SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[ X ] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2007
OR
[ ] | TRANSITION REPORT UNDER SECTION 13 OF 15(d) OF THE EXCHANGE ACT OF 1934 |
From the transition period from ____________ to ___________.
Commission File Number 33-133624
INTEGRATED MANAGEMENT INFORMATION, INC.
(Exact name of small business issuer as specified in its charter)
Colorado (State or other jurisdiction of incorporation or organization) | 43-1802805 (IRS Employer Identification No.) |
221 Wilcox, Suite A, Castle Rock, CO 80104 (Address of principal executive offices) | |
(303) 895-3002 (Issuer's telephone number) | |
N/A (Former name, former address and former fiscal year, if changed since last report) |
Indicate by check mark whether the registrant (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
Class | Shares Outstanding | Date |
Common, $.001 par value | 19,995,506 | October 31, 2007 |
1
INTEGRATED MANAGEMENT INFORMATION, INC.
INDEX
INDEX
Page Number | |
PART I - FINANCIAL INFORMATION | |
Item 1.Financial Statements | |
Condensed Balance Sheets - September 30, 2007 (Unaudited) and December 31, 2006 | 3 |
Condensed Statements of Operations (Unaudited) - For the three months and nine months ended September 30, 2007 and 2006 | 4 |
Condensed Statements of Cash Flows (Unaudited) - For the nine months ended September 30, 2007 and 2006 | 5 |
Notes to Condensed Financial Statements (Unaudited) | 6-8 |
Item 2.Management's Discussion and Analysis or Plan of Operation | 9-13 |
Item 3. Controls and Procedures | 13 |
PART II - OTHER INFORMATION | |
Item 1. Legal Proceedings | 14 |
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | 14 |
Item 3. Defaults Upon Senior Securities | 14 |
Item 4. Submission of Matters to a Vote of Security Holders | 14 |
Item 5. Other Information | 14 |
Item 6.Exhibits | 14 |
SIGNATURES | 15 |
Certifications | 16-19 |
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Integrated Management Information, Inc.
Condensed Balance Sheet
September 30, 2007 (Unaudited) | December 31, 2006 | ||||||
Assets Current assets | |||||||
Cash and cash equivalents | $ | 223,204 | $ | 230,539 | |||
Accounts receivable, net of allowance of $10,000 and $14,000 | 226,820 | 178,159 | |||||
Inventory | 20,628 | 14,185 | |||||
Prepaid expenses | 31,313 | 33,435 | |||||
Total current assets | 501,965 | 456,318 | |||||
Restricted cash | |||||||
Cash restricted for payment of line of credit | ----- | 50,000 | |||||
Property and equipment | |||||||
Equipment, furniture and software | 141,303 | 115,409 | |||||
Less accumulated depreciation | (93,553 | ) | (83,792 | ) | |||
Net property and equipment | 47,750 | 31,617 | |||||
Other assets | |||||||
Intangible assets, net | 32,453 | 46,633 | |||||
Goodwill | 418,208 | 418,208 | |||||
Total other assets | 450,661 | 464,841 | |||||
Total assets | $ | 1,000,376 | $ | 1,002,776 | |||
Liabilities and shareholders' equity (deficit) Liabilities Current liabilities | |||||||
Note payable to bank | $ | 70,000 | $ | 156,622 | |||
Note payable to Cattlefeeding.com, Inc. | 350,000 | ---- | |||||
Accounts payable | 273,191 | 206,466 | |||||
Accrued expenses | 18,856 | 8,287 | |||||
Deferred revenues | 18,962 | 10,820 | |||||
Total current liabilities | 731,009 | 382,195 | |||||
Note payable to Cattlefeeding.com, Inc. | ----- | 350,000 | |||||
Note payable | 300,000 | ----- | |||||
Shareholders' equity (deficit) | |||||||
Common stock, par value $.001 per share. Authorized 95,000,000 shares; issued and outstanding 28,245,506 and 27,023,283 (8,250,000 held in treasury) | 28,245 | 27,024 | |||||
Additional paid-in capital | 4,701,298 | 4,315,571 | |||||
Treasury Stock of 8,250,000 shares | (1,485,000 | ) | (1,485,000 | ) | |||
Retained (deficit) | (3,275,176 | ) | (2,587,014 | ) | |||
Total shareholders' equity (deficit) | (30,633 | ) | 270,581 | ||||
Total liabilities and shareholders' equity (deficit) | $ | 1,000,376 | $ | 1,002,776 |
See accompanying notes to condensed financial statements
Integrated Management Information, Inc.
