DMAN Demand Brands Inc (PK)

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

S	QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the Quarterly period ended March 31, 2012

 

£	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from ____________ to _____________

 

Commission File No. 333-133624

 

INTEGRATED MANAGEMENT INFORMATION, INC.

(Name of Small Business Issuer in its charter)

 

Colorado		43-1802805
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

 

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

 

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 S No £

 

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 S No £

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

 

	Large accelerated filer:	£		Accelerated filer:	£
	Non-accelerated filer:	£		Smaller reporting company:	S

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes £ No S

 

The number of shares of the registrant’s common stock, $.001 par value per share, outstanding as of May 9, 2012 was 20,723,599.

 

 

Integrated Management Information, Inc.

Table of Contents

March 31, 2012  

 

	Part 1 - Financial Information
Item 1.	Financial Statements:	Page:
	Condensed Consolidated Balance Sheets March 31, 2012 (unaudited) and December 31, 2011	3
	Condensed Consolidated Statements of Operations (unaudited) for the quarter ended March 31, 2012 and 2011	4
	Condensed Consolidated Statements of Comprehensive Income (unaudited) for the quarter ended March 31, 2012 and 2011	5
	Condensed Consolidated Statements of Cash Flows (unaudited) for the quarter ended March 31, 2012 and 2011	6
	Condensed Consolidated Statements of Stockholders’ Equity (unaudited) for the year to date period ended March 31, 2011	7
	Notes to Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 4.	Controls and Procedures	25
Part II - Other Information
Item 1.	Legal Proceedings	25
Item 1A.	Risk Factors	25
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	26
Item 6.	Exhibits	26

 

 

Integrated Management Information, Inc.

Condensed Consolidated Balance Sheets

 

		March 31,				December 31,
		2012				2011
Assets		(unaudited)
Current assets:
Cash and cash equivalents		$	781,947			$	969,020
Accounts receivable, net			371,439				226,760
Investment in marketable securities			297,556				283,511
Prepaid expenses and other current assets			50,965				36,776
Deferred tax assets			232,350				224,350
Total current assets			1,734,257				1,740,417
Property and equipment, net			126,031				57,354
Intangible assets, net			740,677				9,205
Long-term deferred tax assets			295,599				—
Total assets		$	2,896,564			$	1,806,976
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable		$	205,288			$	148,384
Accrued expenses and other current liabilities			51,577				42,960
Customer deposits			52,024				—
Deferred revenue			205,361				—
Short-term debt and current portion of notes payable			26,086				25,644
Current portion of capital lease obligations			9,848				—
Total current liabilities			550,184				216,988
Capital lease obligations, net of current portion			17,970				—
Notes payable and other long-term debt			170,275				176,201
Notes payable, related party			250,000				250,000
Other long-term liabilities			5,580				—
Total liabilities			994,009				643,189
Commitments and contingencies
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; 21,221,846 (2012) and 21,049,006 (2011) shares issued, and 20,723,599 (2012) and 20,550,759 (2011) shares outstanding			21,222				21,049
Additional paid-in-capital			3,498,342				3,416,343
Treasury stock of 498,247 shares			(109,014	)			(109,014	)
Accumulated other comprehensive gain (loss)			5,016				(6,693	)
Accumulated deficit			(1,795,765	)			(2,157,898	)
Total stockholders’ equity			1,619,801				1,163,787
Non-controlling interest			282,754				—
Total equity			1,902,555				1,163,787
Total liabilities and stockholders’ equity		$	2,896,564			$	1,806,976

 

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

 

 

Integrated Management Information, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

 

		Quarter ended
		March 31,				March 31,
		2012				2011
Revenues:
Service revenues		$	845,827			$	681,976
Product sales			156,954				136,972
Other revenue			26,503				2,871
Total revenues			1,029,284				821,819
Costs of revenues:
Labor and other costs of services			355,453				276,934
Costs of products			102,872				92,812
Total costs of revenues			458,325				369,746
Gross profit			570,959				452,073
Selling, general and administrative expenses			488,137				367,007
Income from operations			82,822				85,066
Other expense (income):
Interest expense			7,872				8,205
Other income, net			(2,662	)			(562	)
Income before income taxes			77,612				77,423
Income tax benefit			(282,090	)			—
Net income			359,702				77,423
Net loss attributable to non-controlling interest			2,431				—
Net income attributable to Integrated Management Information, Inc.		$	362,133			$	77,423
Net income per share:
Basic		$	0.02			$	*
Diluted		$	0.02			$	*
Weighted average number of common shares outstanding:
Basic			20,609,639				20,764,368
Diluted			21,105,614				20,810,526

 

* less than $0.01 per share

 

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

 

 

Integrated Management Information, Inc. 

