Where Food Comes From, Inc. - Annual Report: 2011 (Form 10-K)
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the Fiscal Year Ended December 31, 2011
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TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from ____________ to _____________
Commission File No. 333-133634
INTEGRATED MANAGEMENT INFORMATION, INC.
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Colorado
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43-1802805
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(State of incorporation or organization)
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(I.R.S. Employer Identification No.)
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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 x 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.
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Smaller reporting company:
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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 March 16, 2012 was 20,550,759. The aggregate market value of the voting stock held by non-affiliates of the registrant on June 30, 2011, the last business day of our most recently completed second fiscal quarter was $4,221,492.
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DOCUMENTS INCORPORATED BY REFERENCE: None
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BUSINESS
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GENERAL
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 were incorporated in 1998 as a Missouri corporation. In March, 2005, we reincorporated in Delaware, and in March 2006, we changed our domicile from Delaware to Colorado. Until December 31, 2004 we were structured as a Subchapter S corporation and on January 1, 2005, we converted to a Subchapter C corporation.
We provide our owned and operated online products 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 cannot be confirmed by visual inspection once the product reaches the retail food 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.
We stand at the forefront of a rapidly evolving movement to track livestock and verify sources of meat and other livestock products. In the aftermath of the discovery of the first case of mad cow disease in the United States in December, 2003, many of the largest U.S. beef and other livestock export markets were closed resulting in significant losses to the industry. In response to the crisis, several initiatives were enacted to facilitate the reopening of key export markets. Most notably, U.S. suppliers seeking to sell beef and other livestock products to other countries must participate in a pre-approved Quality System Assessment Program so as to have an approved means of verifying specific product requirements. In response, we were the first to develop a USDA Quality System Assessment document management system for auditing the tracking systems used by beef and other livestock producers to verify source and age. We introduced our USVerified Source and Age Verification system in 2005, and over the years we have continued to enhance and further develop programs to address other verification needs including, but not limited to, non-hormone treated cattle (NHTC) and humane handling marketing claims.
In 2009, we worked with compliance programs, and marketing approaches which required meat retailers to display the country of origin labels (COOL) on their meat and produce. Also in 2009, we introduced our VerifiedGreen™ Verification program. This program caters to producers and consumers who are committed to reducing their carbon footprint. Then in March 2010, in response to consumers’ demand of increased transparency regarding the origins and safety of their food, we introduced our “Where Food Comes From” (WFCF) consumer labeling program. This program is a rigorous qualification protocol under which only those farmers, ranchers and processors who meet strict third-party verification requirements may display the distinctive WFCF brand. It is the first of its kind that directly connects the consumer with the food supply chain in a way that fosters confidence at the point of purchase. We believe that as consumers become better educated, they will have more confidence in their food purchase decisions. In addition to building consumer confidence, the WFCF label gives producers and processors a way to enhance, differentiate and even protect their valuable brands.
As part of our business strategy, we regularly evaluate acquisition opportunities as a means of accelerating our growth and achieving our long-term strategic objectives. In February 2012, we completed our acquisition of 60% of the outstanding stock of International Certification Services, Inc. (“ICS”). ICS is one of the leading organic certifiers in the United States. ICS represents an opportunity to extend the range of our existing programs and establish our capabilities in other major food groups, including poultry, grains, fruits and vegetables, dairy, packaged and processed goods. We believe this acquisition has tremendous synergies for both IMI and ICS. As industry leaders in our respective product and service offerings, we are now positioned to offer our customers new solutions across the verification and certification spectrum. We also believe it provides diversification for our company, enables us to better serve our customers, and provides another avenue for our WFCF program.
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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 country of origin labeling.
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.
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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 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 the entire 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.
Mexico, Canada, South Korea, the Middle East, and Japan 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 marketplace conditions will drive our business forward effectively increasing consumer demand for third party verification services and presenting additional opportunities:
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In 2010, Korea announced a “nationwide hog farm management system” to improve the farming environment and prevent swine fever. Also in 2010, Korea fully implemented a mandatory domestic and imported beef tracing system. We believe this provides significant international verification opportunities in predominately Asian markets which have historically been difficult for US markets to penetrate.
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U.S. beef has been largely absent from the European Union (EU) for the past 20+ years due to an EU ban on hormone-treated meat and meat products. In late 2009, the EU announced an annual duty-free quota of 20,000 metric tons for high-quality beef from cattle not treated with growth hormones (NHTC). In March 2012, the EU expanded the annual duty-free quota from 20,000 metric tons to 48,200 metric tons. NHTC requires third party verification, but with duty-free access lowering the cost of doing business in Europe, we believe that it offers significantly more potential for third party NHTC verification services and our product line, High Quality Beef verification services.
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One-fourth of the world’s beef and nearly one-fifth of the world’s grain, milk and eggs are produced in the United States. With increased consumer consciousness, Americans are demanding to know 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.
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Concerns about animal welfare continue to drive retailers to make program decisions based on animal handling, care, well-being and welfare programs. In late 2010 we introduced a new revenue stream for various retailers. We offer animal welfare audits at the supplier level on pork, beef and chicken farmers and ranchers. The service provided to retailers is having a significant impact in our third-party verification revenue and we believe this trend will continue to grow.
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The worldwide market for certified organic products is estimated at $59.4 billion in 2010. The U.S. market is estimated at $28.5 billion in 2010 and is expected to reach $42.5 billion by 2015. Increasing consumer demand for healthy, better-for-you products produced chemical free with sustainable agricultural practices is driving growth in the organic market. Additionally, specialty food-store chains, conventional grocery store chains and big box retailers are allocating more shelf space to organic products in order to meet the growing demand. Our acquisition of a 60% ownership investment in ICS creates a strategic transaction offering major participants in the food and agriculture industries a comprehensive range of verification services for the major food groups through a single platform.
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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 one supplier. 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 fee for performing the audit and providing the certification. In order to maintain certification, a supplier must participate in the annual audits.
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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.
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 and specialty retail chains. In 2011, one customer generated approximately 14% of our net revenue. No single customer generated more than 10% of net revenue in 2010.
Third Party Verification Services
Services that qualify for compliance with the USDA’s Quality System Assessment, Process Verification, and Export Verification Programs are:
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USVerified™ Source and Age Verification
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USVerified™ Non-Hormone Treated Cattle (NHTC)
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Verified Natural Beef™ (USDA NeverEver3)
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Verified Green™
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Individual Animal Identification and Tag Allocation
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We offer other verification programs including:
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Where Food Comes From® - our consumer labeling program for all of our verification services
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High Quality Beef – a program designed for the European Union
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Verified Humane
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Verified Grassfed – our program was approved for a USDA claim in February 2010
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Verified Pork – our program was approved for a USDA claim in February 2010
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Global Animal Partnership 5-Step Animal Welfare Rating™
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In connection with our acquisition of a 60% ownership investment in ICS, we also offer the following programs:
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Canadian Organic
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USDA Organic
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Farm Verified Organic
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Food Alliance Certified
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Gluten-Free Standard
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All of these 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.
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, 2011 and 2010, our third party verification programs provided 78.7% and 79.2% 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 19.9% and 19.8% of our total revenue was provided by the sale of hardware during the years ended December 31, 2011 and 2010, respectively.
Other Revenue
Other revenue primarily represents the fees earned from our WFCF labeling program. This revenue source is still in its infancy, and we anticipate exponential growth in the future as more and more food producers continue to show interest in this product offering.
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.
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COMPETITION
Of the approximately 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: Trace Gains AgInfolink, Scientific Certification Systems, Validus Services, MicroBeef Technologies, Quality Assurance International and Sterling Solutions.
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, 2011, we had 18 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.
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RISK FACTORS
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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 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 effect 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 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 our customers.
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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 develop more slowly 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:
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trade barriers and changes in trade regulations;
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difficulties in developing, staffing and simultaneously managing a large number of varying foreign operations as a result of distance, language and cultural differences;
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stringent local labor laws and regulations;
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longer payment cycles;
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currency exchange rate fluctuations;
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political or social unrest or economic instability;
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import or export restrictions;
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seasonal volatility in business activity;
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risks related to government regulation or required compliance with local laws in certain jurisdictions, including those more fully described above; and
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potentially adverse tax consequences.
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One or more of these factors could harm our future international operations and consequently, could harm our brand, business, operating results and financial condition.
We face risks associated with growth and acquisitions.
As part of our business strategy, we regularly evaluate acquisition opportunities as a means of accelerating our growth and achieving our long-term strategic objectives. For example, in February 2012, we completed our acquisition of 60% of the outstanding stock of ICS. ICS represents an opportunity to extend the range of our existing programs and establish our capabilities in other major food groups, including poultry, grains, fruits and vegetables, dairy, packaged and processed goods.
The expansion of our operations, whether through acquisitions, development or internal growth, could divert management’s attention and could also cause us to incur substantial costs, including legal, professional and consulting fees. There can be no assurance that we will be able to identify, acquire, develop or profitably manage additional companies or operations or successfully integrate such companies or operations into our existing operations without substantial costs, delays or other problems.
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.
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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.
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.
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UNRESOLVED STAFF COMMENTS
|
None
|
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 in September 2016. Our rent for the facility in Castle Rock, Colorado is $7,650 per month, which includes CAM charges.
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LEGAL PROCEEDINGS
|
From time to time, we may become involved in various unresolved legal actions, administrative proceedings and claims in the ordinary course of business. We are not aware of any such legal actions, proceedings or claims as of December 31, 2011. 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 effect on our financial position, results of operations or cash flows.
12
|
MINE SAFETY DISCLOSURES
|
Not applicable
|
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 over the past two years. The quotations reflect inter-dealer prices without retail mark-up, mark-down or commission and may not represent actual transactions.
|
2011
|
2010
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|||||||||||||||
|
High
|
Low
|
High
|
Low
|
|||||||||||||
|
First quarter
|
$ | 0.38 | $ | 0.13 | $ | 0.17 | $ | 0.10 | ||||||||
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Second quarter
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$ | 0.40 | $ | 0.18 | $ | 0.19 | $ | 0.12 | ||||||||
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Third quarter
|
$ | 0.37 | $ | 0.13 | $ | 0.22 | $ | 0.11 | ||||||||
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Fourth quarter
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$ | 0.50 | $ | 0.20 | $ | 0.24 | $ | 0.10 | ||||||||
Stockholders
As of March 16, 2012, we estimate that there were 240 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. A nominee of The Depository Trust Company, Cede & Co. is 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.