Condensed Statements of Operations
(Unaudited)
Three months ended | Nine months ended | ||||||||||||
September 30, | September 30, | ||||||||||||
2007 | 2006 | 2007 | 2006 | ||||||||||
Revenues | $ | 618,084 | $ | 418,805 | $ | 1,619,351 | $ | 1,079,833 | |||||
Cost of sales | 289,637 | 245,517 | 703,398 | 548,739 | |||||||||
Gross profit | 328,447 | 173,288 | 915,953 | 531,094 | |||||||||
Selling, general and administrative expenses (1) | 510,619 | 569,572 | 1,586,279 | 1,637,284 | |||||||||
Loss from operations | (182,172 | ) | (396,284 | ) | (670,326 | ) | (1,106,190 | ) | |||||
Other income (expense) | |||||||||||||
Interest income | 3,335 | 930 | 6,114 | 6,207 | |||||||||
Interest expense | (9,087 | ) | (5,690 | ) | (23,950 | ) | (17,257 | ) | |||||
Net other expense | (5,752 | ) | (4,760 | ) | (17,836 | ) | (11,050 | ) | |||||
Loss before income taxes | (187,924 | ) | (401,044 | ) | (688,162 | ) | (1,117,240 | ) | |||||
Income taxes | ---- | ---- | ---- | ---- | |||||||||
Net loss | $ | (187,924 | ) | $ | (401,044 | ) | $ | (688,162 | ) | $ | (1,117,240 | ) | |
Earnings (loss) per share | $ | (0.01 | ) | $ | (0.02 | ) | $ | (0.04 | ) | $ | (0.06 | ) | |
Average shares outstanding | 19,662,172 | 17,867,515 | 19,347,357 | 19,123,765 | |||||||||
(1) Includes stock-based compensation | |||||||||||||
See Note 2 | $ | 1,733 | $ | 31,266 | $ | 36,948 | $ | 183,374 |
See accompanying notes to condensed financial statements
3
Integrated Management Information, Inc.
Condensed Statements of Cash Flows
(Unaudited)
Nine months ended | |||||||
September 30, | |||||||
2007 | 2006 | ||||||
Cash flows from operating activities | |||||||
Net loss | $ | (688,162 | ) | $ | (1,117,240 | ) | |
Adjustments to reconcile net loss to net cash provided | |||||||
by operating activities: | |||||||
Depreciation and amortization | 23,941 | 29,040 | |||||
Provision for bad debts | 21,026 | 26,089 | |||||
Stock-based compensation (Note 2) | 36,948 | 183,374 | |||||
Changes in assets and liabilities | |||||||
Accounts receivable | (69,687 | ) | 78,857 | ||||
Inventory | (6,443 | ) | (18,011 | ) | |||
Prepaid expenses | 2,122 | (9,043 | ) | ||||
Accounts payable | 66,725 | 112,279 | |||||
Accrued expenses | 10,569 | 33,652 | |||||
Deferred revenues | 8,142 | (31,356 | ) | ||||
Net cash used by operating activities | (594,819 | ) | (712,359 | ) | |||
Cash flows from investing activities | |||||||
Acquisition of property and equipment | (25,894 | ) | (13,036 | ) | |||
Net cash used by investing activities | (25,894 | ) | (13,036 | ) | |||
Cash flows from financing activities | |||||||
Line of credit, net | (86,622 | ) | (27,960 | ) | |||
Proceeds from note | 300,000 | 549,220 | |||||
Proceeds from sale of common stock | 350,000 | 421,664 | |||||
Restricted cash released | 50,000 | ---- | |||||
Purchase of Treasury Stock | --- | (885,000 | ) | ||||
Net cash provided by financing activities | 613,378 | 57,924 | |||||
Net decrease in cash and equivalents | (7,335 | ) | (667,471 | ) | |||
Cash and cash equivalents at beginning of period | 230,539 | 684,833 | |||||
Cash and cash equivalents at end of period | $ | 223,204 | $ | 17,362 |
Non-monetary transactions
Reclassification of Cattlefeeding.com note payable
from long-term to current $ 350,000 �� $ ---
See accompanying notes to condensed financial statements
4
Integrated Management Information, Inc.
Notes to Condensed Financial Statements
Quarter Ended September 30, 2007 and 2006
(Unaudited)
Note 1 - Basis of presentation
All Common Stock shares are presented to reflect a 3 for 2 stock split approved by the shareholders on February 14, 2006.
We reorganized our corporate structure on March 20, 2006 to change the Company’s State of Incorporation from Delaware to Colorado. Common stock authorized was increased to 95,000,000 common shares, $.001 par value, from 50,000,000 shares of common stock, $.01 par value. Additionally 5,000,000 preferred shares, $.001 par value, were authorized. Our shareholders’ equity accounts have been restated to reflect the change in par value.
