year ended December 31, 2010 was $327,757 or $0.02 per basic and diluted common share, compared to net loss of $153,191 or $0.01 loss per basic and diluted common share for the year ended December 31, 2009.

 

Adjusted EBITDA

 

Management believes that the presentation of Adjusted EBITDA, a non-GAAP financial measurement, provides useful information to investors because this information may allow investors to better evaluate ongoing business performance and certain components of our results. Excluding certain 2009 amounts representing the gain from the sale of our online businesses and the bad debt provision for the USDA special grant funded project, Adjusted EBITDA, which is calculated starting with income (loss) from continuing operations, was $442,912 for 2010 compared to $112,260 for 2009.

 

Liquidity and Capital Resources

 

At December 31, 2010, we had cash and cash equivalents of $513,076 compared to $214,329 of cash and cash equivalents at December 31, 2009. Our working capital at December 31, 2010 was $555,074 compared to $263,989 at December 31, 2009.

 

Net cash provided by operating activities during 2010 was $430,535 compared to net cash provided of $102,678 during the same period in 2009. Cash provided by operating activities is driven by our net loss and adjusted by non-cash items. Non-cash adjustments primarily include depreciation, amortization of intangible assets and stock based compensation expense. The improvement was primarily driven by better operating performance. Additionally, the timing of cash receipts and cash disbursements affects our operating assets and cash balances.

 

Net cash used in investing activities during 2010 was $76,344 compared to $107,711 during 2009. Net cash used was primarily attributable to capital expenditures during both years. Our capital expenditures were $76,344 and $111,711 for the years 2010 and 2009, respectively. Our capital expenditures are primarily related to purchases and internal development of information technology assets to support our product and service offerings.

 

Net cash used in financing activities of $55,444 during 2010 was primarily due to net repayments made under our notes payable. Net cash provided by financing activities of $65,318 during 2009 was primarily driven by $50,000 in additional financing acquired under an existing note payable and approximately $40,000 in new debt acquired in connection with the purchase of equipment.

 

Historically, our growth has been funded through a combination of convertible debt from private investors and private placement offerings. We continually evaluate all funding options including additional offerings of our securities to private, public and institutional investors and other credit facilities as they become available.

 

The primary driver of our operating cash flow is our third-party verification solutions, specifically the gross margin generated from services provided. Therefore we focus on the elements of those operations including revenue growth and long term projects that ensure a steady stream of operating profits to enable us to meet our cash obligations. On a weekly basis we review the performance of each of our revenue streams focusing on third party verification solutions compared with prior periods and our operating plan. We believe that our various sources of capital, including cash flow from operating activities, overall improvement in our performance, and our ability to obtain additional financing are adequate to finance current operations as well as the repayment of current debt obligations. We are not aware of any other event or trend that would negatively affect our liquidity. In the event such a trend develops, we believe

 

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that there are sufficient financing avenues available to us and from our internal cash generating capabilities to adequately manage our ongoing business.

 

The culmination of all our efforts toward net income has brought opportunities to us including: increased investor confidence and renewed interest in our company, third-party interest in our expertise to develop and enhance websites, as well as the potential to develop business relationships with long term strategic partners. In keeping with our core business, we will continue to review our business model with a focus on profitability, long term capital solutions and the potential impact of acquisitions or divestitures, if such an opportunity arises.

 

Our plan for continued growth is primarily based upon intensifying our focus on international markets. We believe that there are significant growth opportunities available to us because often the only way to access various restrictions as imposed on international market imports/exports is via a quality verification program, like our USVerified™.com product line.

 

Off Balance Sheet Arrangements

 

As of December 31, 2010, we had no off-balance sheet arrangements of any type.

 

CRITICAL ACCOUNTING POLICIES, JUDGMENTS AND ESTIMATES

 

Our discussion and analysis of our financial condition and results of operations is based upon our financial statements, which have been prepared in accordance with GAAP. The preparation of these consolidated financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosure of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

 

An accounting policy is considered to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the accounting estimate that are reasonably likely to occur, could materially impact the consolidated financial statements. We believe that the following critical accounting policies reflect the more significant estimates and assumptions used in the preparation of the consolidated financial statements.