Condensed Consolidated Statements of Comprehensive Income 

(Unaudited)  

 

		Quarter ended
		March 31,				March 31,
		2012				2011
Net income		$	359,702			$	77,423
Unrealized gain on marketable securities			11,709				—
Comprehensive income			371,411				77,423
Comprehensive loss attributable to non controlling interest			2,431				—
Comprehensive income attributable to Integrated Management Information, Inc.		$	373,842			$	77,423

 

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

 

 

Integrated Management Information, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

		Quarter ended March 31,
		2012				2011
Net income		$	359,702			$	77,423
Net cash provided by operating activities			39,430				4,354
Investing activities:
Acquisition of International Certification Services, net of cash acquired			(214,774	)			—
Purchases of marketable securities			(2,336	)			—
Purchases of property and equipment			(2,942	)			(4,452	)
Net cash used in investing activities			(220,052	)			(4,452	)
Financing activities:
Repayments of notes payable			(5,484	)			(22,231	)
Repayments of capital lease obligations			(967	)			—
Stock repurchase under Buyback Program			—				(14,372	)
Net cash used in financing activities			(6,451	)			(36,603	)
Net decrease in cash and cash equivalents			(187,073	)			(36,701	)
Cash and cash equivalents at beginning of period			969,020				513,076
Cash and cash equivalents at end of period		$	781,947			$	476,375

 

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

 

 

Integrated Management Information, Inc. 

Condensed Consolidated Statements of Stockholders’ Equity

 

 

		Integrated Management Information, Inc.
										Additional								Other								Non-
		Common Stock								Paid-in				Treasury				Comprehensive				Accumulated				controlling
		Shares				Amount				Capital				Stock				(Loss)/Gain				Deficit				Interest				Total
Balance at December 31, 2011			20,550,759			$	21,049			$	3,416,343			$	(109,014	)		$	(6,693	)		$	(2,157,898	)		$	—			$	1,163,787
Acquisition of International Certification Services, Inc.:
Shares issued			172,840				173				77,605				—				—				—				—				77,778
Non-controlling interest			—				—				—				—				—				—				285,185				285,185
Stock-based compensation expense			—				—				4,394				—				—				—				—				4,394
Unrealized gain on marketable securities			—				—				—				—				11,709				—				—				11,709
Net income attributable to IMI common shareholders			—				—				—				—				—				362,133				(2,431	)			359,702
Balance at March 31, 2012			20,723,599			$	21,222			$	3,498,342			$	(109,014	)		$	5,016			$	(1,795,765	)		$	282,754			$	1,902,555

 

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

 

 

Integrated Management Information, Inc.

Notes to the Condensed Consolidated Financial Statements

 

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 provide verification and communication solutions for the agriculture, livestock and food industry. Our customers are located throughout the United States.

 

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 2). This acquisition has been accounted for using the acquisition method of accounting and, accordingly, its results are included in the Company’s condensed consolidated financial statements from the date of acquisition.

 

Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements include the results of operations, financial position and cash flows of Integrated Management Information, Inc. and its majority-owned subsidiary, International Certification Services, Inc. (collectively referred to as “we,” “us,” and “our” throughout this Form 10-Q). All intercompany balances have been eliminated.

 

The condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) and should be read in conjunction with our audited financial statements and footnotes thereto for the year ended December 31, 2011 included in our Form 10-K filed on March 26, 2012. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to such rules and regulations. However, we believe that the disclosures are adequate to make the information presented not misleading. The financial statements reflect all adjustments (consisting primarily of normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation of our financial position and results of operations. The consolidated operating results for the first quarter ended March 31, 2012 are not necessarily indicative of the results to be expected for any other interim period of any future year.