The accompanying condensed financial statements of the Company (other than the December 31, 2006 balance sheet, which has been derived from audited financial statements) are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States and with the instructions to Regulation S-X. The Company has continued to follow the accounting policies set forth in the audited financial statements for the year ended December 31, 2006 included in its Form 10-KSB filed March 28, 2007 with the Securities and Exchange Commission. In the opinion of management, the interim financial information provided herein reflects all adjustments (consisting of normal and recurring adjustments) necessary for a fair presentation of the Company’s financial position as of September 30, 2007, and the results of operations for the three month and nine month periods ended September 30, 2007 and 2006, and cash flows for the nine month periods ended September 30, 2007 and 2006. The results of operations for the nine months ended September 30, 2007 are not necessarily indicative of the results to be expected for the full year ending December 31, 2007.
These condensed financial statements and footnotes should be read in conjunction with the Company’s audited financial statements for the year ended December 31, 2006, included in its Form 10-KSB.
Restricted cash
An escrow account was created in November, 2005 for proceeds from stock sales in connection with a private offering. These funds totaling $421,664 were paid out in January 2006. The Company also had a $50,000 certificate of deposit which partially collateralized a line of credit, however, in September 2007 the line of credit was re-structured and the $50,000 certificate of deposit collateral was released. (See Note 4 - Note Payable/Line of Credit).
Website Development and Enhancement Costs
During the second and third quarters of 2007, the Company undertook enhancements to one of its US Verified websites and, in the third quarter 2007, finalized the development of its AgTrader Index website. Pursuant to the Financial Accounting Standards Board (FASB) Emerging Issues Task Force (EITF) 00-2, “Accounting for Website Development Costs,” the Company has capitalized $18,673 ($11,649 in third quarter 2007 and $7,024 in second quarter 2007) of costs directly associated with these websites. These costs will be amortized over three years.
In general, the Company does not capitalize costs associated with maintenance or the original development of web sites until the site is established and has proven the ability to attract subscribers and/or advertising revenues.
Going Concern
As shown in the accompanying financial statements, the Company has incurred losses from operations and negative cash flows from operations. During the first three quarters of 2007, and the years 2006 and 2005, the Company’s growth was funded through a combination of cash flow from operations, debt from private investors and private placement offerings. The Company expects that it will need to raise additional capital to accomplish its business objectives and pay the $350,000 Cattlefeeding.com note payable which is due on June 12, 2008. The Company will continually evaluate all funding options including additional offerings of its securities to private, public and institutional investors and other credit facilities as they become available. There can be no assurance as to the availability or terms upon which financing alternatives might be available.
5
Note 2 - Stock-Based compensation
The Company issues new shares of its common stock to satisfy stock-based payments. As of September 30, 2007, 3,657,500 shares had been issued pursuant to approved plans for stock-based compensation.
Effective January 1, 2006, the Company prospectively adopted FAS123(R), Stock- Based Payments, and related Securities and Exchange Commission rules included in Staff Accounting Bulletin No. 107. Under this method, compensation cost recognized beginning January 1, 2006 will include costs related to all share-based payments granted subsequent to December 31, 2005 based on the grant-date fair value estimated in accordance with the provisions of FAS123(R). Compensation cost for stock options granted to employees is recognized ratably over the vesting period.
On February 1, 2006, the Company granted an aggregate of 1,650,000 options to its CFO in connection with his joining the company. The terms of the options were as follows:
Weighted average exercise price $0.99
Expiration from date of grant 3 years
Weighted average vesting period 9.2 months from date of grant
On July 1, 2007, all options were vested under this grant, of which none had been exercised. In the event the CFO is terminated or resigns and the options have not expired, the options will be exercisable for three years from the event date.
On January 1, 2007, the Company granted an aggregate of 375,000 options to its Chief Operating Officer and Vice President of Sales in connection with their joining the Company. The terms of these options were as follows:
Weighted average exercise price | $ | 0.83 | ||
Expiration from date of grant | 3 years | |||
Weighted average vesting period | 1 year from date of grant |
On September 4, 2007, the Company granted 10,000 options to each of four outside Directors and, on September 6, 2007, 130,000 shares to employees. The terms of these options were as follows:
BOD | Employees | |
Weighted average exercise price | $0.18 | $0.17 |
Expiration from date of grant | 3 years | 5 years |
Weighted average vesting period | 1 year | 1.5 years |
Fair values were estimated using the Black-Scholes option pricing model, based on the following assumptions:
Dividend yield | 0% |
Expected volatility | 35.9% |
Risk-free interest rate | 4.7% to 4.9% |
Expected term of options (in years) | 1.5-3.25 |
Dividend yield is based on the Company’s historical and anticipated policy of not paying cash dividends. Expected volatility is based on the “calculated value” method set forth in FAS123(R) (based on historical volatilities of appropriate industry sector indices) because the Company’s stock did not have historic share price data available as its stock was not publicly traded until November 15, 2006. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods corresponding with the expected term of the options. The expected term of options represents the period of time that options granted are expected to be outstanding giving consideration to vesting schedules.