 

Stock-Based Compensation Expense

 

Calculating stock-based compensation expense requires the input of highly subjective assumptions, including the expected term of the stock-based awards, stock price volatility, and the pre-vesting option forfeiture rate. We estimate the expected life of options granted based on historical exercise patterns, which we believe are representative of future behavior. The risk-free interest rate is based on the U.S. Treasury rates at the date of grant with maturity dates approximately equal to the expected life at the grant date. We estimate the volatility of our common stock on the date of grant based on the implied volatility of publicly traded options on our common stock, with a term of one year or greater. We believe that implied volatility calculated based on actively traded options on our common stock is a better indicator of expected volatility and future stock price trends than historical volatility. Therefore, expected volatility for the year ended December 31, 2010 and 2009 was based on a market-based implied volatility. The assumptions used in calculating the fair value of stock-based awards represent our best estimates, but these estimates involve inherent uncertainties and the application of management judgment.

 

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There is a risk that our estimates of the fair values of our share-based compensation awards on the grant dates may differ from the actual values realized upon the exercise, expiration, early termination or forfeiture of those share-based payments in the future. Certain share-based payments, such as employee stock options, may expire worthless or otherwise result in zero intrinsic value as compared to the fair values originally estimated on the grant date and reported in our financial statements. Alternatively, value may be realized from these instruments that are significantly in excess of the fair values originally estimated on the grant date and reported in our financial statements. Although the fair value of our share-based awards is determined in accordance with GAAP and the Securities and Exchange Commission’s Staff Accounting Bulletin No. 107 using an option-pricing model, the value calculated may not be indicative of the fair value observed in a willing buyer / willing seller market transaction.

 

Estimates of share-based compensation expenses do have an impact on our financial statements, but these expenses are based on the aforementioned option valuation model and will never result in the payment of cash by us. For this reason, and because we do not view share-based compensation as being related to our operational performance, we exclude estimated share-based compensation expense when internally evaluating our performance.

 

Income Taxes and Realization of Deferred Tax Assets

 

The ultimate realization of deferred income tax assets is dependent upon generation of future taxable income during the periods in which those temporary differences become deductible. Although we achieved $327,757 of income for 2010, we reviewed various qualitative and quantitative data in regards to the realization of our deferred tax assets, including:

 

·                  The level of historical taxable income and projections for future taxable income over periods in which the deferred tax assets would be deductible, and

·                  Accumulation of income (loss) before taxes utilizing a look-back period of three years.

·                  Events within the industry,

·                  The cyclical nature of our business,

·                  The health of the economy,

·                  Our future forecasts of taxable income and

·                  Historical trending.

 

After consideration of these qualitative and quantitative data, we concluded not to reduce our valuation allowance in the fourth quarter of 2010 because of the current macroeconomic climate and uncertainty around credit markets and consumer behavior. Our deferred tax assets remain fully reserved by a valuation allowance.

 

RECENT ACCOUNTING PRONOUCEMENTS

 

Refer to Footnote 2 to the financial statements included in Item 8 of this Form 10-K.

 

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ITEM 8.          FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

Index to Financial Statements

 

		Page
Financial Statements:
Report of Independent Registered Public Accounting Firm		22
Balance Sheets as of December 31, 2010 and 2009		23
Statements of Operations for the years ended December 31, 2010 and December 31, 2009		24
Statements of Cash Flows for the years ended December 31, 2010 and December 31, 2009		25
Statements of Stockholders’ Equity for the years ended December 31, 2010 and December 31, 2009		26
Notes to Financial Statements		27

 

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Report of Independent Registered Public Accounting Firm

 

To the Board of Directors and Stockholders of Integrated Management Information, Inc.:

 

We have audited the accompanying balance sheets of Integrated Management Information, Inc. as of December 31, 2010 and 2009 and the related statements of operations, stockholders’ equity, and cash flows for the years ended December 31, 2010 and 2009. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

 

We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Integrated Management Information, Inc. as of December 31, 2010 and 2009 and the results of its operations and cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

 

Gruber & Company, LLC
Lake Saint Louis, Missouri
February 14, 2011

 

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Integrated Management Information, Inc.