On February 29, 2012, in connection with our acquisition of 60% of the outstanding shares of ICS, we issued 172,840 shares of our common stock valued at $0.45 per share, or approximately $77,800 in total.
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.
13
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. Repurchased shares under the Stock Buyback Plan by year are as follows:
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For the year ended December 31,
|
Number of
Shares |
Cost of
Shares |
Average Cost per Share
|
|||||||||
|
2008
|
57,200 | $ | 16,124 | $ | 0.28 | |||||||
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2009
|
22,325 | 4,020 | $ | 0.18 | ||||||||
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2010
|
171,031 | 27,273 | $ | 0.16 | ||||||||
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2011
|
247,691 | 61,597 | $ | 0.25 | ||||||||
|
Total
|
498,247 | $ | 109,014 | $ | 0.22 | |||||||
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.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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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.
14
Management’s Strategy
For several years, 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. 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.
During 2010 and 2011, 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 2012 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.
15
Acquisition of 60% of outstanding shares of ICS
On February 29, 2012, we entered into a Purchase and Exchange Agreement (the “Purchase Agreement”), dated February 29, 2012 but effective as of the close of business on December 31, 2011 by and among IMI and International Certification Services, Inc. (ICS), and other shareholders as individually named in the Agreement (collectively the “Sellers”).
Pursuant to the Purchase Agreement, on February 29, 2012 (the “Closing”) the Company acquired 60% of the issued and outstanding stock of ICS (the “Acquisition”) in exchange for aggregate consideration of $420,000, which includes $350,000 in cash and 172,840 shares (the “Shares”) of common stock of IMI valued at approximately $77,800 based upon the closing price of our stock on February 29, 2012 of $0.45. The Purchase Agreement provides for 50% of the Shares to be held in escrow for a period of eighteen months to support any indemnification claims by us for breach of ICS representations, warranties and covenants under the Purchase Agreement. The Purchase Agreement also includes non-dilution provisions, and we have right of first refusal on the remaining 40% of the outstanding stock.
ICS is a premier provider of organic accreditation services and has a strong reputation in the organic market segment. They have a large and growing customer base that includes food retailers as well as producers and processors of fruits, vegetables, dairy, livestock and honey. Their flagship certification program is Farm Verified Organic® – an ISO Guide 65 and IFOAM accredited program that meets the requirements of the USDA National Organic Program – that is designed for organic producers selling to U.S. and international markets. ICS also offers USDA National Organic Program, Canadian Organic Regime (COR) and Food Alliance sustainability certification as well as facilitation and compliancy of European Union, Japan and Bio Suisse standards. It is estimated that the total organic market segment in the U.S. and E.U. is more than $50 billion annually.
We believe this acquisition has tremendous synergies for both IMI and ICS. As industry leaders in our respective product and service offerings, we are now positioned to offer our customers new solutions across the verification and certification spectrum. We also believe it provides diversification for our company in the produce, grain and dairy industries. It should enable us to better serve our customers, as well as accelerate our revenue growth, be accretive to earnings and provide another avenue for our WFCF program.
16
RESULTS OF OPERATIONS
Year Ended December 31, 2011 Compared to Year Ended December 31, 2010
|
Years ended December 31,
|
2011
|
2011 - 2010 | |||||||||||||
|
Selected Financial Data
|
2011
|
2010
|
Improvement
|
% Change
|
|||||||||||
|
Revenues:
|
|||||||||||||||
|
Service revenues
|
$ | 3,329,615 | $ | 2,592,172 | $ | 737,443 | 28.4 | % | |||||||
|
Product sales
|
843,098 | 648,027 | 195,071 | 30.1 | % | ||||||||||
|
Other revenue
|
60,036 | 34,367 | 25,669 | 74.7 | % | ||||||||||
|
Total revenues
|
4,232,749 | 3,274,566 | 958,183 | 29.3 | % | ||||||||||
|
Costs of revenues:
|
|||||||||||||||
|
Labor and other costs of services
|
1,282,342 | 1,026,137 | 256,205 | 25.0 | % | ||||||||||
|
Costs of products
|
602,049 | 448,744 | 153,305 | 34.2 | % | ||||||||||
|
Total costs of revenues
|
1,884,391 | 1,474,881 | (409,510 | ) | -27.8 | % | |||||||||
|
Gross profit
|
2,348,358 | 1,799,685 | 548,673 | 30.5 | % | ||||||||||
|
Gross margin
|
55.5 | % | 55.0 | % | 0.5 | % | * | ||||||||
|
Selling, general and administrative expenses
|
1,671,835 | 1,440,229 | (231,606 | ) | -16.1 | % | |||||||||
|
Other expense, net
|
36,421 | 31,699 | (4,722 | ) | -14.9 | % | |||||||||
|
Income tax benefit
|
(224,350 | ) | - | 224,350 | * | ||||||||||
|
Net income
|
$ | 864,452 | $ | 327,757 | 536,695 | 163.7 | % | ||||||||
* calculation not meaningful for discussion purposes
Revenues
Total revenues for the year ended December 31, 2011 increased 29.3% over the year ended December 31, 2010. We still continue to experience double-digit sales growth from year over year, and we believe this is significant performance in light of the current economic conditions severely impacting the food industry.
Service revenues include sales of our USVerified solutions and related consulting, program development and web-based development services. Service revenues for the year ended December 31, 2011 increased 28.4% compared to the year ended December 31, 2010. The improvement is due in large part to demand from retailers in our US Verified product line. Concerns about animal welfare continue to drive retailers to make program decisions based on animal handling, care, well-being and welfare programs. In late 2010, we introduced a new revenue stream specific to conducting animal welfare audits on pork, beef and chicken farmers and ranchers that supply specialty retailers. This program is having a significant impact on our service revenues and we believe this trend will continue to grow. We also continue to see increased demand in our NHTC verification program.
Product sales are primarily sales of cattle identification ear tags. Product sales for the year ended December 31, 2011 increased 30.1% compared to the year ended December 31, 2010. The overall increase over the prior year was due to special promotions that we offered to our customers based on their volume.
Other revenue primarily represents the fees earned from our WFCF labeling program. Other revenue for the year ended December 31, 2011 increased 74.7% compared to the year ended December 31, 2010. This revenue source is still in its infancy, and we anticipate exponential growth in the future as more and more food producers continue to show interest in this product offering.
17
Cost of Sales and Gross Margin
Cost of sales for the year ended December 31, 2011 were $1,884,391 compared to $1,474,881 for the year ended December 31, 2010. Gross margin for 2011 slightly improved to 55.5% of revenues compared to 55.0% for 2010.
Our gross profit for 2011 was positively impacted by increased volume of verification audits. Our gross margins for 2011 are slightly improving 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 as compared to 2010. For a more detailed discussion regarding profitability, read “Management’s Strategy” above.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the year ended December 31, 2011 increased $231,606, or 16.1% over the year ended December 31, 2010. The increase was partially attributed to spending in consulting, marketing and advertising. During the second quarter 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 are allocating 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 continue to generate a small but consistently growing revenue stream from our WFCF program, we cannot guarantee that our marketing 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.
Income Tax Benefit
For tax purposes, utilization of our fully reserved net operating loss (“NOL”) carryforwards offset any taxes due and reduced our effective tax rate for 2011 and 2010. In 2011, we recorded a deferred tax benefit of $224,350 by reversing a portion of our valuation allowance after concluding the likelihood for a partial realization of the benefits of our deferred tax assets is more likely than not.
Net Income and Per Share Information
As a result of the foregoing, net income for the year ended December 31, 2011 was $864,452 or $0.04 per basic and diluted common share, compared to net income of $327,757 or $0.02 per basic and diluted common share for the year ended December 31, 2010. The benefit from income taxes that we incurred related to the reversal of a portion of our valuation allowance on our deferred tax assets had an impact of less than a penny per share on a dilutive basis in 2011.
Liquidity and Capital Resources
At December 31, 2011, we had cash and cash equivalents of $969,020 compared to $513,076 of cash and cash equivalents at December 31, 2010. Our working capital at December 31, 2011 was $1,523,429 compared to $555,074 at December 31, 2010.
Net cash provided by operating activities during 2011 was $720,685 compared to net cash provided of $430,535 during the same period in 2010. Cash provided by operating activities is driven by our net income 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.
18
Net cash used in investing activities during 2011 was $310,780 compared to $76,344 during 2010. Net cash used during 2011 was primarily attributable to net purchases of marketable equitable securities of $298,609 in 2011, offset by capital expenditures of $12,171 compared to capital expenditures of $76,344 in 2010. Our capital expenditures are primarily related to purchases and internal development of information technology assets to support our product and service offerings.
Net cash provided by financing activities of $51,231 during 2011 was due to a cash inflow of $200,000 from our new SBA loan agreement offset by repayments of $88,972 towards notes payable and $61,597 in repurchases under our Stock Buyback program. Net cash used in financing activities of $55,794 during 2010 was due to repayments of $28,521 towards notes payable and $22,273 in repurchases under our Stock Buyback program.
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.
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.
Debt Facility
On April 22, 2011, we entered into a U.S. Small Business Administration Note with Great Western Bank. The Note, which matures on May 1, 2021, provides for $200,000 in additional working capital. The interest rate on the Note is at prime plus 2.5% and is adjusted quarterly. Principal and interest are payable monthly. As of December 31, 2011, the current effective rate is 5.75%. The note can be prepaid without penalties and contains certain customary affirmative and negative covenants.
The loan agreement is secured by the accounts receivable, property and equipment, and intangible assets of the Company. The Note is further guaranteed by John and Leann Saunders, founders of the Company, with a security interest in 3,000,000 shares of Integrated Management Information, Inc. stock. The 3,000,000 shares are personally owned by the Saunders.
19
Simultaneous with the closing of the new loan agreement with Great Western Bank, we amended the terms of our existing $300,000 in unsecured debt. The note is held by a major shareholder who is related to Pete Lapaseotes, a director of the Company. Modifications to the terms of the existing agreement include a reduction in the interest rate from 9% to 6% annually, as well as an extension of the maturity date from September 12, 2012 to March 31, 2014. Principal is due in full upon the maturity date; interest is payable quarterly.
Off Balance Sheet Arrangements
As of December 31, 2011, we had no off-balance sheet arrangements of any type.
CRITICAL ACCOUNTING POLICIES 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 under different assumptions or conditions.
Our significant accounting policies are discussed in Note 2 to our financial statements as set forth in Item 8 of this Form 10-K.