Compensation costs related to stock options for the three months ended September 30, 2007 and 2006 totaled $1,733 and $31,266, respectively, and for the nine months ended September 30, 2007 and 2006 totaled $36,948 and $183,374, respectively.
6
Note 3 - Common stock
In October 2005, the Company began a private placement offering to sell a minimum of 1,200,000 and a maximum of 6,000,000 shares of Common Stock at $0.83 per share with net proceeds to be used for working capital, general corporate
purposes and repurchase of Common Stock up to 8,250,000 shares from certain existing, related-party shareholders. Pursuant to this offering, in December 2005, the Company issued 1,665,600 shares of Common Stock for cash at $0.83 per share, which resulted in proceeds of $1,283,900, net of issuance costs of $104,100. Additionally, warrants to purchase 237,810 shares of Common Stock at $0.83 per share expiring in December 2009 were issued to the placement
agent in connection with the offering. The offering continued into January 2006, and in February 2006, the Company completed the private placement offering and issued an additional 712,500 shares of Common Stock for cash at $0.83 per share, which resulted in proceeds of $549,219 net of issuance costs of $44,531. Concurrently, the Company purchased Treasury Stock of 1,050,000 shares at $0.50 per share from two members of the Company’s Board of Directors and 7,200,000 shares at $0.05 per share from the Company’s founders for an aggregate purchase price of $885,000. As additional consideration for the purchase of the foregoing shares from the Company’s founders, the Company granted options to purchase an aggregate of 6,000,000 shares of Common Stock to the founders. These options vest at 1,500,000 per year over a 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. The options expire January 1, 2011. As these options were issued in connection with a capital transaction and are in nature, similar to warrants, their implied value ($600,000) as determined by utilizing the Black-Scholes options pricing model, has been added to the cost ($885,000) of the Treasury Stock. The assumptions for the model were identical to those set forth in Note 2.
In December 2006, the Company completed a private placement and issued 905,768 shares at an average price per share of $0.63 resulting in proceeds of $571,460 and, in February 2007, the Company completed an additional private placement and issued 555, 556 shares at $0.45 resulting in proceeds of $250,000.
On August 15, 2007, the Company completed the sale of 666,667 shares of its common stock at $0.15 per share, netting a total of $100,000. These shares and the ones previously sold in December 2006 and February 2007 were sold pursuant to an exemption registration provided by Section 4(2) of the Securities Act of 1933.
Note 4 - Note Payable/Line of Credit
On September 13, 2007, the Company obtained $300,000 through an unsecured debt financing. The $300,000 note, with one investor, bears an interest rate of 9% per annum, payable quarterly. The principal balance is due September 12, 2011.
The Company utilized $86,622 of the $300,000 Note proceeds to pay down its Platte Valley Bank line of credit to the current balance of $70,000. The line of credit was also restructured to reduce the amount from $225,000 to $75,000 and release the $50,000 certificate of deposit and the security in the founders’ Missouri home as collateral. The line of credit continues to be collateralized by the accounts receivable of the Company and the personal guarantees of the founders. Interest, which is payable monthly, is currently at an annual rate of 7.75%. The line of credit expires September 25, 2008.
The $350,000 unsecured note, which has been classified as a current liability, is due June 12, 2008. The note arose in May 2005 as a result of the Company’s acquisition of Cattlefeeding.com, Inc. (Cattlenetwork.com). The note bears interest at 5% per annum, payable monthly.
Note 5 - Related party transactions
In the third quarter 2007 there was a $150 sale and payment from a related party (father of Leann Saunders, a founding shareholder). In the first six months of 2007, there were no related party sales. The $101 account receivable from the same related party at December 31, 2006 was paid in January 2007. In the third quarter and nine months ended September 30, 2006, the Company recorded $1,652 and $3,502, respectively, in sales from the father of Leann Saunders, a founding shareholder. An account receivable of $1,912 was outstanding at September 30, 2006 and the amount was subsequently paid.
7
Note 6 - Basic and diluted net loss per share
Net loss per share is calculated in accordance with the Statement of Financial Accounting Standards No. 128 (SOFAS No. 128), “Earnings per Share”. Basic net loss per share is based upon the weighted average number of common shares outstanding. Diluted net loss per share is based on the assumption that all dilutive 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. Weighted average number of shares used to compute basic and diluted loss per share is the same in these financial statements since the effect of dilutive securities is anti-dilutive.