Balance Sheets

 

		December 31,
		2010			2009
Assets
Current assets:
Cash and cash equivalents		$	513,076		$	214,329
Accounts receivable, net of allowance of $7,056 and $174,955 (Note 2)		222,480			204,596
Prepaid expenses and other current assets		34,580			65,695
Total current assets		770,136			484,620
Property and equipment, net		114,544			134,035
Intangible assets, net		14,724			655
Total assets		$	899,404		$	619,310
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable		$	172,324		$	161,049
Accrued expenses and other current liabilities		33,608			51,115
Short-term debt and current portion of notes payable (Note 5)		9,130			8,467
Total current liabilities		215,062			220,631
Notes payable and other long-term debt (Note 5)		331,687			360,871
Commitments and contingencies (Note 12)
Stockholders’ equity:
Preferred stock, $0.001 par value; 5,000,000 shares authorized; none issued or outstanding		—			—
Common stock, $0.001 par value; 95,000,000 shares authorized; 21,039,006 and 20,929,006 shares issued, respectively; and 20,788,450 and 20,849,481 shares outstanding, respectively		21,039			20,929
Additional paid-in-capital		3,401,383			3,387,130
Treasury stock of 250,556 and 79,525 shares, respectively		(47,417		)	(20,144		)
Accumulated deficit		(3,022,350		)	(3,350,107		)
Total stockholders’ equity		352,655			37,808
Total liabilities and stockholders’ equity		$	899,404		$	619,310

 

The accompanying notes are an integral part of these financial statements.

 

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Integrated Management Information, Inc.

Statements of Operations

 

		Years ended December 31,
		2010			2009
Revenues		$	3,274,566		$	2,660,530
Costs of revenues		1,474,881			1,314,683
Gross profit		1,799,685			1,345,847
Selling, general and administrative expenses		1,440,229			1,468,537
Gain on sale of online businesses		—			(4,000		)
Income (loss) from operations		359,456			(118,690		)
Other expense (income):
Interest expense		33,388			35,507
Other income, net		(1,689		)	(1,006		)
Income (loss) before income taxes		327,757			(153,191		)
Income taxes		—			—
Net income (loss)		$	327,757		$	(153,191	)
Income (loss) per share:
Basic		$	0.02		$	(0.01	)
Diluted		$	0.02		$	(0.01	)
Weighted average shares outstanding:
Basic		20,847,311			20,867,150
Diluted		20,863,845			20,867,150

 

The accompanying notes are an integral part of these financial statements.

 

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Integrated Management Information, Inc.

Statements of Cash Flows

 

		Year ended December 31,
		2010			2009
Operating activities:
Net income (loss)		$	327,757		$	(153,191	)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization		81,766			56,389
Stock based compensation expense		63			27,750
Issuance of 110,000 common shares		14,300			—
Bad debts expense		2,264			223,422
Gain on sale of online businesses		—			(4,000		)
Changes in operating assets and liabilities:
Accounts receivable		(20,148		)	30,697
Inventories		—			14,350
Prepaid expenses and other current assets		31,115			(32,622		)
Accounts payable		11,275			(57,794		)
Accrued expenses and other current liabilities		(17,507		)	(2,323		)
Deferred revenue		—			—
Net cash provided by operating activities		430,885			102,678
Investing activities:
Acquisition of property and equipment		(58,337		)	(111,711		)
Acquisition of intangible assets		(18,007		)	—
Proceeds from sale of equipment		—			4,000
Net cash used in investing activities		(76,344		)	(107,711		)
Financing activities:
Proceeds from notes payable		—			89,964
Repayment under notes payable		(28,521		)	(20,626		)
Stock repurchase under Buyback Program		(27,273		)	(4,020		)
Net cash provided by (used in) financing activities		(55,794		)	65,318
Net change in cash and cash equivalents		298,747			60,285
Cash and cash equivalents at beginning of year		214,329			154,044
Cash and cash equivalents at end of year		$	513,076		$	214,329

 

The accompanying notes are an integral part of these financial statements.

 

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Integrated Management Information, Inc.

Statement of Stockholders’ Equity

 

 

							Additional
		Common Stock					Paid-in			Accumulated			Treasury
		Shares		Amount			Capital			Deficit			Stock			Total
Balance at December 31, 2008		20,929,006		$	20,929		$	3,359,380		$	(3,196,916	)	$	(16,124	)	$	167,269
Stock repurchase of 22,325 shares on the open market		—		—			—			—			(4,020		)	(4,020		)
Stock-based compensation expense		—		—			27,750			—			—			27,750
Net loss		—		—			—			(153,191		)	—			(153,191		)
Balance at December 31, 2009		20,929,006		$	20,929		$	3,387,130		$	(3,350,107	)	$	(20,144	)	$	37,808
Stock repurchase of 171,031 shares on the open market		—		—			—			—			(27,273		)	(27,273		)
Issuance of 110,000 common shares		110,000		110			14,190			—			—			14,300
Stock-based compensation expense		—		—			63			—			—			63
Net income		—		—			—			327,757			—			327,757
Balance at December 31, 2010		21,039,006		$	21,039		$	3,401,383		$	(3,022,350	)	$	(47,417	)	$	352,655

 

The accompanying notes are an integral part of these financial statements.