 

Certain reclassifications to the 2011 condensed consolidated statement of operations have been made to conform to the 2012 presentation, none of which had any effect on total revenue, gross profit, income from operations, or net income.

 

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 and the growing seasons 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.

 

Note 2 - 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”).

 

 

Integrated Management Information, Inc.

Notes to the Condensed Consolidated Financial Statements

 

Pursuant to the Purchase Agreement, on February 29, 2012 (the “Closing”) the Company acquired 60% of the issued and outstanding common stock of ICS in exchange for aggregate consideration of $427,778, which includes $350,000 in cash and 172,840 shares of common stock of IMI valued at approximately $77,800 based upon the closing price of our common stock on February 29, 2012, of $0.45 per share. 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. The transaction was accounted for using the acquisition method of accounting.

 

We believe that ICS is one of the leading organic certifiers in the United States and 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. As a result of this acquisition, we believe 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.

 

The purchase price allocation is preliminary and subject to change, as an analysis has not been completed as of the date of this report as we, along with our valuation advisors, are still reviewing all of the underlying assumptions and calculations used in the allocation. However, the table below summarizes the fair values assigned to the assets and liabilities acquired in addition to the excess of the purchase price over the net assets acquired:

 

Cash		$	135,226
Accounts receivable			49,700
Prepaid expenses and other current assets			20,979
Deferred tax assets			21,349
Property and equipment			60,638
Other assets			434
Accounts payable			(20,482	)
Accrued expenses			(12,566	)
Customer deposits			(29,381	)
Deferred revenue			(238,988	)
Capital lease obligation			(6,527	)
Total fair value excluding excess attributable to intangible assets			(19,618	)
Excess attributable to intangible assets			732,581
Total fair value			712,963
Fair value of non-controlling interest			(285,185	)
Total consideration		$	427,778

 

On the acquisition date, the provisional fair value of the non-controlling interest was estimated to be $285,185. This amount was based upon the gross consideration that would have been paid assuming 100% of the outstanding stock had been acquired. Excess attributable to intangible assets reflects the excess over the identifiable assets acquired, net of liabilities assumed, to intangible assets based on the preliminary provisional allocation of the purchase price. The provisional amounts of the components of intangible assets have been estimated as $355,000 for customer lists and $350,000 for goodwill.

.

 

 

Integrated Management Information, Inc.

Notes to the Condensed Consolidated Financial Statements

 

From the February 29, 2012 acquisition date through March 31, 2012, ICS revenues and losses were approximately $76,500 and $6,100, respectively.

 

The following unaudited pro forma information presents the results of operations for the first quarter ended March 31, 2012 and 2011, as if the acquisition of ICS had occurred on January 1, 2012 and 2011.

 

		Quarter ended
		March 31,				March 31,
		2012				2011
Total revenue		$	1,197,753			$	1,070,768
Net income		$	315,367			$	47,805
Basic and diluted earnings per share		$	0.02			$	*
* less than $0.01 per share

 

Included in the pro forma information for the quarter ended March 31, 2012, is approximately $37,000 in accounting, advisory and legal fees incurred related to the acquisition of ICS.

 

As of March 31, 2012, we have incurred approximately $17,700 in accounting, advisory and legal fees related to the acquisition of ICS, which are reported selling, general and administrative expenses in the accompanying condensed consolidated statement of operations for the first quarter ended March 31, 2012.

 

Note 3 - Basic and Diluted 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 schedule is a reconciliation of the share data used in the basic and diluted income per share computations:

 

		Quarter ended
		March 31,				March 31,
		2012				2011
Basic:
Weighted average shares outstanding			20,609,639				20,764,368
Diluted:
Weighted average shares outstanding			20,609,639				20,764,368
Weighted average effects of dilutive securities			495,975				46,152
Total			21,105,614				20,810,520
Antidilutive securities:			37,500				1,353,500

 

 

Integrated Management Information, Inc.

Notes to the Condensed Consolidated Financial Statements

 

Note 4 - Stock-Based Compensation

 

Our stock-based award plans (collectively referred to as the “Plans”) provide for the issuance of stock-based awards to employees, officers, directors and consultants. The Plans permit 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 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.