Note 7 - Commitments
In June 2006, the Company entered into a building lease for its new headquarters in Castle Rock, Colorado. The initial primary monthly rent was $3,617 and increases 2.5% annually. The lease is for a period of five years and can be extended for an additional five years. The Company’s building lease in Platte City, Missouri was converted in February 2007 from a month-to-month basis to a one year period expiring in January 2008. The monthly rent is $1,550. In addition to the primary rent, both leases require additional payments for operating costs.
The annual primary lease payments are as follows:
Year | Amount |
2007 (3 months) | $15,771 |
2008 | $46,592 |
2009 | $46,170 |
2010 | $47,322 |
2011 | $23,952 |
The Company leases a copier machine which requires a base rent of $189 per month or $2,268 annually. The lease
expires in September 2009.
Note 8 - Contingencies
Legal proceedings
The Company is and may be involved in various unresolved legal actions, administrative proceedings and claims in the ordinary course of business. Counsel for the Company has been notified that the Company may be named as a defendant in a lawsuit, however, because the cause of action has not yet been filed, the Company is unable to comment on the merits of the threatened lawsuit. However, the Company does not believe, that even if a judgement were rendered against it, that it would have any material impact on financial position or results of operations.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
We are engaged in the business of livestock tracking and herd management identification and verification solutions and consulting services for the livestock and the meat industry. We also maintain an internet portal dedicated to publishing news and trends in the agricultural industry and marketing products to this industry.
The following discussion and analysis contains forward-looking statements, which involve risk and uncertainties. Our actual results may differ significantly from the results, expectations and plans discussed in these forward-looking statements.
Overview
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, as that term is defined in the Internal Revenue Code of 1986, as amended, with all income or loss passed through to the shareholders. Beginning on January 1, 2005 we converted to a Subchapter C corporation and began to be directly subject to federal and state income taxation.
On May 12, 2005, we completed an acquisition of the assets and assumed certain liabilities of Cattlefeeding.com, Inc. which owned and operated the Cattlenetwork.com and the Cattlestore.com websites. The sales, cost, and expenses resulting from this acquisition have been included in our results of operations since the acquisition date.
Customer demand for our solutions is, to a large extent supported by the U.S. beef industry’s voluntary participation in quality verification programs related to the export of beef to international markets, including Japan, Mexico, South Korea, Canada and Europe. Subsequent to the discovery of the first case of mad cow disease in the U.S. in December 2003, the governments of these and other countries banned the import of beef from the U.S. Since that time, based on increased confidence resulting from implementation of quality verification programs (such as those offered by us), some of these key export markets such as Mexico and Canada have reopened. The Japan market, which has historically been the largest, remained closed (with the exception of a brief period from December 2005 to January 2006) and then, on July 27, 2006 the Japanese re-opened their market, however, Japanese customers have been slow to buy U.S. beef. The Korean market has also been re-opened but has imposed requirements which make compliance extremely difficult. China remains closed. The opportunity to participate in export markets presents a strong indicator of potential demand for approved verification processes, which have become essential. However, during the time in which the export markets are constrained, demand for our verification products is limited as participation in verification programs in the U.S. is voluntary and is only required for exporting beef. However, even in the current environment, we have experienced increasing demand for our verification and identification programs, driven by growing demand in Japan and Europe and, in the U.S., marketing claims of NHTC (non-hormone treated cattle) and humane handling.
Liquidity and Capital Resources
At September 30, 2007, we had cash and cash equivalents of $223,204 and negative working capital of $229,044 (including the $350,000 Note Payable to Cattlefeeding.com, Inc. which was reclassified from long-term to current in the second quarter 2007. The note is due June 12, 2008.) compared to $230,539 of cash and cash equivalents and working capital of $74,123 at December 31, 2006. At December 31, 2005, we had restricted cash of $471,664, including $421,664 held in escrow for the purchase of treasury stock and a $50,000 certificate of deposit held as collateral against our line of credit. In the first quarter of 2006, the $421,664 held in escrow was released and the company acquired 8,250,000 shares of its common stock for an aggregate cash purchase price of $885,000. In September 2007, the line of credit was re-structured and the $50,000 certificate of deposit collateral was released.
Net cash used by operating activities during the nine months ended September 30, 2007 was $594,819 compared to $712,359 used by operating activities during the nine months ended September 30, 2006. The net cash used by operations, off-set by the $350,000 received from the sale of common stock and the proceeds from the $300,000 note was the principal reason cash and cash equivalents only decreased $7,335 from December 31, 2006.