 

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Integrated Management Information, Inc.

Notes to the Financial Statements

 

Note 1 - The Company and Basis of Presentation

 

Business Overview

 

Integrated Management Information, Inc. (“IMI Global,” “IMI,” the “Company,” “our,” “we,” or “us,”) is a leading provider of verification and communication solutions for the agriculture, livestock and food industry.

 

We provide our owned and operated online properties and services which specialize in identification and traceability; process, production practice and supply verification; document control for USDA verification programs, and; third-party auditing services. We apply information technology to the agriculture, livestock and food industry by addressing the growing importance of marketing claims such as: source of origin information, genetic background, animal treatment, animal health history, animal age, animal movements, nutrition, carbon credits and other credence attributes. Our solutions provide assurance regarding those claims made that can not be confirmed by visual inspection once the product reaches the meat case and is marketed to the consumer. We have developed a range of proprietary web based applications, consulting methodologies, auditing processes, and other services to allow the livestock and food industry to record, manage, report, and audit this information. Our solutions help our customers establish their own systems, meet government regulations, create their own premium brand identity, gain cost efficiencies and command a higher price for their product.

 

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Integrated Management Information, Inc.

Notes to the Financial Statements

 

Liquidity

 

Historically, our growth has been funded through a combination of convertible debt from private investors and private placement offerings. We continually evaluate all funding options including additional offerings of our securities to private, public and institutional investors and other credit facilities as they become available.

 

The primary driver of our operating cash flow is our third-party verification solutions, specifically the gross margin generated from services provided. Therefore we focus on the elements of those operations including revenue growth and long term projects that ensure a steady stream of operating profits to enable us to meet our cash obligations. On a weekly basis we review the performance of each of our revenue streams focusing on third party verification solutions compared with prior periods and our operating plan. We believe that our various sources of capital, including cash flow from operating activities, overall improvement in our performance, and our ability to obtain additional financing are adequate to finance current operations as well as the repayment of current debt obligations. We are not aware of any other event or trend that would negatively affect our liquidity. In the event such a trend develops, we believe that there are sufficient financing avenues available to us and from our internal cash generating capabilities to adequately manage our ongoing business.

 

Basis of Presentation

 

Our financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues, costs and expenses during the reporting period. Actual results could differ from the estimates.

 

Certain reclassifications have been made to conform previously reported data to the current presentation. These reclassifications have no effect on our net income (loss) or financial position as previously reported.

 

Note 2 - Summary of Significant Accounting Policies

 

Revenue Recognition

 

Revenues are recognized only when realized / realizable and earned in accordance with generally acceptable accounting principles.

 

·                  Revenue from product sales is recognized when the goods are shipped and title passes to the customer.

·                  Revenue from contracts for consulting and website development is recognized on the percentage of completion method.

·                  Revenue derived from our US Verified program is recognized using the Proportional Performance Model. Contracts are cancelable only for non-performance.

 

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Integrated Management Information, Inc.

Notes to the Financial Statements

 

Allowance for Doubtful Accounts

 

The majority of our receivables are due from trade customers. Credit is extended based on our evaluation of the customer’s financial condition and generally collateral is not required. Accounts receivable are due approximately 30 days from invoice date and are stated at amounts due from customers net an allowance for doubtful accounts. Accounts receivable that are outstanding longer than the contractual payment terms are considered past due.  We determine our allowance by considering a number of factors, including the length of time trade accounts receivable are past due, our previous loss and payment history, the customer’s current ability to pay its obligations to us and the condition of the general economy and the industry as a whole. We write off accounts receivable when they become uncollectible, and payments subsequently received on such receivables are credited to the allowance for doubtful accounts.

 

At December 31, 2009, we had $169,555 in receivables outstanding due from the USDA that was greater than 90 days past due. The receivable was related to a special grant funded project for premise registrations throughout the USDA. This project was specific to the years ended 2007 and 2008. Midway through the USDA grant funded project, the USDA re-evaluated the project and decided to discontinue the project. Numerous times, we attempted to collect this receivable but due to the length of time it remained outstanding, the fact that the program was discontinued and the lack of response we received from those responsible for this project, we reserved the full amount outstanding. The bad debt provision was recorded in selling, general and administrative expenses within the 2009 Statements of Operations.