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 utilize the Black-Scholes option-pricing model to estimate the fair value of stock options. Under this pricing model, which incorporates ranges of assumptions for inputs, our assumptions are as follows:
|
●
|
Dividend yield is based on our historical and anticipated policy of not paying cash dividends.
|
|
|
●
|
Expected volatility assumptions were derived from our actual volatilities.
|
|
|
●
|
The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the date of grant with maturity dates approximately equal to the expected life at the grant date.
|
|
|
●
|
The expected term of options represents the period of time that options granted are expected to be outstanding giving consideration to vesting schedules, based on historical exercise patterns, which we believe are representative of future behavior.
|
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.
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.
20
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
We recognize deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the respective tax bases of our assets and liabilities. Deferred tax assets and liabilities are measured using current enacted tax rates expected to apply to taxable income in the years in which we expect the temporary differences to reverse. We routinely evaluate the likelihood of realizing the benefit of our deferred tax assets and may record a valuation allowance if, based on all available evidence, we determine that some portion of the tax benefit will not be realized.
In addition, our income tax returns are periodically audited by federal and state tax authorities. These audits include questions regarding our tax filing positions, including the timing and amount of deductions taken and the allocation of income amongst various tax jurisdictions. We evaluate our exposures associated with our various tax filing positions and record a related liability. We adjust our liability for unrecognized tax benefits and income tax provision in the period in which an uncertain tax position is effectively settled, the statute of limitations expires for the relevant taxing authority to examine the tax position or when more information becomes available.
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 $640,102 and $327,757 of pre-tax income for 2011 and 2010, respectively, 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.
|
The recording of our net deferred income tax assets requires significant management judgment regarding the interpretation of applicable statutes, the status of various income tax audits, and our particular facts and circumstances. After consideration of the aforementioned qualitative and quantitative data, we concluded not to reduce our valuation allowance as of December 31, 2010 because of the current macroeconomic climate and uncertainty around credit markets and consumer behavior. In the fourth quarter of 2011, after again assessing the existing qualitative and quantitative data, including the wide-spread consensus that the economic climate was beginning to improve, we reduced our valuation allowance of $643,370 by $224,350 to $419,020 after consideration the following factors:
21
|
• Our continued profitability through December 31, 2011 resulting in eight consecutive quarters of profitability; and
|
|
|
• Our cumulative income before taxes of $967,859 over the past two years through December 31, 2011
|
On an on-going basis, we will continue to assess the likelihood of realization of the benefits of our deferred tax assets considering the many qualitative and quantitative factors. We believe that our estimates are reasonable; however, actual results could differ from these estimates.
RECENT ACCOUNTING PRONOUNCEMENTS
See Note 2 to our financial statements set forth in Item 8 of this Form 10-K for a detailed description of recent accounting pronouncements. We do not expect these recently issued accounting pronouncements to have a material impact on our results of operations, financial condition, or liquidity in future periods.
22
|
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|
Index to Financial Statements
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Page
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|
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Financial Statements:
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|
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24
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|
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26
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|
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27
|
|
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28
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29
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30
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23
To the Board of Directors and Stockholders of Integrated Management Information, Inc.:
We have audited the accompanying balance sheet of Integrated Management Information, Inc. (the “Company”) as of December 31, 2011, and the related statements of operations, stockholders’ equity, and cash flows for the year then ended. 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 audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. 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 audit provides 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, 2011, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.
As discussed in Note 14 to the financial statements, in February 2012, the Company acquired 60% of the issued and outstanding capital stock of International Certification Services, Inc.
|
/s/ GHP Horwath, P.C.
|
|
|
Denver, Colorado
|
|
|
March 26, 2012
|
24
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 sheet of Integrated Management Information, Inc. (the “Company”) as of December 31, 2010, and the related statements of operations, stockholders’ equity, and cash flows for the year then ended. 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 audit.
We conducted our audit 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. 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 audit provides 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 the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.
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.
|
/s/Gruber & Company, LLC.
|
|
|
Lake Saint Louis, Missouri
|
|
|
February 14, 2011
|
25
Integrated Management Information, Inc.
|
December 31,
|
||||||||
|
2011
|
2010
|
|||||||
|
Assets
|
||||||||
|
Current assets:
|
||||||||
|
Cash and cash equivalents
|
$ | 969,020 | $ | 513,076 | ||||
|
Accounts receivable, net
|
226,760 | 222,480 | ||||||
|
Investment in marketable securities
|
283,511 | - | ||||||
|
Prepaid expenses and other current assets
|
36,776 | 34,580 | ||||||
|
Deferred tax assets
|
224,350 | - | ||||||
|
Total current assets
|
1,740,417 | 770,136 | ||||||
|
Property and equipment, net
|
57,354 | 114,544 | ||||||
|
Intangible assets, net
|
9,205 | 14,724 | ||||||
|
Total assets
|
$ | 1,806,976 | $ | 899,404 | ||||
|
Liabilities and Stockholders’ Equity
|
||||||||
|
Current liabilities:
|
||||||||
|
Accounts payable
|
$ | 148,384 | $ | 172,324 | ||||
|
Accrued expenses and other current liabilities
|
42,960 | 33,608 | ||||||
|
Short-term debt and current portion of notes payable (Note 6)
|
25,644 | 9,130 | ||||||
|
Total current liabilities
|
216,988 | 215,062 | ||||||
|
Notes payable and other long-term debt (Note 6)
|
176,201 | 11,687 | ||||||
|
Notes payable, related party (Note 6)
|
250,000 | 320,000 | ||||||
|
Total liabilities
|
643,189 | 546,749 | ||||||
|
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; 21,049,006 (2011) and 21,039,006 (2010) shares issued, and 20,550,759 (2011) and 20,788,450 (2010) shares outstanding
|
21,049 | 21,039 | ||||||
|
Additional paid-in-capital
|
3,416,343 | 3,401,383 | ||||||
|
Treasury stock of 498,247 shares (2011) and 250,556 shares (2010)
|
(109,014 | ) | (47,417 | ) | ||||
|
Accumulated other comprehensive loss
|
(6,693 | ) | - | |||||
|
Accumulated deficit
|
(2,157,898 | ) | (3,022,350 | ) | ||||
|
Total stockholders’ equity
|
1,163,787 | 352,655 | ||||||
|
Total liabilities and stockholders’ equity
|
$ | 1,806,976 | $ | 899,404 | ||||
The accompanying notes are an integral part of these financial statements.
26
Integrated Management Information, Inc.
|
Years ended December 31,
|
||||||||
|
2011
|
2010
|
|||||||
|
Revenues:
|
||||||||
|
Service revenues
|
$
|
3,329,615
|
$
|
2,592,172
|
||||
|
Product sales
|
843,098
|
648,027
|
||||||
|
Other revenue
|
60,036
|
34,367
|
||||||
|
Total revenues
|
4,232,749
|
3,274,566
|
||||||
|
Costs of revenues:
|
||||||||
|
Labor and other costs of services
|
1,282,342
|
1,026,137
|
||||||
|
Costs of products
|
602,049
|
448,744
|
||||||
|
Total costs of revenues
|
1,884,391
|
1,474,881
|
||||||
|
Gross profit
|
2,348,358
|
1,799,685
|
||||||
|
Selling, general and administrative expenses
|
1,671,835
|
1,440,229
|
||||||
|
Income from operations
|
676,523
|
359,456
|
||||||
|
Other expense (income):
|
||||||||
|
Interest expense
|
29,539
|
33,388
|
||||||
|
Loss on sale of marketable securities
|
13,597
|
-
|
||||||
|
Other income, net
|
(6,715
|
)
|
(1,689
|
)
|
||||
|
Income before income taxes
|
640,102
|
327,757
|
||||||
|
Income tax benefit
|
(224,350
|
)
|
-
|
|||||
|
Net income
|
864,452
|
327,757
|
||||||
|
Unrealized loss on marketable securities
|
(6,693
|
)
|
-
|
|||||
|
Comprehensive income
|
$
|
857,759
|
$
|
327,757
|
||||
|
Net income per share:
|
||||||||
|
Basic
|
$
|
0.04
|
$
|
0.02
|
||||
|
Diluted
|
$
|
0.04
|
$
|
0.02
|
||||
|
Weighted average number of common shares outstanding:
|
||||||||
|
Basic
|
20,674,739
|
20,847,311
|
||||||
|
Diluted
|
21,008,549
|
20,863,845
|
||||||
The accompanying notes are an integral part of these financial statements.
27
Integrated Management Information, Inc.
|
Year ended December 31,
|
||||||||
|
2011
|
2010
|
|||||||
|
Operating activities:
|
||||||||
|
Net income
|
$ | 864,452 | $ | 327,757 | ||||
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
||||||||
|
Depreciation and amortization
|
74,880 | 81,766 | ||||||
|
Stock-based compensation expense
|
13,170 | 63 | ||||||
|
Issuance of common shares for services
|
- | 14,300 | ||||||
|
Deferred tax benefit
|
(224,350 | ) | - | |||||
|
Bad debt expense
|
10,605 | 2,264 | ||||||
|
Loss on sale of marketable securities
|
13,597 | - | ||||||
|
Changes in operating assets and liabilities:
|
||||||||
|
Accounts receivable
|
(14,885 | ) | (20,148 | ) | ||||
|
Prepaid expenses and other current assets
|
(2,196 | ) | 31,115 | |||||
|
Accounts payable
|
(23,940 | ) | 11,275 | |||||
|
Accrued expenses and other current liabilities
|
9,352 | (17,507 | ) | |||||
|
Net cash provided by operating activities
|
720,685 | 430,885 | ||||||
|
Investing activities:
|
||||||||
|
Purchases of marketable securities
|
(429,399 | ) | - | |||||
|
Proceeds from sale of marketable securities
|
125,598 | - | ||||||
|
Purchases of property and equipment
|
(12,171 | ) | (58,337 | ) | ||||
|
Acquisition of intangible assets
|
- | (18,007 | ) | |||||
|
Net cash used in investing activities
|
(315,972 | ) | (76,344 | ) | ||||
|
Financing activities:
|
||||||||
|
Proceeds from notes payable
|
200,000 | - | ||||||
|
Repayments of notes payable
|
(88,972 | ) | (28,521 | ) | ||||
|
Proceeds from stock option exercise
|
1,800 | - | ||||||
|
Stock repurchase under Buyback Program
|
(61,597 | ) | (27,273 | ) | ||||
|
Net cash provided by (used in) financing activities
|
51,231 | (55,794 | ) | |||||
|
Net increase in cash and cash equivalents
|
455,944 | 298,747 | ||||||
|
Cash and cash equivalents at beginning of year
|
513,076 | 214,329 | ||||||
|
Cash and cash equivalents at end of year
|
$ | 969,020 | $ | 513,076 | ||||
The accompanying notes are an integral part of these financial statements.