 

No stock options were granted during the first quarters ended March 31, 2012 and 2011. Our stock-based compensation expense for the first quarter ended March 31, 2012 and 2011 was $4,394 and $4,388, respectively, and has been included in general and administrative expenses.

 

Stock Option Plan Activity

 

Stock option activity under our Plans is summarized as follows:

 

		.				Weighted Avg.				Weighted				Weighted Avg. Remaining
						Exercise				Avg.				Contractual				Aggregate
		Number of				Price				Fair Value				Life				Intrinsic
		Options/Warrants				per Share				per Share				(in years)				Value
Outstanding, December 31, 2011			1,321,000			$	0.25			$	0.07				2.83
Granted			—			$	—			$	—				—
Exercised			—			$	—			$	—				—
Canceled			—			$	—			$	—				—
Outstanding, March 31, 2012			1,321,000			$	0.25			$	0.07				2.58			$	365,730
Exercisable, March 31, 2012			1,101,000			$	0.25			$	0.07				1.29			$	304,130

 

The aggregate intrinsic value represents the total pre-tax intrinsic value (the aggregate difference between the closing price of our common stock on March 31, 2012 and the exercise price for the in-the-money options) that would have been received by the option holders if all the in-the-money options had been exercised on March 31, 2012.

 

 

Integrated Management Information, Inc.

Notes to the Condensed Consolidated Financial Statements

 

Note 5 - Stock Buyback Plan

 

On January 7, 2008, we announced our intention to buy back up to one million shares of our common stock from the open market. Repurchased shares under the Stock Buyback Plan by year are as follows:

 

For the year to date period ended:		Number of Shares				Cost of Shares				Average Cost per Share
December 31, 2008			57,200			$	16,124			$	0.28
December 31, 2009			22,325				4,020			$	0.18
December 31, 2010			171,031				27,273			$	0.16
December 31, 2011			247,691				61,597			$	0.25
Total			498,247			$	109,014			$	0.22

 

During the quarter ended March 31, 2012, we did not repurchase any shares.

 

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 6 – Income Taxes

 

Deferred tax assets and liabilities have been determined based upon the differences between the financial statement amounts and the tax bases of assets and liabilities as measured by enacted tax rates expected to be in effect when these differences are expected to reverse. In assessing the reliability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. Our net operating loss (NOL) carry forwards are the most significant component of our deferred income tax assets; however, the ultimate realization of our deferred income tax assets is dependent upon generation of future taxable income. We consider past history, the scheduled reversal of taxable temporary differences, projected future taxable income, and tax planning strategies in making this assessment. Utilization of our NOL carry forwards reduces our federal and state income tax liability incurred.

 

As of December 31, 2011, our net operating loss carry forwards 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 carry forwards may be applied against future taxable income.

 

 

Integrated Management Information, Inc.

Notes to the Condensed Consolidated Financial Statements

 

During the first quarters ended March 31, 2012 and 2011, utilization of NOL carry forwards offset any taxes due and reduced our effective tax rate. As of March 31, 2012, we recorded a deferred tax benefit of $282,250 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.

 

Note 7 – Investments in Marketable Securities

 

The following table summarizes our investments in marketable securities.

 

		March 31, 2012
		Gross				Gross				Gross				Estimated
		Amortized				Unrealized				Unrealized				Fair
		Cost				Gains				Losses				Value
Equity securities		$	223,720			$	8,851			$	(2,461	)		$	230,110
Mutual funds			61,000				114				(1,488	)			59,626
Uninvested cash			7,820				—				—				7,820
Investment in marketable securities		$	292,540			$	8,965			$	(3,949	)		$	297,556

 

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.

 

 

Integrated Management Information, Inc.

Notes to the Condensed Consolidated Financial Statements

 

Note 8 - Notes Payable

 

Notes payable consist of the following:

 

		March 31,				December 31,
		2012				2011
Equipment Note Payable		$	10,031			$	11,630
Lapaesotes Note Payable - Related Party			250,000				250,000
Great Western Bank SBA Loan			186,330				190,215
			446,361				451,845
Less current portion of notes payable and other long-term debt			26,086				25,644
Notes payable and other long-term debt		$	420,275			$	426,201

 

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 Note Payable – Related Party

 

In September 2007, we obtained $300,000 in unsecured debt financing. The notes are held by a major shareholder who is related to Mr. Lapaseotes, a member of our Board of Directors. 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. 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 March 31, 2012, 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.