 

Cost of Goods Sold

 

Cost of goods sold includes the purchase price of products sold, which includes livestock ear tags, in connection with the US Verified Source and Age Verification programs. Salaries and related fringe benefits directly associated with development of the US Verified programs are allocated to cost of goods sold.

 

Cash and Cash Equivalents

 

All cash and short-term investments with original maturities of three months or less are considered cash and cash equivalents, since they are readily convertible to cash. Amounts in-transit from credit card processors are also considered cash equivalents because they are both short-term and highly liquid in nature and are typically converted to cash within three days of the sales transaction. We place our cash with high quality financial institutions and at times may exceed the FDIC $250,000 insurance limit. We have not experienced any losses related to balances that exceed the $250,000 FDIC insurance limit and we believe our credit risk is minimal.

 

Property and Equipment

 

Property and equipment are recorded at cost and are depreciated generally using the straight-line method over the estimated useful lives of the respective assets, which range from one to seven years.

 

Intangible Assets

 

Our intangible assets primarily represent our trademarks and the related costs incurred to obtain the trademark. These assets are recorded at cost and are subject to amortization. We amortize using the straight-line method over the estimated useful lives of the respective assets, which range from two to five years.

 

Impairment of Long-Lived Assets

 

We review all of our long-lived assets for impairment at least annually or whenever impairment indicators are determined to be present. If an impairment exists, the amount of impairment is measured as the excess of the carrying amount of the asset over its fair value as determined utilizing the estimated discounted future cash flows, or some other fair value measure, or the expected proceeds, net of costs to sell, upon sale of the asset.

 

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Integrated Management Information, Inc.

Notes to the Financial Statements

 

Research and Development, Software Development Costs, and Internal Use Software Development Costs

 

Research and development costs are charged to operations as incurred.

 

Software development costs are accounted for in accordance with ASC Topic No. 985. Software development costs are capitalized once technological feasibility of a product is established and such costs are determined to be recoverable. For products where proven technology exists, this may occur very early in the development cycle. Factors we consider in determining when technological feasibility has been established include (i) whether a proven technology exists; (ii) the quality and experience levels of the individuals developing the software; (iii) whether the software is similar to previously developed software which has used the same or similar technology; and (iv) whether the software is being developed with a proven underlying engine. Technological feasibility is evaluated on a product-by-product basis. Capitalized costs for those products that are cancelled or abandoned are charged immediately to cost of sales. The recoverability of capitalized software development costs is evaluated on the expected performance of the specific products for which the costs relate.

 

Internal use software development costs are accounted for in accordance with ASC Topic No. 985 which requires the capitalization of certain external and internal computer software costs incurred during the application development stage. The application development stage is characterized by software design and configuration activities, coding, testing and installation. Training costs and maintenance are expensed as incurred, while upgrades and enhancements are capitalized if it is probable that such expenditures will result in additional functionality.

 

In accounting for website software development costs, we have adopted the provisions of ASC Topic No. 350. ASC Topic No. 350 provides that certain planning and training costs incurred in the development of website software be expensed as incurred, while application development stage costs are to be capitalized.

 

During the years ended December 31, 2010 and 2009, we have capitalized certain external and internal use software and website development costs totaling $52,305 and $67,559, respectively. The estimated useful life of costs capitalized is evaluated for each specific project and ranges from one to three years. During 2010 and 2009, the amortization of capitalized costs totaled $58,559 and $32,225, respectively. Capitalized costs are included in property and equipment, net.

 

Advertising Expenses

 

Advertising costs are expensed as incurred. The total advertising expenses included in the Statement of Operations for the years ended December 31, 2010 and 2009 were $43,762 and $6,413, respectively.

 

Fair Value of Financial Instruments

 

For certain of our financial instruments, including cash, accounts payable and accrued interest, the carrying amounts approximate fair value due to their short maturities. The amounts shown for notes payable also approximate fair value because current interest rates and terms offered to us for similar debt are substantially the same.