28
Integrated Management Information, Inc.
|
Additional
|
Other
|
|||||||||||||||||||||||||||
|
Common Stock
|
Paid-in
|
Treasury
|
Comprehensive
|
Accumulated
|
||||||||||||||||||||||||
|
Shares
|
Amount
|
Capital
|
Stock
|
Loss
|
Deficit
|
Total
|
||||||||||||||||||||||
|
Balance at December 31, 2009
|
20,849,481 | $ | 20,929 | $ | 3,387,130 | $ | (20,144 | ) | $ | - | $ | (3,350,107 | ) | $ | 37,808 | |||||||||||||
|
Stock repurchase of 171,031 shares on the open market
|
(171,031 | ) | - | - | (27,273 | ) | - | - | (27,273 | ) | ||||||||||||||||||
|
Issuance of common shares for services
|
110,000 | 110 | 14,190 | - | - | - | 14,300 | |||||||||||||||||||||
|
Stock-based compensation expense
|
- | - | 63 | - | - | - | 63 | |||||||||||||||||||||
|
Net income
|
- | - | - | - | - | 327,757 | 327,757 | |||||||||||||||||||||
|
Balance at December 31, 2010
|
20,788,450 | 21,039 | 3,401,383 | (47,417 | ) | - | (3,022,350 | ) | 352,655 | |||||||||||||||||||
|
Stock repurchase of 247,691 shares on the open market
|
(247,691 | ) | - | - | (61,597 | ) | - | - | (61,597 | ) | ||||||||||||||||||
|
Issuance of common shares upon exercise of options
|
10,000 | 10 | 1,790 | - | - | - | 1,800 | |||||||||||||||||||||
|
Stock-based compensation expense
|
- | - | 13,170 | - | - | - | 13,170 | |||||||||||||||||||||
|
Unrealized loss on marketable securities
|
(6,693 | ) | (6,693 | ) | ||||||||||||||||||||||||
|
Net income
|
- | - | - | - | - | 864,452 | 864,452 | |||||||||||||||||||||
|
Balance at December 31, 2011
|
20,550,759 | $ | 21,049 | $ | 3,416,343 | $ | (109,014 | ) | $ | (6,693 | ) | $ | (2,157,898 | ) | $ | 1,163,787 | ||||||||||||
The accompanying notes are an integral part of these financial statements.
29
Integrated Management Information, Inc.
Note 1 - The Company and Basis of Presentation
Business Overview
Integrated Management Information, Inc., is a Colorado corporation based in Castle Rock, Colorado, (“IMI Global,” “IMI,” the “Company,” “our,” “we,” or “us,”). We are a leading provider of verification and communication solutions for the agriculture, livestock and food industry. Our customers are located throughout the United States.
We provide our owned and operated online products 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 cannot be confirmed by visual inspection once the product reaches the food retail 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.
On February 29, 2012, we closed on an acquisition of a 60% ownership investment in a North Dakota company, International Certification Services, Inc. (“ICS”) (Note 14).
Basis of Presentation
Our financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). 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 the 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 to the 2010 statement of operations have been made to conform to the 2011 presentation, none of which had any effect on total revenue, gross profit, income from operations, or net income.
Note 2 - Summary of Significant Accounting Policies
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. At times, cash balances may exceed the FDIC insurance limit, however; we have not experienced any losses related to balances that exceed such FDIC insurance limits and we believe our credit risk is minimal.
30
Integrated Management Information, Inc.
Notes to the Financial Statements
Revenue Recognition
We offer a range of products and services to deploy and maintain identification, traceability, and verification systems and to facilitate customers’ participation in and compliance with USDA’s Quality System Assessment, Process Verification and Export Verification Programs. We generate revenue primarily from the sale of our US Verified 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.
Revenue is recognized when persuasive evidence of an agreement with the customer exists, delivery has occurred or services have been provided, the sales price is fixed or determinable, collectability is reasonably assured, and risk of loss and title have transferred to the customer.
In 2011, one customer generated approximately 14% of our total revenue. No single customer generated more than 10% of net revenue in 2010.
Service revenues primarily consist of fees charged for verification audits and other verification services that the Company performs for customers under our US Verified Program. Revenues derived from our US Verified program services are recognized as those services are rendered. Contracts for these services are cancelable only for non-performance.
Revenues under contracts for consulting and website development are recognized when completed (for short-term projects). On occasion, we may enter into long-term projects, for which we use the percentage of completion method. No such long-term projects occurred during 2011 and 2010.
Product sales are primarily generated from the sale of cattle identification ear tags. Revenue is recognized when goods are shipped and after title has transferred to the customer.
Other revenue primarily represents the fees earned from our “Where Food Comes From®” (WFCF) labeling program. Revenue is recognized when our customer, who has been granted a right to use our WFCF label, places a WFCF label on their product and ships their product. Revenue is billed based on pounds of product shipped.
Generally, we do not provide right of return or warranty on product sales or services performed.
Accounts Receivable and 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 the 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. The allowance for doubtful accounts was approximately $7,000 at December 31, 2011 and 2010.
Two customers accounted for greater than 10% of our outstanding accounts receivable balance at December 31, 2011.
31
Integrated Management Information, Inc.
Notes to the Financial Statements
Cost of Revenues
Cost of revenues includes the cost of products sold, which consists of livestock ear tags used 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 revenues.
Livestock identification ear tags sold in connection with our verification offerings are purchased primarily from one supplier. However, there are numerous other companies which manufacture and market such ear tags.
Investment in Marketable Securities
We classify our investments in marketable securities as available-for-sale securities and account for the investments at fair value. Changes in the fair value of these securities are recognized as a component of accumulated other comprehensive income (loss) within stockholders’ equity on the Balance Sheet. Realized gains or losses and declines in value judged to be other-than-temporary, if any, on available-for-sale securities are determined by specific identification of the cost basis of each security and are reported on the Statement of Operations. We follow a conservative investment strategy of optimizing liquidity and protecting principal. We invest primarily in high credit quality equity securities, both in mutual funds and individual corporate stocks, and all investments are traded in active markets (Note 3). We do not utilize derivative financial instruments to manage interest rate risk.
Fair Value Measurements
The carrying value of cash and cash equivalents, accounts receivable, and accounts payable approximate fair value due to their short maturities. The amounts shown for short-term debt and notes payable also approximate fair value because current interest rates and terms offered to us for similar debt are substantially the same. Our investments in marketable securities consist of equity securities classified as available-for-sale and are recorded at fair value on a recurring basis.
Fair value accounting guidance defines fair value, establishes a framework for measuring fair value under GAAP and expands disclosures about fair value measurements, for both financial and non-financial assets. It also establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The fair value hierarchy consists of three broad levels, which are described below:
|
●
|
Level 1: Quoted prices in active markets for identical assets or liabilities that the entity has the ability to access.
|
|
|
●
|
Level 2: Observable inputs other than prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated with observable market data.
|
|
|
●
|
Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.
|
Our investments in available-for-sale marketable securities include equity mutual funds, exchange-traded funds and individual corporate equity securities. For these securities, we use quoted prices in active markets for identical assets to determine their fair value, thus they are considered to be Level 1 instruments under the fair value hierarchy. The method described may produce a fair value calculation that may not be indicative of net realizable value of future fair values. Although we believe our valuation method is appropriate, the use of a different methodology or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.
32
Integrated Management Information, Inc.
Notes to the Financial Statements
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 trademark rights and the related costs incurred to obtain the trademark rights. These assets are recorded at cost and are subject to amortization. We amortize these assets 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 (including intangible 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.
Research and Development, Software Development Costs, and Internal Use Software Development Costs
Research and development costs are charged to operations as incurred. We did not incur any research and development expense in 2011 or 2010.
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 represent 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.
Website software development costs related to certain planning and training costs incurred in the development of website software are expensed as incurred, while application development stage costs are capitalized.
33
Integrated Management Information, Inc.
Notes to the Financial Statements
During the year ended December 31, 2010, we capitalized certain external and internal use software and website development costs totaling $52,305 (none in 2011). The estimated useful life of costs capitalized is evaluated for each specific project and ranges from one to three years. During 2011 and 2010, the amortization of capitalized costs totaled $53,216 and $58,559, 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, 2011 and 2010, were $61,502 and $43,762, respectively.
Income Taxes
We compute income taxes using the asset and liability method. Under this method, deferred income taxes are recognized for differences between the basis of assets and liabilities for financial statement and income statement purposes using the enacted statutory rate in effect for the year these differences are expected to be taxable or deductible. Deferred income tax expense or benefit is based on the changes in the net deferred tax asset or liability from period to period. A deferred tax asset or liability is recognized whenever there are future tax effects from existing temporary differences and operating loss and tax credit carryforwards. If we determine that a deferred tax asset could be realized in a greater or lesser amount than recorded, the asset’s recorded amount is adjusted and the income statement is either credited or charged, respectively, in the period during which the determination is made.
We reduce our deferred tax assets by a valuation allowance if we determine that it is more likely than not that some portion or all of these tax assets will not be realized. In making this determination, we consider various qualitative and quantitative factors, such as:
|
●
|
The level of historical taxable income and projections for future taxable income over periods in which the deferred tax assets would be deductible,
|
|
|
●
|
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.
|
The recognition of our net deferred income tax assets requires significant management judgment regarding the interpretation of applicable statutes, the status of various income tax audits, and our particular facts and circumstances. After consideration of the aforementioned qualitative and quantitative data, we concluded not to reduce our valuation allowance as of December 31, 2010 because of the current macroeconomic climate and uncertainty around credit markets and consumer behavior. In the fourth quarter of 2011, after again assessing the existing qualitative and quantitative data, including the wide-spread consensus that the economic climate was beginning to improve, we reduced our valuation allowance of $643,370 by $224,350 to $419,020 after consideration the following factors:
|
● Our continued profitability through December 31, 2011 resulting in eight consecutive quarters of profitability; and
|
|
| ● Our cumulative income before taxes of $962,667 over the past two years through December 31, 2011 |
34
Integrated Management Information, Inc.
Notes to the Financial Statements
On an on-going basis, we will continue to assess the likelihood of realization of the benefits of our deferred tax assets considering the many qualitative and quantitative factors.