 

 

Integrated Management Information, Inc.

Notes to the Condensed Consolidated Financial Statements

 

ICS Revolving Line of Credit

 

ICS has a revolving line of credit (LOC) agreement which matures on April 4, 2014, and provides for $70,050 in working capital. The interest rate is at the bank index rate less 0.5% and is adjusted daily. Interest is calculated using a 360 day year. Principal and interest are payable upon demand, but if demand is not made, then annual payments of accrued interest only is due, with the principal balance due on maturity. As of March, 2012, the current effective rate is 5.75%. The LOC is collateralized by all the business assets of ICS. As of the date of acquisition and through March 31, 2012, ICS had no amounts outstanding under this LOC.

 

Note 9 - 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.

 

ICS owns approximately ¾ acre on which its corporate office is located in Medina, North Dakota. Currently, the ICS corporate office is leased for a period of 10 years with an initial expiration date of March 1, 2013. Two additional options to renew for 5-year terms exist and are deemed to automatically renew unless written notice is provided 60 days before the end of the term. Under the lease agreement, ICS pays a minimum monthly rental rate of approximately $150 plus all utilities, taxes and other expenses based on actual expenses to maintain the building.

 

As of March 31, 2012, future minimum lease payments are as follows:

 

Years Ending December 31,		Amount
2012 (reminaing nine months)		$	70,214
2013			95,943
2014			105,243
2015			114,543
2016			93,714
Total lease commitments		$	479,657

 

Sub-lease Agreement

 

Beginning October 1, 2011, ICS sub-leased approximately 300 square feet of space located within its corporate office to a third party on a month-to-month basis. Monthly rent of $302 includes utilities and other common area maintenance. The sub-lease agreement provides for 30 days’ notice to terminate the agreement.

 

 

Integrated Management Information, Inc.

Notes to the Condensed Consolidated Financial Statements

 

Capital Leases

 

During the first quarter ended March 31, 2012, we entered into a capital lease for certain office equipment with a base rent of $405 per month. This 63-month lease expires April 2017. Approximately $22,300 in asset cost has been included in property and equipment and will be amortized over 63 months. ICS leases certain office equipment under a capital lease with a base rent of $521 per month. The lease expires in April 2013. Included in property and equipment is $7,100 in asset cost. Future minimum payments under capital leases of $5,947 and $1,546 are payable for each of the years ended December 31, 2012 and 2013, respectively. Imputed interest of 6.25% was used in determining the minimum lease payments. As of March 31, 2012, future minimum lease payments for these capital leases are as follows:

 

Years Ending December 31,		Amount
2012 (reminaing nine months)		$	8,330
2013			6,422
2014			4,860
2015			4,860
2016 and thereafter			6,657
Future minimum lease payments			31,129
Less amount representing interest			(3,311	)
Present value of net minimum lease payments			27,818
Less current portion			(9,848	)
Capital lease obligations		$	17,970

 

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 March 31, 2012. 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.

 

Note 10 - Recent Accounting Pronouncements

 

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

 

 

Integrated Management Information, Inc.

Notes to the Condensed Consolidated Financial Statements

 

Note 11 – Supplemental Cash Flow Information

 

		Quarter ended March 31,
		2012				2011
Cash paid during the year:
Interest on Lapaseotes Notes - related party		$	3,429			$	6,750
Other interest		$	2,940			$	4,506
Income taxes		$	—			$	—
Non-cash investing activities:
Unrealized gain on marketable securities		$	11,709			$	—
Assets acquired under capital lease obligations		$	22,258			$	—
Common stock issued in connection with ICS acquisition		$	77,778			$	—

 

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

General

 

This information should be read in conjunction with the condensed consolidated financial statements and the notes included in Item 1 of Part I of this Quarterly Report and the audited condensed consolidated financial statements and notes, and Management’s Discussion and Analysis of Financial Condition and Results of Operations, contained in the Form 10−K for the fiscal year ended December 31, 2011. The following discussion and analysis includes historical and certain forward−looking information that should be read together with the accompanying condensed consolidated financial statements, related footnotes and the discussion below of certain risks and uncertainties that could cause future operating results to differ materially from historical results or from the expected results indicated by forward−looking statements.