 

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Income Taxes

 

Deferred tax assets and liabilities have been determined based upon the differences between the financial statement amounts and the tax bases of assets and liabilities as measured by enacted tax rates expected to be in effect when these differences are expected to reverse. In assessing the reliability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. Our net operating loss carry forwards are the most significant component of our deferred income tax assets; however, the ultimate realization of our deferred income tax assets is dependent upon generation of future taxable income. We consider past history, the scheduled reversal of taxable temporary differences, projected future taxable income, and tax planning strategies in making this assessment. As of December 31, 2010, we believe it is more likely than not that our net deferred tax asset will not be realized and accordingly we have recorded a valuation allowance against the deferred tax assets.

 

We will continue to assess the need for a valuation allowance that results from uncertainty regarding our ability to realize the benefits of our deferred tax assets. As we move closer towards achieving net income for multiple years, we will review qualitative and quantitative data, including events within our industry, the nature of our business, our future forecasts and historical trending. If we conclude that our prospects for the realization of our deferred tax assets are more likely than not, we will then reduce our valuation allowance as appropriate and credit income tax expense after considering the following factors:

 

·      The levels of historical taxable income and projections for future taxable income over periods in which the deferred tax assets would be deductible, and

·      Accumulation of net income before tax utilizing a look-back period of three years.

 

The amount of the deferred tax asset considered realizable, however, could be reduced if estimates of future taxable income during the carry-forward periods are reduced.

 

In accordance with ASC Topic No. 740, we recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority. We have applied ASC Topic No. 740 to all tax positions for which the statute of limitations remains open. There was no net effect to the financial statements and none of the unrecognized tax benefits will impact our effective tax rate.

 

Stock-Based Compensation

 

The fair value of stock options is estimated using the Black-Scholes option-pricing model. No stock options were granted during the years ended December 31, 2010 and 2009.

 

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Dividend yield is based on our historical and anticipated policy of not paying cash dividends. Expected volatility is based on the “calculated value” method set forth in ASC Topic Nos. 718 and 505 (based on historical volatilities of appropriate industry sector indices) because our stock did not have sufficient historic share price data available, as it was not publicly traded prior to November 15, 2006. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods corresponding with the expected term of the options. The expected term of options represents the period of time that options granted are expected to be outstanding giving consideration to vesting schedules.

 

Our stock-based compensation cost for the years ended December 31, 2010 and 2009 was $63 and $27,750 respectively and has been included in general and administrative expenses. No tax benefits were recognized for these costs due to our cumulative losses as well as a full valuation reserve on our deferred tax assets.

 

New Accounting Standards

 

In May 2009, the FASB issued guidance regarding subsequent events, which was subsequently updated in February 2010. This guidance established general standards of accounting for and disclosures of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. In particular, this guidance sets forth the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. This guidance was effective for financial statements issued for fiscal years and interim periods ending after June 15, 2009, and was therefore adopted by us for the second quarter 2009 reporting. The adoption did not have a significant impact on the subsequent events that we report, either through recognition or disclosure, in the financial statements. In February 2010, the FASB amended its guidance on subsequent events to remove the requirement to disclose the date through which an entity has evaluated subsequent events, alleviating conflicts with current SEC guidance.

 

In June 2009, the FASB issued ASC Topic 105, “Generally Accepted Accounting Principles (“GAAP”),” which establishes the FASB ASC as the single official source of authoritative, nongovernmental U.S. GAAP. The ASC did not change GAAP but reorganizes the literature. ASC Topic 105 is effective for interim and annual periods ending after September 15, 2009. Adoption did not have a material impact on our consolidated financial statements.

 

In December 2010, the FASB issued ASU No. 2010-29, which updates the guidance in ASC Topic 805, Business Combinations. The objective of ASU 2010-29 is to address diversity in practice about the interpretation of the pro forma revenue and earnings disclosure requirements for business combinations. The amendments in ASU 2010-29 specify that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of

 

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the comparable prior annual reporting period only. The amendments also expand the supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The amendments affect any public entity as defined by ASC 805 that enters into business combinations that are material on an individual or aggregate basis. We do not expect the adoption of this guidance will have a material impact upon our financial position or results of operations.

 

We have considered all other recently issued accounting pronouncements and do not believe the adoption of such pronouncements will have a material impact on our consolidated financial statements.

 

Subsequent Events

 

We evaluated subsequent events and transactions for potential recognition or disclosure in the financial statements through the date of issuance.

 

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Integrated Management Information, Inc.