Net cash provided by financing activities was $613,378 compared to $57,924 provided by financing activities during the nine months ended September 30, 2006. The net cash provided by financing activities was related primarily to the completion of private placements and note proceeds, off-set by the acquisition of treasury stock in the first quarter of 2006.
9
Accounts receivable increased to $226,820 at September 30, 2007, compared to $178,159 at December 31, 2006. The increase primarily relates to increased sales in the third quarter 2007.
Prepaid expenses as of September 30, 2007 were $31,313 compared to $33,435 as of December 31, 2006. The balances relate primarily to prepaid insurance and, in the third quarter of 2007, a prepayment to the United States Department of Agriculture for the certification of our US Verified programs.
Notes payable increased $350,000 due to the reclassification of the Cattlefeeding.com note payable from long-term to current. The note bears interest at 5% and is due June 12, 2008.
Accounts payable and accrued expenses were $292,047 at September 30, 2007, compared to $214,753 at December 31, 2006. The increase relates primarily from sales and vendor activity compared to the fourth quarter of 2006.
Deferred revenue at September 30, 2007 was $18,962 compared to $10,820 at December 31, 2006. The increase in deferred revenue was primarily attributable to a six month prepayment of $30,000 on an advertising contract, which will be fully amortized at December 31, 2007.
As shown in the accompanying financial statements, the Company has incurred losses from operations and negative cash flows from operations. During the first three quarters of 2007, and the years 2006 and 2005, the Company’s growth was funded through a combination of cash flow from operations, debt from private investors and private placement offerings. The Company expects that it will need to raise additional capital to accomplish its business objectives and pay the $350,000 Cattlefeeding.com note payable which is due on June 12, 2008. The Company will continually evaluate all funding options including additional offering of its securities to private, public and institutional investors and other credit facilities as they become available. There can be no assurance as to the availability or terms upon which financing alternatives might be available.
As of September 30, 2007, the Company has no off-balance sheet arrangements of any type.
Results of Operations
Quarter Ended September 30, 2007 Compared to Quarter Ended September 30, 2006
Revenues
Revenues are derived from sales of our USVerified identification and verification solutions, related hardware products, and advertising and products related to our internet-based online information/news site and e-commerce site. Revenues for the quarter ended September 30, 2007 were $618,084, an increase of 48% over the 2006 amount of $418,805. The primary reason for the increase in sales was the continuing increase in demand for our US Verified identification and verification solutions and advertising on our cattlenetwork.com website as the traffic on the site continues expanding.
In mid-2005, the verification and identification US Verified programs were launched and received strong demand in anticipation of the Japanese border re-opening. The border re-opened in early December 2005 but was subsequently closed in January 2006 due to a non-conforming meat shipment unrelated to the company’s programs. The Japan border was re-opened again in late July so that 2006 reflects approximately 6 months of the Japan border being open. While Japanese customers have been slow to respond to U.S. beef, the re-opening has driven increased demand for our US Verified solutions. Marketing claims, including NHTC (non-hormone treated cattle) and humane handling, have also increased demand for our US Verified solutions.
In the third quarter of 2007, US Verified solutions revenue increased 54% to $328,868 from $214,183 in the third quarter of 2006. Related hardware sales, principally cattle identification ear tags, increased 21% to $108,823 in the third quarter of 2007 from $89,622 in 2006. Sales of our USVerified solutions are expected to represent a substantial proportion (in excess of 50%) of revenues in the future. We believe that customer demand for our USVerified solutions will continue to increase with the reopening of key export markets and increasing demand for verification of NHTC and humane handling marketing claims.
Revenue from our internet-based online web sites (Cattlenetwork.com and Cattlestore.com) acquired in May 2005, increased 65% to $180,393 in the third quarter of 2007 from $115,000 in 2006. The Cattlenetwork.com website, which derives the majority of revenue from advertising, increased 96% from $60,099 to $117,893 in the third quarter of 2007. The Cattlestore.com website, which was launched in late 2005, derives its revenue from lower margin e-commerce product sales. In the third quarter ended September 30, 2007, revenues from Cattlestore.com increased 14% from $54,901 in 2006 to $62,500.
10
Cost of Sales and Gross Margin
Cost of sales for the quarter ended September 30, 2007 were $289,637, an increase of 18% over the 2006 amount of $245,517. Gross margin increased to 53% of revenues for the third quarter of 2007 compared to 41% for 2006. The primary reasons for the increased margin and margin percent relates to the overall increase in revenue coupled with the higher advertising revenue and margins of Cattlenetwork.com and US Verified solutions, off-set by the mix content of lower margin identification ear tags and e-commerce sales. We anticipate that in the future, sales of our USVerified solutions and Cattlenetwork.com advertising revenue will constitute an increasing proportion of overall revenue, which will result in maintaining the overall gross margin percentage due to the comparatively higher margins of these products and service offerings.