We recognize the tax benefit from an uncertain tax position when we determine that it is more-likely-than-not that the position would be sustained upon examination by taxing authorities. The amount recognized is measured as the largest amount of benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. If we derecognize an uncertain tax position, our policy is to record any applicable interest and penalties within the provision for income tax. Management believes there are no current uncertain tax positions that would result in an asset or liability being recognized in the accompanying financial statements. Interest and penalties on unrecognized tax benefits, if any, are recognized as a component of income tax expense.
Stock-Based Compensation
The fair value of stock options is estimated using the Black-Scholes option-pricing model, which incorporates ranges of assumptions for inputs. Our assumptions are as follows:
|
●
|
Dividend yield is based on our historical and anticipated policy of not paying cash dividends.
|
|
|
●
|
Expected volatility assumptions were derived from our actual volatilities.
|
|
|
●
|
The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the date of grant with maturity dates approximately equal to the expected life at the grant date.
|
|
|
●
|
The expected term of options represents the period of time that options granted are expected to be outstanding giving consideration to vesting schedules, based on historical exercise patterns, which we believe are representative of future behavior.
|
Our stock-based compensation cost for the years ended December 31, 2011 and 2010, was $13,170 and $63, respectively, and has been included in income from operations.
The fair value of stock options granted during 2011 of 220,000 shares (none were granted in 2010) was estimated using the following assumptions:
|
Expected life of options from date of grant
|
8 years
|
||
|
Risk free interest rate
|
2.26 | % | |
|
Expected volatility
|
229.6 | % | |
|
Assumed dividend yield
|
0.0 | % |
As of December 31, 2011, total unrecognized stock-based compensation cost related to non-vested awards granted under our option plans is as follows:
|
For the year ending
|
||||
|
December 31,
|
||||
|
2012
|
$ | 17,580 | ||
|
2013
|
17,595 | |||
|
2014
|
4,399 | |||
| $ | 39,574 | |||
35
Integrated Management Information, Inc.
Notes to the Financial Statements
Recently Issued Accounting Standards
In January 2010, the Financial Accounting Standards Board (“FASB”) issued guidance to amend fair value disclosure requirements. The updated guidance requires separate disclosures of transfers into and out of Levels 1 and 2, more detailed reconciliations of Level 3 recurring fair value measurements on a gross basis, fair value information by class of assets and liabilities, and descriptions of valuation techniques and inputs for Level 2 and Level 3 measurements. We have adopted the disclosure requirements of the new guidance. The adoption of this new guidance did not have a material impact on our financial position, results of operations or cash flows. In May 2011, the FASB issued guidance further amending the fair value measurement and disclosure requirements. The guidance requires the disclosure of quantitative information about unobservable inputs, a description of the valuation processes used, and a qualitative discussion around the sensitivity of the measurements. This guidance is effective for our Company at the beginning of the first quarter of 2012. The adoption of this new guidance also did not have a material impact on our financial position, results of operations or cash flows.
In June 2011, the FASB issued guidance that revises the manner in which entities present comprehensive income in their financial statements. The guidance requires entities to report the components of comprehensive income in either a single, continuous statement or two separate but consecutive statements. The Company adopted this guidance on January 1, 2012, with no material impact on our financial position, results of operations or cash flows.
In September 2011, the FASB issued guidance that simplifies how entities test goodwill for impairment and permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. This guidance is effective for our Company at the beginning of the first quarter of 2012. The adoption of this guidance is not anticipated to have a material impact on our financial position, results of operations or cash flows.
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.
Note 3 – Investments in Marketable Securities
The following table summarizes our investments in marketable securities.
|
December 31, 2011
|
||||||||||||||||
|
Gross
|
Gross
|
Gross
|
Estimated
|
|||||||||||||
|
Amortized
|
Unrealized
|
Unrealized
|
Fair
|
|||||||||||||
|
Cost
|
Gains
|
Losses
|
Value
|
|||||||||||||
|
Equity securities
|
$ | 224,012 | $ | 6,189 | $ | (9,884 | ) | $ | 220,317 | |||||||
|
Mutual funds
|
61,000 | - | (2,998 | ) | 58,002 | |||||||||||
|
Uninvested cash
|
5,192 | - | - | 5,192 | ||||||||||||
|
Investment in marketable securities
|
$ | 290,204 | $ | 2,771 | $ | (9,464 | ) | $ | 283,511 | |||||||
There were no marketable securities that had gross unrealized losses greater than twelve months. At December 31, 2011, the fair value of equity securities and mutual funds in loss positions were approximately $158,800 and $58,002, respectively.
36
Integrated Management Information, Inc.
Notes to the Financial Statements
Note 4 - Property and Equipment
The major categories of property and equipment are as follows:
|
December 31,
|
||||||||
|
2011
|
2010
|
|||||||
|
Automobiles
|
$ | 39,946 | $ | 39,946 | ||||
|
Furniture and office equipment
|
53,709 | 41,922 | ||||||
|
Software and tools
|
13,988 | 13,988 | ||||||
|
Website development and other enhancements
|
183,385 | 183,385 | ||||||
| 291,028 | 279,241 | |||||||
|
Less accumulated depreciation
|
233,674 | 164,697 | ||||||
|
Property and equipment, net
|
$ | 57,354 | $ | 114,544 | ||||
Depreciation expense for the years ended December 31, 2011 and 2010, was $69,361 and $77,828, respectively.
Note 5 – Intangible Assets
In 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 through January 2011. These trademark rights are being amortized over 3 years.
During 2010, we capitalized $9,507 in legal fees and other directly-related costs relating to our “Where Food Comes From” trademark and logo. This trademark and logo is being amortized over 5 years.
Amortization expense for the years ended December 31, 2011 and 2010, was $5,519 and $3,938, respectively. Accumulated amortization at December 31, 2011 and 2010, was $8,800 and $5,471, respectively. Future scheduled amortization of these intangible assets is $4,451 in 2012, $1,901 in 2013, $1,901 in 2014, and $952 in 2015.
37
Integrated Management Information, Inc.
Notes to the Financial Statements
Note 6 - Notes Payable
Notes payable consist of the following:
|
December 31,
|
||||||||
|
2011
|
2010
|
|||||||
|
Equipment Note Payable
|
$ | 11,630 | $ | 20,817 | ||||
|
Lapaesotes Note Payable - Related Party
|
250,000 | 320,000 | ||||||
|
Great Western Bank SBA Loan
|
190,215 | - | ||||||
| 451,845 | 340,817 | |||||||
|
Less current portion of notes payable and other long-term debt
|
25,644 | 9,130 | ||||||
|
Notes payable and other long-term debt
|
$ | 426,201 | $ | 331,687 | ||||
Equipment Note Payable
On January 31, 2009, we issued a note payable in the amount of $35,963 for the purchase of a vehicle. Interest and principal payments are due in equal monthly installments of $870 over four years beginning March 17, 2009. The Note bears an interest rate of 7.4% per annum and is collateralized by the vehicle.
Lapaseotes Notes 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 Mr. Lapaseotes, a member of our Board of Directors. These notes bear an interest rate of 9% per annum, payable quarterly.
Prior to 2011, we paid $30,000 towards the principal balance. During 2011, we paid an additional $70,000 towards the principal balance. We intend to continue making principal payments towards the balance as additional funds become available.
In April 2011, modifications to the terms of the existing agreement were completed. Such modifications included a reduction in the interest rate from 9% to 6% annually, as well as an extension of the maturity date from September 12, 2012 to March 31, 2014. We applied the 10% significance test in accordance with GAAP to determine if the original debt should be accounted for as an extinguishment. The results were less than 10% and therefore the original debt has not been accounted for as an extinguishment. Principal is due in full upon the maturity date; interest is payable quarterly.
Great Western Bank SBA Loan
On April 22, 2011, we entered into a U.S. Small Business Administration (“SBA”) Note with Great Western Bank. The Note, which matures on May 1, 2021, provides for $200,000 in additional working capital. The interest rate on the Note is at prime plus 2.5% and is adjusted quarterly. Principal and interest are payable monthly. As of December 31, 2011, the current effective rate is 5.75%. The note can be prepaid without penalties and contains certain customary affirmative and negative covenants.
The loan agreement is collateralized by the accounts receivable, property and equipment, and intangible assets of the Company. The Note is further guaranteed by John and Leann Saunders, significant shareholders, officers and members of the Company’s Board of Directors, with a security interest in 3,000,000 common shares of Integrated Management Information, Inc. stock. The 3,000,000 shares are personally owned by the Saunders.
38
Integrated Management Information, Inc.
Notes to the Financial Statements
Our obligations under our notes payable for the next five years and thereafter, as of December 31, 2011, are as follows:
|
Fiscal year ending December 31:
|
||||
|
2012
|
$ | 25,644 | ||
|
2013
|
18,550 | |||
|
2014
|
267,754 | |||
|
2015
|
18,801 | |||
|
2016
|
19,892 | |||
|
Thereafter
|
101,204 | |||
| $ | 451,845 | |||
Note 7 - Income Taxes
The reconciliation of income taxes calculated at the statutory rates to our effective tax rate is as follows:
|
December 31,
|
||||||||
|
2011
|
2010
|
|||||||
|
Expected income tax expense
|
$ | 222,219 | $ | 114,715 | ||||
|
State tax provision, net
|
19,047 | 9,833 | ||||||
|
Permanent differences
|
3,129 | 3,021 | ||||||
|
Prior year true-up to provisions
|
(58,765 | ) | 59,344 | |||||
|
Change in valuation allowance
|
(388,586 | ) | (194,489 | ) | ||||
|
Other, net
|
(21,394 | ) | 7,576 | |||||
|
Effective income tax benefit (deferred)
|
$ | (224,350 | ) | $ | - | |||
39
Integrated Management Information, Inc.
Notes to the Financial Statements
The income tax effects of temporary differences that give rise to significant portions of deferred tax assets as of December 31, 2011 and 2010 are as follows:
|
December 31,
|
||||||||
|
2011
|
2010
|
|||||||
|
Deferred tax assets:
|
||||||||
|
Net operating loss carryforwards
|
$ | 636,982 | $ | 856,797 | ||||
|
Other
|
6,388 | (54,076 | ) | |||||
|
Deferred tax assets
|
643,370 | 802,721 | ||||||
|
Less valuation allowance
|
(419,020 | ) | (802,721 | ) | ||||
|
Net deferred tax assets
|
$ | 224,350 | $ | - | ||||
As of December 31, 2011, our net operating loss carryforwards for U.S. federal income tax purposes were $1.8 million, and were subject to the following expiration schedule:
|
Net operating loss incurred:
|
Amount
|
Expiration dates:
|
|||
|
December 31, 2006
|
$ | 1,454,431 |
December 31, 2026
|
||
|
December 31, 2007
|
365,518 |
December 31, 2027
|
|||
|
Total tax carryforwards
|
$ | 1,819,949 | |||
Our unused net operating loss carryforwards may be applied against future taxable income.