Notes to the Financial Statements

 

Note 3 - Property and Equipment

 

The major categories of property and equipment are as follows:

 

		December 31,
		2010			2009
Automobiles		$	39,946		$	39,946
Furniture and office equipment		41,922			69,784
Software and tools		13,988			23,070
Website development and other enhancements		183,385			131,080
		$	279,241		$	263,880
Less accumulated depreciation		164,697			129,845
Property and equipment, net		$	114,544		$	134,035

 

Depreciation expense for the years ended December 31, 2010 and 2009 were $77,828 and $55,951, respectively.

 

Note 4 — Intangible Assets

 

During March 2010, we purchased the rights to the Nebraska Verified™  trademark for $8,500. In connection with the purchase of this intangible asset, we paid $5,000 in cash and financed the remaining $3,500 payable in equal monthly installments of $350 over the next 10 months.

 

During 2010, we capitalized $9,507 in legal fees and other directly related expenses relating to our “Where Food Comes From” trademark and logo.

 

Amortization expense for the years ended December 31, 2010 and 2009 were $3,938 and $438, respectively.

 

Note 5 - Notes Payable

 

Notes payable consist of the following:

 

		December 31,
		2010			2009
Equipment Note Payable		$	20,817		$	29,338
Lapaesotes Note Payable - Related Party		320,000			340,000
		$	340,817		$	369,338
Less current portion of notes payable and other long-term debt		9,130			8,467
Notes payable and other long-term debt		$	331,687		$	360,871

 

Equipment Note Payable

 

On January 31, 2009, we issued a note payable in the amount of $35,963 for the purchase of a vehicle used primarily for business purposes. Under the Note, interest and principal payments are due in equal

 

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Integrated Management Information, Inc.

Notes to the Financial Statements

 

monthly installments of $870.55 over 4 years beginning March 17, 2009. The Note bears an interest rate of 7.4% per annum and is fully secured by the vehicle.

 

Lapaseotes Note Payable - Related Party

 

In September 2007, we obtained $300,000 in unsecured debt financing. In April 2009, an additional $50,000 was obtained under the same financing terms. The notes are held by a major shareholder who is related to Pete Lapaseotes, a director; bear an interest rate of 9% per annum, payable quarterly. The principal balance was due on September 12, 2011 but during the quarter ended September 30, 2010, the maturity date was extended to September 12, 2012.

 

During 2010 and 2009, we paid an additional $20,000 and $10,000, respectively, towards the principal balance. We intend to continue making principal payments towards the balance as additional funds become available.

 

Our obligations under our notes payable for the five years as of December 31, 2010 are as follows:

 

Fiscal year ended December 31:
2011		$	9,130
2012		329,844
2013		1,843
Thereafter		—
		$	340,817

 

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Integrated Management Information, Inc.

Notes to the Financial Statements

 

Note 6 - Income Taxes

 

The reconciliation of income taxes calculated at the statutory rates to our effective tax rate is as follows:

 

		December 31,
		2010			2009
Expected tax expense (benefit)		$	114,715		$	(53,617	)
State tax provision (benefit), net		9,833			(4,596		)
Permanent differences		3,021			2,998
Prior year true-up to provisions		59,344			—
Change in valuation allowance		(194,489		)	40,662
Other, net		7,576			14,552
Total provision for taxes		$	—		$	—

 

The income tax effects of temporary differences that give rise to significant portions of deferred tax assets as of December 31, 2010 and 2009 are as follows:

 

		December 31,
		2010			2009
Deferred tax assets:
Net operating loss carryforwards		$	856,797		$	920,457
Other		(54,076		)	76,753
Deferred tax assets		$	802,721		$	997,210
Less valuation allowance		(802,721		)	(997,210		)
Net deferred tax assets		$	—		$	—

 

As of December 31, 2010, our net operating loss carry forwards for U.S. federal income tax purposes were $2.4 million, and were subject to the following expiration schedule:

 

Net operating loss incurred:		Amount			Expiration dates:
December 31, 2005		537,568			December 31, 2025
December 31, 2006		1,544,906			December 31, 2026
December 31, 2007		365,518			December 31, 2027
December 31, 2008		—
Total tax carryforwards		$	2,447,992

 

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Integrated Management Information, Inc.

Notes to the Financial Statements

 

Our unused net operating loss carry forwards may be applied against future taxable income. Utilization of net operating losses may be limited in the event of an ownership change under Section 382 of the Internal Revenue Code.

 

Note 7 — Stockholders’ Equity

 

Common Stock

 

We are authorized to issue up to 95 million shares of common stock, par value $0.001 per share. As of December 31, 2010 and 2009, there were 20,788,450 and 20,849,481 shares outstanding, respectively, net of 250,556 and 79,525 shares held in treasury, respectively.