Selling, General and Administrative Expenses
Selling, general and administrative (SG&A) expenses for the quarter ended September 30, 2007 were $510,619, a decrease of 10% over the 2006 amount of $569,572. The primary categories effecting the overall decrease of $58,953 in SG&A expenses relates to a planned transitional increase in permanent headcount which was off-set by a reduction in contracted services, legal, accounting and investor relations fees, stock based compensation and overall expense levels. Headcount increased from 15 from the third quarter of 2006 to 21 at the end of the third quarter 2007. These headcount increases were made to reduce reliance on contracted services, accommodate increasing demand for our US Verified offerings and further development and enhancements of the Company’s websites. In the third quarter of 2007, SG&A salary expense totaled $254,882, an increase of $107,052 from $147,830 in the third quarter of 2006. This increase was off-set by a $61,210 reduction in contracted services from $80,320 in the third quarter of 2006 to $19,110 in the third quarter of 2007 and a $19,345 reduction in legal, accounting and investor relations which totaled $69,739 in the third quarter of 2006 and $50,394 in the third quarter of 2007. This decrease reflects reduced activity in connection with going public expenses incurred in the third quarter of 2006. Stock based compensation decreased $29,533 in the third quarter of 2007 to $1,733 from $31,266 in 2006.
Other Income (Expense)
Net other expense for the quarter ended September 30, 2007 increased to $5,752 from $4,760 for the quarter ended September 30, 2006 primarily reflecting an increased balance in the line of credit Note Payable.
Net Income (Loss)
As a result of the foregoing, the net loss for the quarter ended September 30, 2007 was $187,924, compared to $401,044 for the quarter ended September 30, 2006.
Results of Operations
Nine months ended September 30, 2007 compared to nine months ended September 30, 2006
Revenues
Revenues for the nine months ended September 30, 2007 were $1,619,351 an increase of 50% over the 2006 amount of $1,079,833. The primary reason for the increase in sales was the continuing increase in demand for our US Verified identification and verification solutions and advertising on our cattlenetwork.com website.
US Verified solutions revenue increased 54% to $944,948 from $615,683 for the nine months ended September 30, 2007 and 2006, respectively. Related hardware sales, principally cattle identification ear tags, increased 19% to $188,193 from $157,878 in the first nine months of 2006. Sales of our US Verified solutions are expected to represent a substantial proportion (in excess of 50%) of revenues in the future. Revenue from our internet-based online websites (Cattlenetwork.com and Cattlestore.com) increased 59% to $486,210 from $306,272 in the first nine months of 2006. The Cattlenetwork.com website, which derives the majority of revenue from advertising, increased 80% from $184,150 to $332,097 for the first nine months of 2007. The Cattlestore.com website, which derives its revenue from lower margin
e-commerce product sales, increased revenue 26% from $122,122 to $154,113 for the nine months of 2007.
11
Cost of Sales and Gross Margin
Cost of sales for the nine months ended September 30, 2007 were $703,398, an increase of 28% over the 2006 amount of $548,739. Gross margin increased to 57% of revenues for the nine months ended September 30, 2007 from 49% for 2006. The primary reason for the increased margin and margin percent relates to the overall increase in revenue coupled with a higher content of advertising revenue and margins associated with Cattlenetwork.com and our US Verified solutions. We anticipate that in the future, sales of our US Verified solutions and Cattlenetwork.com advertising revenue will constitute an increasing proportion of overall revenue, which will result in maintaining the overall gross margin percentage due to the comparatively higher margins of these products and service offerings.
Selling, General and Administrative Expenses
For the nine months ended September 30, 2007, SG&A expenses decreased $51,005 to $1,586,279, a decrease of 3% over the 2006 amount of $1,637,284. The major components effecting SG&A expenses relate to a planned transitional increase in permanent headcount which was primarily off-set by a reduction in contracted services, legal, accounting and investor relations fees, and non-cash stock based compensation expenses. Salaries for the nine months ended September 30, 2007 increased $373,172 to $761,301 from $388,129 for the nine months of 2006 which was partially off-set by a corresponding decrease in contracted services of $216,404 from $260,231 for the nine months ended September 30, 2006 to $43,827 for the nine months of 2007. Headcount increased from 15 at September 30, 2006 to 21 at September 30, 2007. Legal, accounting and investor relations fees decreased $53,556 from $213,291 in the nine months of 2006 to $159,735 in the nine months of 2007 primarily as a result of reduced legal fees in connection with the process of filing Registration Statements to register the Company’s stock. For the nine months ended 2006, stock-based compensation totaled $183,374 versus $36,948 in 2007. The decrease of $146,427 related primarily to a one time charge of $116,892 in the first quarter of 2006 which related to 600,000 options granted and vested. Based on stock options granted to date and the related vesting periods, stock-based compensation will be $2,573 in the fourth quarter 2007.