 

Business Overview

 

Integrated Management Information, Inc. (“IMI Global,” “IMI,” the “Company,” “our,” “we,” or “us,”) provides 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.

 

Management’s Strategy

 

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

 

In early 2009, we understood that all this work was necessary to build a solid foundation but we also recognized a “potential market saturation and decreasing profits dilemma” early on and began working toward a solution. Through our research and development, we learned that we needed to be on the cutting edge of this industry and that the most significant person to influence the food industry was the consumer. We were concerned about various food claims that the industry made without any third party verification. 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 generated from WFCF is based upon a similar supply chain sales model. Many long hours of research went into this project and currently we are working hard to market this program to the consumer. Research indicates that transparency in food production is becoming more and more important to consumers. We believe that the future growth of verification services will be achieved only through consumer awareness and demand. WFCF is a labeling program that reconnects the consumer to the farmers and ranchers that produce the food. For the consumer, it is a seal of approval on a package or an individual product that provides assurance that those marketing claims are authentic and have been verified by an accredited, unbiased third party.

 

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

 

During 2011 and through the first quarter of 2012, we continue to generate 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.

 

 

Acquisition of 60% of outstanding shares of ICS

 

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. 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 common stock of ICS in exchange for aggregate consideration of $427,778, which includes $350,000 in cash and 172,840 shares of common stock of IMI valued at $77,778 based upon the closing price of our stock on February 29, 2012, of $0.45 per share. 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.

 

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 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.

 

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:

 

•	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.
•	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.

 

 

•	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.
•	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.
•	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.

 

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 and the growing seasons 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.

 

Liquidity and Capital Resources

 

At March 31, 2012, we had cash and cash equivalents of $781,947 compared to $969,020 of cash and cash equivalents at December 31, 2011. Our working capital at March 31, 2012 was $1,197,423 compared to $1,523,429 at December 31, 2011.

 

Net cash provided by operating activities during the first quarter ended March 31, 2012 was $39,430 compared to cash provided of $4,354 during the same period in 2011. 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 increase was primarily due to the timing of cash receipts offset by better operating performance.

 

Net cash used in investing activities during the first quarter ended March 31, 2012 was $220,052, which was primarily attributable to the acquisition of 60% of the outstanding stock of ICS. Under the Agreement, we paid $350,000 in cash less approximately $135,200 in cash acquired.

 

Net cash used in financing activities of $6,451 during the first quarter ended March 31, 2012 was due to repayments towards notes payable and capital lease obligations. During the first quarter ended March 31, 2011, we made repayments of $22,231 towards our notes payable and $14,372 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 means to entry as imposed on international market imports/exports is via a quality verification program, like our USVerified™ 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. 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.

 

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.

 

ICS has a revolving line of credit (LOC) agreement which matures on April 4, 2014, and provides for $70,050 in working capital. The interest rate is at the bank index rate less 0.5% and is adjusted daily. Interest is calculated using a 360 day year. Principal and interest are payable upon demand, but if demand is not made, then annual payments of accrued interest only is due, with the principal balance due on maturity. The LOC is collateralized by all the business assets of ICS.

 

 

Off Balance Sheet Arrangements

 

As of March 31, 2012, we had no off-balance sheet arrangements of any type.

 

RESULTS OF OPERATIONS

 

First Quarter ended March 31, 2012 compared to the Same Quarter in Fiscal Year 2011

 

Revenues

 

Total revenues for the first quarter ended March 31, 2012 increased 25.2% compared to the first quarter ended March 31, 2011. We still continue to experience double-digit sales growth from quarter over comparable quarter 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 first quarter ended March 31, 2012 increased 24.0% compared to the first quarter ended March 31, 2011. Included in our service revenues is approximately $77,000 attributable to ICS. Overall, 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 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 first quarter ended March 31, 2012 increased 14.6% compared to the first quarter ended March 30, 2011. The increase during the first quarter was due to increased volume in the quantity of tags sold in connection with our NHTC and Verified Natural verification programs.

 

Other revenue primarily represents the fees earned from our WFCF labeling program. Other revenue for the first quarter ended March 31, 2012 increased 823% compared to the first quarter ended March 31, 2011. 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.