 

During 2010 we granted 110,000 common shares of fully vested stock at $0.13 per share with an aggregate value of $14,300 in connection with investor relations services performed by Pfeiffer High.

 

Preferred Stock

 

We are authorized to issue up to 5 million shares of our preferred stock, par value $0.001 per share. There are currently no issued shares.

 

Stock Buyback Plan

 

On January 7, 2008, we announced our intention to buy back up to one million shares of our common stock from the open market.

 

Repurchased shares under the Stock Buyback Plan by year are as follows:

 

		Number of Shares		Cost of Shares			Average Cost per Share
For the year ended December 31,
2008		57,200		$	16,124		$	0.28
2009		22,325		4,020			$	0.18
2010		171,031		27,273			$	0.16
Total		250,556		$	47,417		$	0.19

 

The repurchased shares are recorded as part of treasury stock and are accounted for under the cost method.

 

Our stock buyback plan has been and will be used to return capital to shareholders and to minimize the dilutive impact of stock options and other share-based awards. In the future, we may consider additional share repurchases under our plan based on several factors, including our cash position, share price, operational liquidity, and planned investment and financing needs.

 

Note 8 - Stock Option and Warrant Plans

 

2006 Equity Incentive Plan

 

The 2006 Equity Incentive Plan provides for the issuance of stock-based awards to employees, officers, directors and consultants. The 2006 Stock Plan permits the granting of stock awards and stock options.  The vesting of stock-based awards is generally subject to meeting certain performance based objectives, the passage of time or a combination of both, and continued employment through the vesting period. The 2006 Equity Incentive Plan provides for the issuance of a maximum of 3,000,000 shares of our common stock of which 791,500 shares were still available for issuance as of December 31, 2010.

 

Stock Options Granted to the Company’s Founders

 

In February 2006, the founders of the Company were granted options to purchase 6,000,000 shares of common stock. The options vest at 1,500,000 per year over a period beginning January 1, 2007 to January 

 

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Integrated Management Information, Inc.

Notes to the Financial Statements

 

1, 2010 at exercise prices of $1.67 for the first three million and $2.67 for the remaining three million. The options expire January 1, 2011.

 

Warrants Granted

 

Historically warrants were granted in various financing transactions, private placements and as part of consulting arrangements with independent contractors. Vesting of the warrants occurred immediately on the grant date. As of December 31, 2010 all warrants expired unexercised.

 

Stock Option and Warrant Activity

 

Stock option and warrant activity during 2010 is summarized as follows:

 

										Weighted Avg.
				Weighted Avg.			Weighted Avg.			Remaining
		Number of		Exercise Price			Fair Value			Contractual Life		Aggregate
		Options/Warrants		per Share			per Share			(in years)		Intrinsic Value
Outstanding, December 31, 2009		8,593,500		$	1.64		$	0.01		1.13
Granted		—		$	—		$	—		—
Exercised		—		$	—		$	—		—
Canceled		(745,000	)	$	0.56		$	0.08		0.34
Outstanding, December 31, 2010		7,848,500		$	1.74		$	0.01		0.12		$	2,700
Exercisable, December 31, 2010		7,848,500		$	1.74		$	0.01		0.12		$	2,700

 

The aggregate intrinsic value of stock options represents the total pre-tax intrinsic value (the aggregate difference between the closing stock price of our common stock on December 31, 2010 and the exercise price for in-the-money options) that would have been received by the option holders if all in-the-money options had been exercised on December 31, 2010.

 

The following table summarizes information concerning outstanding and exercisable options as of December 31, 2010:

 

		Options and Warrants Outstanding							Options and Warrants Exercisable
				Average
				Remaining		Weighted Avg.					Weighted Avg.
		Number		Contractual Life		Exercise Price			Number		Exercise Price
		Outstanding		(in years)		per Share			Outstanding		per Share
Range of exercise prices per share:
$0.00 - $0.70		1,473,500		0.64		$	0.24		1,473,500		$	0.24
$0.71 - $0.94		375,000		0.00		$	0.83		375,000		$	0.83
$0.95 - $1.17		—		—		$	—		—		$	—
$1.18 - $3.00		6,000,000		0.00		$	2.17		6,000,000		$	2.17
Total		7,848,500		0.12		$	1.74		7,848,500		$	1.74

 

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