Other Income (Expense)
Net other expense for the nine months ended September 30, 2007 increased to $17,836 from $11,050 for the nine months ended September 30, 2006 primarily reflecting an increased balance in the line of credit Note Payable.
Net Income (Loss)
As a result of the foregoing, the net loss for the nine months ended September 30, 2007 was $688,162 compared to $1,117,240 for the nine months ended June 30, 2006.
Critical Accounting Policies and Estimates
The preparation of financial statements requires management to make estimates and assumptions that affect the amounts reported. The estimates that required management’s most difficult subjective or complex judgments are described below.
Impairment of Goodwill
We recorded goodwill as a result of the acquisition of Cattlefeeding.com, Inc. Following the end of 2005 and 2006, an assessment was made whether any of the goodwill recorded had been impaired. After an assessment by us and reviewed by the independent accountants, no impairment charge was taken.
Allowance for Doubtful Accounts
The allowance for doubtful accounts is based on management’s best assessment of our outstanding receivables.
12
ITEM 3. CONTROLS AND PROCEDURES
Based on their evaluation, as of a date within ninety days of the filing of this Report on form 10-QSB, our Chief Executive Officer and Chief Accounting Officer concluded that our disclosure controls and procedures (as defined in Rules (13a-14 and 15d-14 under the Securities Exchange Act of 1934) are effective. There have been no significant changes in internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is and may be involved in various unresolved legal actions, administrative proceedings and claims in the ordinary course of business. Counsel for the Company has been notified that the Company may be named as a defendant in a lawsuit, however, because the cause of action has not yet been filed, the Company is unable to comment on the merits of the threatened lawsuit. However, the Company does not believe, that even if a judgement were rendered against it, that it would have any material impact on financial position or results of operations.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS
EXHIBIT NO. | IDENTIFICATION OF EXHIBIT | |
31.1 | Certification Pursuant to 18 U.S.C Section 1350, as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
31.2 | Certification Pursuant to 18 U.S.C Section 1350, as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
32.1 | Certification Pursuant to 18 U.S.C Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
32.2 | Certification Pursuant to 18 U.S.C Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
13
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
INTEGRATED MANAGEMENT INFORMATION, INC. | ||
| | |
Date: November 1, 2007 | By: | /s/ John Saunders |
John Saunders | ||
Principal Executive Officer |
| | |
Date: November 1, 2007 | By: | /s/ Mark D. McGregor |
Mark D. McGregor | ||
Principal Accounting Officer |
14
Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, John Saunders, certify that:
1. I have reviewed this Form 10-QSB of INTEGRATED MANAGEMENT INFORMATION, INC.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report;
4. The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))** for the small business issuer and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and
5. The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting.
Date: November 1, 2007
/s/ John Saunders
John Saunders , Chief Executive Officer
15
Exhibit 31.2
CERTIFICATION OF PRINCIPAL ACCOUNTING OFFICER PURSUNAT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Mark D. McGregor, certify that:
1. I have reviewed this Form 10-QSB of INTEGRATED MANAGEMENT INFORMATION, INC., Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report;
4. The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))** for the small business issuer and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer’s internal control over financial reporting; and
5. The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting.
Date: November 1, 2007
/s/ Mark D. McGregor
Mark D. McGregor, Principal Accounting Officer
16
Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
I, John Saunders, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of INTEGRATED MANAGEMENT INFORMATION, INC. on Form 10-QSB for the quarterly period ended September 30, 2007 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Form 10-QSB fairly presents in all material respects the financial condition and results of operations of INTEGRATED MANAGEMENT INFORMATION, INC.
By: /s/ John Saunders
----------------------------
Name: John Saunders
Title: Chief Executive Officer
November 1, 2007
17
Exhibit 32.1
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
I, Mark D. McGregor, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of INTEGRATED MANAGEMENT INFORMATION, INC. on Form 10-QSB for the quarterly period ended September 30, 2007 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Form 10-QSB fairly presents in all material respects the financial condition and results of operations of INTEGRATED MANAGEMENT INFORMATION, INC.
By: /s/ Mark D. McGregor
----------------------------
Name: Mark D. McGregor
Title: Principal Accounting Officer
November 1, 2007