 

Cost of Sales and Gross Margin

 

Cost of sales for the first quarter 2012 were $458,325 compared to $369,746 during the first quarter 2011. Included in our cost of sales is approximately $37,000 attributable to ICS. Gross margin for the first quarter 2011 remained relatively constant at 55.5% of revenues compared to 55.0% for the first quarter 2011.

 

Our gross profit for 2011was positively impacted by increased volume of verification audits. Our gross margins for 2012 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 2011. For a more detailed discussion regarding profitability, read “Management’s Strategy” above.

 

Selling, General and Administrative Expenses

 

Selling, general and administrative expenses for the first quarter 2012 were $488,137, an increase of $121,130, or 33.0% over the first quarter 2011. Included in our selling, general and administrative expenses is approximately $46,000 attributable to ICS.

 

 

Excluding ICS expenses, our selling, general and administrative expenses for the first quarter 2012 increased approximately $75,000 over the first quarter 2011. Approximately $15,000 of this increase was attributed to additional spending for consulting, marketing and advertising WFCF. Another $25,000 of the increase was in salaries associated with two additional employees. One of these employees is dedicated solely to promoting WFCF and IMI via various marketing channels and social media sites, including Facebook and Twitter. The other employee is specifically dedicated to marketing our products within retail sales channels, and for building brand awareness. Also included in selling, general and administrative expenses for the first quarter 2012, is approximately $18,000 in accounting, advisory and legal fees specifically related to the acquisition of ICS, and approximately $11,000 in additional costs related to various mandates required of public companies.

 

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 net operating loss (“NOL”) carry forwards offset any taxes due and reduced our effective tax rate for the first quarter of 2012. During the first quarter of 2012, we recorded a deferred tax benefit of $282,250 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 attributable to IMI shareholders for the first quarter ended March 31, 2012 was $362,133 or $0.02 per basic and diluted common share, compared to net income of $77,423 or less than a penny per basic and diluted common share for the first quarter ended March 31, 2011. 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 approximately $0.01 per share on a dilutive basis for the first quarter 2012.

 

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

Our Chief Executive Officer and Chief Financial Compliance 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 report, have 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.

 

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.

 

PART II – OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

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

 

ITEM 1A. RISK FACTORS

 

Our business is subject to a number of risks, including those identified in Item 1A. — “Risk Factors” of our 2011 Annual Report on Form 10−K, that could have a material effect on our business, results of operations, financial condition and/or liquidity and that could cause our operating results to vary significantly from period to period. As of March 31, 2012, there have been no material changes to the risks disclosed in our most recent Annual Report on Form 10−K. We may also disclose changes to such factors or disclose additional factors from time to time in our future filings with the SEC.

 

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

In connection with the acquisition of 60% of the issued and outstanding stock of ICS, we issued 172,840 shares of common stock of IMI valued at $77,778 based upon the closing price of our stock on February 29, 2012, of $0.45 per share. These shares were issued pursuant to the exemption from registration provided by Section 4 (2) of the Securities Act of 1933. The shares bear a legend restricting the sale, transfer or exchange, and may only be sold, transferred or exchanged pursuant to a registration of such shares or a valid exemption therefrom.

 

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:

 

For the year to date period ended:		Number of Shares				Cost of Shares				Average Cost per Share
December 31, 2008			57,200			$	16,124			$	0.28
December 31, 2009			22,325				4,020			$	0.18
December 31, 2010			171,031				27,273			$	0.16
December 31, 2011			247,691				61,597			$	0.25
Total			498,247			$	109,014			$	0.22

 

During the quarter ended March 31, 2012, we did not repurchase any shares.

 

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.

 

ITEM 6. EXHIBITS

 

(a) Exhibits

 

Number		Description
31.1		Section 302 Certification of CEO
31.2		Section 302 Certification of CFO
32.1		Section 906 Certification of CEO
32.2		Section 906 Certification of CFO

 

 

SIGNATURES

 

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: May 15, 2012	Integrated Management Information, Inc.
	By:	/s/ John K. Saunders
		Chief Executive Officer

 

	By:	/s/ Dannette D. Henning
		Chief Financial Officer

 

 

27

---