Note 8 – Stockholders’ Equity
Common Stock
During 2010, we granted 110,000 shares of fully-vested common stock at $0.13 per share (the market price per share at the date of grant) with an aggregate value of $14,300 (recorded on the date of grant in our general and administrative expenses) in connection with investor relations services performed by a third party.
On June 17, 2011, Dr. Gary Smith, a member of our Board of Directors, exercised his options to purchase 10,000 shares of common stock at a strike price of $0.18 per share ($1,800 total proceeds).
40
Integrated Management Information, Inc.
Notes to the Financial Statements
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 at the quoted market price on the date of repurchase. Repurchased shares under the Stock Buyback Plan by year are as follows:
|
For the year ended December 31,
|
Number of Shares
|
Cost of Shares
|
Average Cost per Share
|
|||||||||
|
2008
|
57,200 | $ | 16,124 | $ | 0.28 | |||||||
|
2009
|
22,325 | 4,020 | $ | 0.18 | ||||||||
|
2010
|
171,031 | 27,273 | $ | 0.16 | ||||||||
|
2011
|
247,691 | 61,597 | $ | 0.25 | ||||||||
|
Total
|
498,247 | $ | 109,014 | $ | 0.22 | |||||||
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 9 - Stock Option and Warrant Plans
2006 Equity Incentive Plan
The 2006 Equity Incentive Plan (the “Plan”) provides for the issuance of stock-based awards to employees, officers, directors and consultants. The 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 Plan provides for the issuance of a maximum of 3,000,000 shares of our common stock, of which 571,500 shares were still available for issuance as of December 31, 2011.
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 vested at 1,500,000 per year over the period beginning January 1, 2007 to January 1, 2010, at exercise prices of $1.67 for the first three million and $2.67 for the remaining three million. These options expired on January 1, 2011.
Warrants
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.
41
Integrated Management Information, Inc.
Notes to the Financial Statements
Stock Option Activity
On April 1, 2011, the Board of Directors granted 220,000 options to purchase shares of common stock at a strike price of $0.24 per share, vesting over 3 years, with an expiration date of April 1, 2021.
On June 17, 2011, Dr. Gary Smith, a member of the Board of Directors, exercised his options to purchase 10,000 shares of common stock at a strike price of $0.18 per share.
Stock option activity during 2011 and 2010 is summarized as follows:
| Weighted | ||||||||||||||||||||
|
Avg.
|
||||||||||||||||||||
| Weighted | Weighted |
Remaining
|
||||||||||||||||||
|
Avg.
|
Avg.
|
Contractual
|
Aggregate
|
|||||||||||||||||
|
Number of
|
Exercise Price
|
Fair Value
|
Life
|
Intrinsic
|
||||||||||||||||
|
Options
|
per Share
|
per Share
|
(in years)
|
Value
|
||||||||||||||||
|
Outstanding, January 1, 2010
|
8,593,500 | $ | 1.64 | $ | 0.01 | 1.13 | ||||||||||||||
|
Granted
|
- | $ | - | $ | - | - | ||||||||||||||
|
Exercised
|
- | $ | - | $ | - | - | ||||||||||||||
|
Expired
|
(745,000 | ) | $ | 0.56 | $ | 0.08 | 0.34 | |||||||||||||
|
Outstanding, December 31, 2010
|
7,848,500 | $ | 1.74 | $ | 0.01 | 0.12 | $ | 2,700 | ||||||||||||
|
Granted
|
220,000 | $ | 0.24 | $ | 0.24 | 9.26 | ||||||||||||||
|
Exercised
|
(10,000 | ) | $ | 0.18 | $ | 0.18 | 1.68 | |||||||||||||
|
Expired
|
(6,737,500 | ) | $ | 1.98 | $ | - | - | |||||||||||||
|
Outstanding, December 31, 2011
|
1,321,000 | $ | 0.25 | $ | 0.07 | 2.83 | $ | 98,295 | ||||||||||||
|
Exercisable, December 31, 2011
|
1,101,000 | $ | 0.25 | $ | 0.07 | 1.54 | $ | 82,895 | ||||||||||||
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, 2011 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, 2011.
The following table summarizes information concerning outstanding and exercisable options as of December 31, 2011:
|
Options Outstanding
|
Options Exercisable
|
|||||||||||||||||||
|
Average
|
||||||||||||||||||||
|
Remaining
|
Weighted | Weighted | ||||||||||||||||||
|
Contractual
|
Avg.
|
Avg.
|
||||||||||||||||||
|
Number
|
Life
|
Exercise Price
|
Number
|
Exercise Price
|
||||||||||||||||
|
Outstanding
|
(in years)
|
per Share
|
Outstanding
|
per Share
|
||||||||||||||||
|
Range of exercise prices per share:
|
||||||||||||||||||||
|
$0.00 - $0.10
|
45,000 | 1.00 | $ | 0.10 | 45,000 | $ | 0.10 | |||||||||||||
|
$0.11 - $0.20
|
65,000 | 0.98 | $ | 0.17 | 65,000 | $ | 0.17 | |||||||||||||
|
$0.21 - $0.30
|
1,143,500 | 2.85 | $ | 0.24 | 923,500 | $ | 0.24 | |||||||||||||
|
$0.31 - $0.40
|
30,000 | 1.49 | $ | 0.38 | 30,000 | $ | 0.38 | |||||||||||||
|
$0.41 - $1.00
|
37,500 | 3.01 | $ | 0.61 | 37,500 | $ | 0.61 | |||||||||||||
|
Total
|
1,321,000 | 2.66 | $ | 0.25 | 1,101,000 | $ | 0.25 | |||||||||||||
At December 31, 2011, there were 220,000 non-vested options with a grant-date fair value of $0.24 per share. No options vested during the year.
42
Integrated Management Information, Inc.
Notes to the Financial Statements
Note 10 - Basic and Diluted Net Income per Share
Basic income per share was computed by dividing income available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted income per share is based on the assumption that all dilutive convertible shares and stock options were converted or exercised. Dilution is computed by applying the treasury stock method. Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period.
The following is a reconciliation of the share data used in the basic and diluted income per share computations:
|
Year ended December 31,
|
||||||||
|
2011
|
2010
|
|||||||
|
Basic:
|
||||||||
|
Weighted average number of shares outstanding
|
20,674,739
|
20,847,311
|
||||||
|
Diluted:
|
||||||||
|
Weighted average number of shares outstanding
|
20,674,739
|
20,847,311
|
||||||
|
Weighted average effects of dilutive securities
|
333,810
|
16,534
|
||||||
|
Total
|
21,008,549
|
20,863,845
|
||||||
|
Antidilutive securities
|
67,500
|
7,801,884
|
||||||
Note 11 - Related Party Transactions
In 2011 and 2010, we recorded revenue of $2,947 and $1,710, respectively, from a related party (father of Leann Saunders, our President).
Note 12 – Commitments and Contingencies
Operating Leases
In September 2011, we renewed the building lease for our headquarters in Castle Rock, Colorado. The lease is for a period of five years. In addition to the primary rent, the lease requires additional payments for operating costs and other common area maintenance costs. Rent expense for the years ended December 31, 2011 and 2010, was $74,664 and $66,403, respectively.
We also lease certain office equipment for a base rent of $375 per month or $4,500 annually. This 60-month lease expires in April 2014.
43
Integrated Management Information, Inc.
Notes to the Financial Statements
Future minimum lease payments for our headquarters are as follows:
|
Years Ending December 31,
|
Amount
|
|||
|
2012
|
$ | 91,800 | ||
|
2013
|
94,125 | |||
|
2014
|
103,425 | |||
|
2015
|
112,725 | |||
|
2016
|
89,775 | |||
|
Total lease commitments
|
$ | 491,850 | ||
Employment Agreements
In January 2006, we entered into an employment contract with John Saunders, our Chief Executive Officer, for an annual salary of $90,000, subject to annual performance review adjustments. The agreement automatically renews annually unless a 60-day notice of non-renewal is provided by either the Company or the employee.
In January 2006, we entered into an employment contract with Leann Saunders, our President, for an annual salary of $90,000 subject to annual performance review adjustments. The agreement automatically renews annually unless a 60-day notice of non-renewal is provided by either the Company or the employee.
Legal proceedings
From time to time, we may become involved in various unresolved legal actions, administrative proceedings and claims in the ordinary course of business. We are not aware of any such legal actions, proceedings or claims as of December 31, 2011. 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 effect on our financial position, results of operations or cash flows.
Employee Benefit Plan
On February 13, 2006, we established a 401(K) plan for the benefit of our employees. The Plan covers substantially all of our employees who have attained age 21. We may make a discretionary matching contribution in an amount that is determined by our Board of Directors. If a matching contribution is made, the amount cannot exceed the elective deferral contributions. For the year ended December 31, 2011, we made matching contributions of $6,931. In 2010, we did not make a matching contribution.
44
Integrated Management Information, Inc.
Notes to the Financial Statements
Note 13 – Supplemental Cash Flow Information
|
Year ended December 31,
|
||||||||
|
2011
|
2010
|
|||||||
|
Cash paid during the year:
|
||||||||
|
Interest on Lapaseotes Notes - related party
|
$ | 15,361 | $ | 30,300 | ||||
|
Other interest
|
$ | 10,748 | $ | - | ||||
|
Income taxes
|
$ | - | $ | - | ||||
|
Non-cash investing activities:
|
||||||||
|
Unrealized loss on marketable securities
|
$ | 6,693 | $ | - | ||||
Note 14 - Subsequent Events
Acquisition of 60% of outstanding shares of ICS
On February 29, 2012, we entered into a Purchase and Exchange Agreement (the “Purchase Agreement”), dated February 29, 2012 but effective as of the close of business on December 31, 2011, by and among IMI and International Certification Services, Inc. (ICS), and other shareholders as individually named in the Agreement (collectively the “Sellers”).
Pursuant to the Purchase Agreement, on February 29, 2012 (the “Closing”) the Company acquired 60% of the issued and outstanding stock of ICS (the “Acquisition”) in exchange for aggregate consideration of $420,000, which includes $350,000 in cash and 172,840 shares (the “Shares”) of common stock of IMI valued at approximately $77,800 based upon the closing price of our stock on February 29, 2012 of $0.45. The Purchase Agreement provides for 50% of the Shares to be held in escrow for a period of eighteen months to support any indemnification claims by us for breach of ICS representations, warranties and covenants under the Purchase Agreement. The Purchase Agreement also includes non-dilution provisions, and we have right of first refusal on the remaining 40% of the outstanding stock.
This Acquisition is to be accounted for under the acquisition method of accounting. Due to the timing of the Acquisition, we have not yet developed a preliminary purchase price allocation for the transaction.
Other
We evaluated all other subsequent events and transactions for potential recognition or disclosure in the financial statements through the date of issuance.
45
|
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|
In December 2011, the Company’s independent registered public accounting firm, Gruber and Company, LLC (Gruber), informed the Company’s board of directors that due to rules promulgated by the Public Company Accounting Oversight Board concerning audit partner rotation requirements, Gruber may need to resign as the Company auditors.
On January 9, 2012, the Company received notice of Gruber’s resignation as the Company’s independent registered public accounting firm, effective January 10, 2012. Gruber advised the Company and its board of directors that its resignation was necessary in order for Gruber to comply with audit partner rotation requirements.
The reports of Gruber on the financial statements of the Company for the fiscal years ended December 31, 2010 and 2009 did not contain an adverse opinion or disclaimer of opinion, nor were such reports qualified or modified as to uncertainty, audit scope, or accounting principles, except that the report on the December 31, 2009 financial statements included an explanatory paragraph relating to the Company’s ability to continue as a going concern.
During the fiscal years ended December 31, 2010 and December 31, 2011, there were (i) no disagreements with Gruber on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which disagreements, if not resolved to the satisfaction of Gruber, would have caused Gruber to make reference to the subject matter of the disagreements in connection with its reports, and (ii) no events of the type listed in paragraphs (A) through (D) of Item 304(a)(1)(v) of Regulation S-K (Reportable Events).
On January 9, 2012, the Company engaged GHP Horwath, P.C. (GHP) as its new, independent registered public accounting firm. The decision to engage GHP as the Company’s independent registered public accounting firm was approved by the Company’s board of directors.
|
CONTROLS AND PROCEDURES
|
Evaluation of Disclosure Controls and Procedures
Our Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of the Company’s “disclosure controls and procedures” (as defined in the Securities Exchange Act of 1934 (Exchange Act) Rules 13a-15(e) or 15d-15(e)) as of the end of the period covered by this annual report, has concluded that our disclosure controls and procedures are effective at a reasonable assurance level based on his evaluation of these controls and procedures as required by paragraph (b) of Exchange Act Rules 13a-15 or 15d-15.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over our financial reporting. Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of our financial reporting for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes policies and procedures that: (i) pertain to maintaining records that in reasonable detail accurately and fairly reflect our transactions; (ii) provide reasonable assurance that transactions are recorded as necessary for preparation of our financial statements and that receipts and expenditures of company assets are made in accordance with management authorization; and (iii) provide reasonable assurance that unauthorized acquisition, use or disposition of company assets that could have a material effect on our financial statements would be prevented or detected on a timely basis. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our financial statements would be prevented or detected.
Our management evaluated the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based upon that evaluation, management concluded that the company’s internal control over financial reporting was effective as of December 31, 2011.
46
Attestation Report of the Registered Public Accounting Firm
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the company to provide only management’s report in this annual report.
Internal Control over Financial Reporting
There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
|
OTHER INFORMATION
|
None
47
|
DIRECTORS, EXECUTIVE OFFICERS, CONTROL PERSONS AND CORPORATE GOVERNANCE; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
|
Directors and Officers
Our directors are elected by the stockholders to a term of one (1) year and serve until his successor is elected and qualified. Our key executive officers are appointed by the Board of Directors to a term of one (1) year and serve until his successor is duly elected and qualified, or until he is removed from office.
The names and ages of our directors and executive officers and their positions are as follows:
|
Name
|
Age
|
Position Held
|
||
|
John Saunders
|
40
|
CEO and Chairman of the Board
|
||
|
Leann Saunders
|
41
|
President and Director
|
||
|
Dannette Boyd
|
42
|
Chief Financial Officer
|
||
|
Pete Lapasotes
|
53
|
Director
|
||
|
Adam Larson
|
42
|
Director
|
||
|
Dr. Gary Smith
|
73
|
Director
|
||
|
Robert VanSchoick
|
61
|
Director
|
John Saunders founded our company in 1998 and has been the chief executive officer since founding. Previously, Mr. Saunders was a partner and consultant for Pathfinder Consulting Services, Inc. in Parker, Colorado. An expert in both technology and the livestock industry, Mr. Saunders is a graduate of Yale University.
Leann Saunders joined IMI in 2003 and is our President. Mrs. Saunders is responsible for overseeing key customer relationships along with management of product development and delivery of USVerified solutions. Prior to 2003, Mrs. Saunders worked for PM Beef Holdings, an integrated beef company, and developed a supply system for PM’s Ranch to Retail product line and managed PM’s USDA Process Verified program. She then served as the company’s Vice President of Marketing and Communications. Prior to joining PM in 1996, Mrs. Saunders worked for McDonald’s Corporation as a Purchasing Specialist, and Hudson Foods Corporation. Mrs. Saunders graduated with a BS in Agriculture Business and an MS in Beef Industry Leadership from Colorado State University.
Dannette Henning was engaged as a consultant beginning in November 2007 and accepted responsibilities as the Chief Financial Officer in early 2008. From 2004 to 2007, Ms. Henning was the Controller for Einstein Noah Restaurant Group. From 2001 to 2003, she served as the Assistant Controller for Vari-L Company. Mrs. Henning’s previous experience includes financial management positions with KPMG Peat Marwick, DF&R Restaurant Company, and CSI/CDC Company. Mrs. Henning is a CPA with more than 20 years of professional experience. She received a BBA degree in Accounting from the University of Texas at Arlington.
Pete Lapaseotes co-manages the Lapaseotes family farm and feeding operations in Bridgeport, Nebraska. The business includes a cow calf operation, a grass cattle operation and a finish feed yard. Mr. Lapaseotes is also a partner in five John Deere dealerships and 11 The Mercantile Farm, Ranch & Home retail stores. He is a member of the board of directors of Valley Bank and Trust.
Adam Larson has been involved in the cattle feeding and ranching business since 1991. During that period, he has been a member and manager of eight family organizations involved in cattle ranching and cattle feeding and is primarily involved in cattle financing. Mr. Larson is a graduate of the University of Colorado.
Dr. Gary Smith serves as a University Distinguished Professor at Colorado State University-Fort Collins and on the Graduate Faculty of Texas A&M University-College Station. In 2011, Dr. Smith retired from his position as a professor in the Department of Animal Science at Colorado State University, a position he held since 1990. Dr. Smith received his PhD in Meat Science and Muscle Biology from Texas A&M University. Dr. Smith has also taught at Washington State University, Texas A&M University and FSIS-USDA National Meat Inspection Training Center. Dr. Smith is a member of multiple professional associations and societies and has received numerous academic awards.
48
Robert Van Schoick II is president of Med-Pharmex Animal Health. His previous experience includes 28 years in sales and marketing with pharmaceutical giant Merck & Co., where he served for nine years with Merial, Merck’s world leading animal health joint venture. He holds BA and MA degrees from Austin College and a BS in Animal Science from Texas A&M.
Family Relationships
John Saunders and Leann Saunders are husband and wife.
Board Structure
The board of directors held two telephonic meetings during calendar year 2011. We currently have no nominating, executive, compensation committee or other board committee performing equivalent functions. Currently, all members of our board of directors participate in discussions concerning executive officer compensation; however, Mr. and Mrs. Saunders abstain from voting concerning their compensation. Messrs. Lapaseotes, Larson, Smith and Van Schoick function as the Audit Committee and Mr. Larson acts as a financial expert.
Director Compensation
We presently compensate all directors by paying them $500 per meeting attending in person and $200 per telephonic meeting in excess of fifteen minutes. The same compensation applies for any committee meetings attended. In addition, directors are reimbursed for all company travel related expenses. Equity awards of options to purchase 10,000 shares of our common stock at $0.24 per share were granted to members of our board of directors during the year ended December 31, 2011.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our reporting directors and executive officers, and persons who own more than ten percent of a registered class of our equity securities, to file initial reports of ownership and reports of changes in ownership of common stock and other equity securities of the Company with the Securities and Exchange Commission. Officers, directors and stockholders holding more than 10% of the class of stock are required to furnish us with copies of all Section 16(a) forms they file with the Commission.
To our knowledge, based solely on review of the copies of such reports furnished to us and written representations, we believe that during the fiscal year ended December 31, 2011 all applicable filing requirements were complied with by our executive officers and directors.
Code of Conduct
Our board of directors has adopted a code of conduct, which is posted on our website at http://imiglobal.com. Our Code of Conduct applies to all employees, including our Chief Executive Officer, Chief Financial Officer and Controller. The Code of Conduct sets forth specific policies to guide the designated officers in their duties. We intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding any amendment to, or waiver from, a provision of this Code of Ethics by posting such information on our website, at the address and location specified above.
49
|
EXECUTIVE COMPENSATION
|
Summary Compensation Table
The following table sets forth, for the last two completed fiscal years ended December 31, 2011 and 2010, the cash compensation paid by the Company, as well as certain other compensation paid with respect to those years and months, to the Chief Executive Officer and to each of the two other executive officers of the Company in all capacities in which they served:
|
Annual Compensation
|
||||||||
|
Name and Position
|
Year
|
Salary ($)
|
Bonus ($)
|
Other ($)
|
||||
|
John Saunders
|
2011
|
150,000 | 6,250 | - | ||||
|
CEO
|
2010
|
130,667 | - | - | ||||
|
Leann Saunders
|
2011
|
125,000 | 5,238 | - | ||||
|
President
|
2010
|
106,367 | - | - | ||||
|
Dannette Boyd
|
2011
|
50,000 | 1,563 | - | ||||
|
Chief Financial Officer
|
2010
|
51,250 | - | - | ||||
Employment Contracts
In January 2006, we entered into an employment contract with John Saunders, our Chief Executive Officer, for an annual salary of $90,000 subject to annual performance review adjustments. The agreement automatically renews annually unless a 60-day notice of non-renewal is provided by either the Company or the employee.
In January 2006, we entered into an employment contract with Leann Saunders, our President, for an annual salary of $90,000 subject to annual performance review adjustments. The agreement automatically renews annually unless a 60-day notice of non-renewal is provided by either the Company or the employee.
Aggregated Option Exercises in the Last Fiscal Year and Year End Option Values
The following table sets forth the total number of securities underlying unexercised options held by our named executive officers as of December 31, 2011:
|
Number of Outstanding Options
|
Value of Outstanding in-the-Money Options*
|
|||||||||||||||||
|
Name Executive Officer
|
Exercisable (#)
|
Unexercisable (#)
|
Exercise Price
|
Expiration Date
|
Exercisable ($)
|
Unexercisable ($)
|
||||||||||||
|
John Saunders
|
- | 10,000 | $ | 0.24 |
1/4/2021
|
$ | - | $ | 2,350 | |||||||||
|
Leann Saunders
|
- | 10,000 | $ | 0.24 |
1/4/2021
|
$ | - | $ | 2,350 | |||||||||
|
Dannette Henning
|
50,000 | - | $ | 0.24 |
7/7/2013
|
$ | 11,750 | $ | - | |||||||||
| - | 10,000 | $ | 0.24 |
1/4/2021
|
$ | - | $ | 2,350 | ||||||||||
* Based on the closing stock price of our common stock on March 6, 2012 of $0.475 per share.
50
|
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERS MATTERS
|
The following table sets forth as of March 16, 2012 the record and beneficial ownership of Common Stock held by (i) each person who is known to the Company to be the beneficial owner of more than 5% of the Common Stock of the Company; (ii) each current director; (iii) each “named executive officer” (as defined in Regulation S-B, Item 402 under the Securities Act of 1933); and (iv) all executive officers and directors of the Company as a group. Securities reported as “beneficially owned” include those for which the named persons may exercise voting power or investment power, alone or with others. Voting power and investment power are not shared with others unless so stated. The number and percent of shares of Common Stock of the Company beneficially owned by each such person as of March 16, 2012 includes the number of shares, which such person has the right to acquire within sixty (60) days after such date.
|
Name and Address
|
Number of Shares
|
Percentage Ownership
|
shares owned
|
exercisable options and warrants
|
unexercisable options and warrants
|
||||||||||
|
Michael D. Smith
|
2,562,896 | (1) | 11.7 | % | 2,562,896 | - | - | ||||||||
|
3310 I-40 West, Suite 100, Amarillo, TX 79102
|
|||||||||||||||
|
Jon Angell
|
1,083,082 | (1) | 5.0 | % | 1,083,082 | - | - | ||||||||
|
PO Box C, Centralia, MO 65240
|
|||||||||||||||
|
John and Leann Saunders
|
7,758,809 | (2), (3), (4) | 35.5 | % | 7,752,143 | 6,666 | 13,334 | ||||||||
|
Pete Lapaseotes
|
565,543 | (2), (5) | 2.6 | % | 552,210 | 13,333 | 6,667 | ||||||||
|
Adam Larson
|
138,333 | (2), (5) | * | 125,000 | 13,333 | 6,667 | |||||||||
|
Dr. Gary Smith
|
63,333 | (2), (6) | * | 60,000 | 3,333 | 6,667 | |||||||||
|
Robert VanSchoick
|
13,333 | (2), (5) | * | - | 13,333 | 6,667 | |||||||||
|
Dannette Boyd
|
53,333 | (2), (7) | * | - | 53,333 | 6,667 | |||||||||
|
All officers and directors as a group (7 persons)
|
8,592,684 | 39.3 | % | 8,489,353 | 103,331 | 46,669 | |||||||||
* Less than 1% beneficial ownership
|
(1)
|
This table is based upon information obtained from our stock records. Unless otherwise indicated in the footnotes to the above table and subject to community property laws where applicable, we believe that each stockholder named in the above table has sole or shared voting and investment power with respect to the shares indicated as beneficially owned.
|
|
|
(2)
|
The address for all persons is 221 Wilcox, Suite A, Castle Rock, CO 80104
|
|
|
(3)
|
John and Leann Saunders are husband and wife and own the shares as joint tenants.
|
|
|
(4)
|
Includes options to purchase 20,000 shares of common stock, of which 6,666 are currently exercisable.
|
|
|
(5)
|
Includes options to purchase 20,000 shares of common stock, of which 13,333 are currently exercisable.
|
|
|
(6)
|
Includes options to purchase 10,000 shares of common stock, of which 3,333 are currently exercisable.
|
|
|
(7)
|
Includes options to purchase 60,000 shares of common stock, of which 53,333 are currently exercisable.
|
Change of Control
There are currently no arrangements that would result in a change of control of the company.
51
Equity Compensation Plan Information
The following table sets forth securities authorized for issuance under our equity compensation plans as of December 31, 2011:
|
Plan Category
|
No. of securities to be issued upon exercise of outstanding options and warrants
|
Weighted average exercise price of outstanding options and warrants
|
No. of securities remaining available for future issuance under equity compensation plans
|
|||||||||
|
Equity compensation plans approved by security holders:
|
||||||||||||
|
2006 Equity Incentive Plan
|
1,321,000 | $ | 0.25 | 571,500 | ||||||||
|
Equity compensation plans not approved by security holders:
|
||||||||||||
|
Options held by John and Leann Saunders
|
- | - | ||||||||||
|
Total
|
1,321,000 | 571,500 | ||||||||||
|
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
|
John Saunders, our CEO and Chairman of the Board, is married to Leann Saunders, our President. Both Mr. and Mrs. Saunders serve on our Board of Directors.
In 2011 and 2010, we recorded revenue of $2,947 and $1,710, respectively, from a related party (father of Leann Saunders, our President).
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 Mr. Lapaseotes, a member of our Board of Directors. The note bears an interest rate of 9% per annum, payable quarterly. During April 2011, modifications to the terms of the existing agreement were completed. Such modifications included a reduction in the interest rate from 9% to 6% annually, as well as an extension of the maturity date from September 12, 2012 to March 31, 2014. Principal is due in full upon the maturity date; interest is payable quarterly.
Messrs. Larson, Smith and Van Schoick are considered independent directors. Mr. Lapaseotes, Mr. Saunders and Mrs. Saunders are not independent. Messrs. Lapaseotes, Larson, Smith and Van Schoick function as the Audit Committee and Mr. Larson acts as a financial expert.
52
|
PRINCIPAL ACCOUNTANTS FEES AND SERVICES
|
The following table presents fees for professional audit services rendered by GHP Horwath, P.C. for the audit of the Company’s annual financial statements for the year ended December 31, 2011 and by Gruber & Company, LLC for the audit of the Company’s annual financial statements for the year ended December 31, 2010.
|
2011
|
2010
|
|||||||
|
Audit fees (1)
|
$ | 30,250 | $ | 29,250 | ||||
|
Audit related fees
|
$ | - | $ | - | ||||
|
Tax fees
|
- | - | ||||||
| $ | 30,250 | $ | 29,250 | |||||
(1) Includes fees and expenses related to the fiscal year audit and interim reviews, notwithstanding when the fees and expenses were billed or when the services were rendered. Audit fees also include fees and expenses related to SEC filings, comfort letters, consents, comment letters and accounting consultations.
53
|
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
|
|
Exhibit Number
|
Document Name
|
|||
|
3.1
|
Articles of Incorporation
|
Incorporated by reference from Registrant’s Registration Statement on Form SB-2
|
||
|
3.2
|
By-laws of the Registrant
|
Incorporated by reference from Registrant’s Registration Statement on Form SB-2
|
||
|
4.1
|
Form of the Registrant’s Common Stock Certificate
|
Incorporated by reference from Registrant’s Registration Statement on Form SB-2
|
||
|
4.2
|
2005 Stock Option Plan
|
Incorporated by reference from Registrant’s Registration Statement on Form SB-2
|
||
|
4.3
|
2006 Equity Incentive Plan
|
Incorporated by reference from Registrant’s Registration Statement on Form SB-2
|
||
|
10.1
|
Lease dated July 15, 2005 for offices in Platte City, Missouri
|
Incorporated by reference from Registrant’s Registration Statement on Form SB-2
|
||
|
10.2
|
Employment Agreement dated January 1, 2006 between the Registrant and John K. Saunders
|
Incorporated by reference from Registrant’s Registration Statement on Form SB-2
|
||
|
10.3
|
Employment Agreement dated January 1, 2006 between the Registrant and Leann Saunders
|
Incorporated by reference from Registrant’s Registration Statement on Form SB-2
|
||
|
10.4
|
Purchase and Exchange Agreement, dated as of February 29, 2012, by and among Integrated Management Information, Inc. and International Certification Services, Inc.
|
Incorporated by reference from Registrant’s Form 8-K filed March 2, 2012
|
||
|
10.5
|
Shareholders’ Agreement, dated as of February 29, 2012, by and among Integrated Management Information, Inc. and International Certification Services, Inc. and the selling shareholders.
|
Incorporated by reference from Registrant’s Form 8-K filed March 2, 2012
|
||
|
Filed herewith
|
||||
|
Filed herewith
|
||||
|
Filed herewith
|
||||
|
Filed herewith
|
||||
| 101.INS | XBRL Instance Document |
Filed herewith
|
||
| 101.SCH |
XBRL Taxonomy Extension Schema Document
|
Filed herewith
|
||
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document |
Filed herewith
|
||
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document |
Filed herewith
|
||
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document |
Filed herewith
|
||
| 101-PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
Filed herewith
|
54
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
Date: March 26, 2012
|
Integrated Management Information, Inc.
|
||
|
By:
|
/s/ John K. Saunders
|
||
|
Chief Executive Officer
|
|||
In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
|
Signatures
|
Title
|
Date
|
||
|
/s/ John K. Saunders
|
Chairman and CEO
|
March 26, 2012
|
||
|
John K. Saunders
|
||||
|
/s/ Leann Saunders
|
President and Director
|
March 26, 2012
|
||
|
Leann Saunders
|
||||
|
/s/ Pete Lapaseotes
|
Director
|
March 26, 2012
|
||
|
Pete Lapaseotes
|
||||
|
/s/ Adam Larson
|
Director
|
March 26, 2012
|
||
|
Adam Larson
|
||||
|
/s/ Dr. Gary Smith
|
Director
|
March 26, 2012
|
||
|
Dr. Gary Smith
|
||||
|
/s/ Robert VanSchoick
|
Director
|
March 26, 2012
|
||
|
Robert VanSchoick
|
55