UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

For the fiscal year ended December 31, 2021

For the transition period from ____________ to _____________

Commission File No. 333-133624001-40314

WHERE FOOD COMES FROM, INC.

(Exact name of registrant as specified in its charter)

202 6^th Street, Suite 400

Castle Rock, CO80104

(Address of principal executive offices, including zip code)

Registrant’s telephone number, including area code:

(303) (303) 895-3002

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

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

Common Stock, $0.001 par value

(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes [  ] ☐No [X] ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes [  ] ☐No [X] ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 [  ]☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes [X]☒ No [  ]☐

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicated by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.7252(b)) by the registered public accounting firm that prepared or issued its audit report.

Yes ☐ No ☒

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

Yes [  ] ☐ No [X] ☒

The aggregate market value of the voting stock held by non-affiliates of the registrant on June 30, 2020,2021, the last business day of our most recently completed second fiscal quarter, was $20,218,833,$43,935,063, based on the closing stock price on June 30, 20202021 of $6.96.$15.47. All dollar amounts and share information has been adjusted to reflect the 1-for-4 reverse split that occurred in December 2020.

The number of shares of the registrant’s common stock, $0.001 par value per share, outstanding as of February 05, 202125, 2022 was 6,137,609.5,948,607.

DOCUMENTS INCORPORATED BY REFERENCE: Part III is incorporated by reference from the registrant’s Definitive Proxy Statement for its 20202021 Annual Meeting of Shareholders to be filed, pursuant to Regulation 14A, within 120 days after the close of the registrant’s 20202021 fiscal year.

TABLE OF CONTENTS

PART I

GENERALITEM 1. BUSINESS

GENERAL

Where Food Comes From, Inc. and its subsidiaries (“WFCF,” the “Company,” “our,” “we,” or “us”) is a leading trusted resource for third-party verification of food production practices in North America. The Company estimates that is supports more than 15,000approximately 17,500 farmers, ranchers, vineyards, wineries, processors, retailers, distributors, trade associations, consumer brands and restaurants with a wide variety of value-added services provided through its family of verifiers, including IMI Global (“IMI”), Where Food Comes From Organic (“WFCFO” - previously International Certification Services and A Bee Organic), Validus Verification Services (“Validus”), and Sterling Solutions, and A Bee Organic.Solutions. In order to have credibility, product claims such as gluten-free, non-GMO, non-hormone treated, humane handling, and others require verification by an independent third-party such as WFCF. The Company’s principal business is conducting both on-site and desk audits to verify that claims being made about livestock, crops and other food products are accurate.

Through our more recent acquisitions, including SureHarvest Services LLC; Sow Organic, LLC;LLC (“SureHarvest”) and Postelsia Holdings, Ltd. (“Postelsia”), we primarily provide sustainability programs, compliance management and farming information management solutions to drive sustainable value creation. We employ a software-as-a-service (“SaaS”) revenue model that bundles annual software licenses with ongoing software enhancements and upgrades and a wide range of professional services and technology solutions that generate incremental revenue specific to the food and agricultural industry.industry and drive sustainable value creation.

Finally, the Company’s Where Food Comes From Source Verified® retail and restaurant labeling program utilizes the verification of product attributes to connect consumers directly to the source of the food they purchase through product labeling and web-based information sharing and education. With the use of Quick Response Code (“QR”) technology, consumers can instantly access information about the producers behind their food.

WFCF was founded in 1996 and incorporated in the state of Colorado as a subchapter C corporation in 2006. The Company’s shares of common stock trade on the OTCQBNASDAQ Capital Market (“NASDAQ”), under the stock ticker symbol, “WFCF.” In late 2020, the Company formally submitted its application for listing on the NASDAQ Capital Market (“NASDAQ”), which is still under review by NASDAQ.

The Company’s original name – Integrated Management Information, Inc. (d.b.a. IMI Global) – was changed to Where Food Comes From, Inc. in 2012 to better reflect the Company’s mission. Early growth was attributable to source and age verification services for beef producers that wanted access to markets overseas following the discovery of “mad cow” disease in the U.S. Over the years, WFCF has expanded its portfolio to include verification and software services for most food groups and over 50 programs and organizations. This growth has been achieved both organically and through the acquisition of other companies.

BUSINESS OVERVIEW

What We Do

The Company is one of the nation’s largest independent, third-party traceability and verification providers.

We use rigorous verification processes on food production processes to ensure that claims made by food producers and processors are accurate. We care about food and other agricultural products, how it is grown and raised, the quality of what we eat, what farmers and ranchers do, and authentically telling that story to the consumer. Our team visits farms and ranches and looks at their plants, animals, and records, and compares the information we collect to specific standards or claims that farms and ranches want to make about how they are producing food. Our customers include top-tier players in the food and wine space.

The Company also provides sustainability programs, compliance management and farming information management solutions to drive sustainable value creation. We employ a software-as-a-service (“SaaS”) revenue model that bundles annual software licenses with ongoing software enhancements and upgrades and a wide range of professional consulting services and technology solutions that generate incremental revenue specific to the food and agricultural industry.industry and drive sustainable value creation.

The Company’s business benefits from growing demand by consumers, retailers and government for increased transparency into food production practices.

Consumers: Due to concerns about social responsibility and sustainability, food safety, animal welfare and an overall increase in health consciousness, consumers are demanding more information about the food they purchase.

Retailers: Responding to consumer demands for increased transparency as well as to the negative impact food scandals have on their bottom lines, retailers are requiring their suppliers to adhere to more stringent traceability and verification of product claims.

Government Regulation: Regulations including the U.S. Department of Agriculture’s Animal Disease Traceability program, international export requirements, non-GMO and gluten-free testing requirements, and ingredient labeling regulations are all impacting product verification.

Growth Strategy

Due to organic growth in our portfolio of auditing standards, consumer demand and acquisitions, our sales have grown rapidly from $1.1 million in 2006 to $20.0$21.9 million in 2020,2021, a 14-year15-year compounded annual growth rate (“CAGR”) of approximately 23%, slightly down from our prior year’s CAGR of 25%, due to the Coronavirus Pandemic as further discussed in Part I, Item 1A, “Risk Factors” below.22%.

Our growth strategy is as follows:

Acquisition of SureHarvest Services, LLC

On December 28, 2016, we entered into an Asset Purchase Agreement (the “SureHarvest Purchase Agreement”), by and among the Company, SureHarvest Services LLC (the “Buyer” or “SureHarvest”); and SureHarvest, Inc., a California corporation (the “Seller”).

We purchased the business assets of the Seller in exchange for total consideration of approximately $2.7 million, comprised of approximately $1.1 million in cash and 212,713 shares of common stock of WFCF valued at approximately $1.5 million on December 28, 2016 (all share and dollar amounts have been adjusted to reflect the 1-for-4 reverse split that occurred in December 2020). Additionally, we issued the Seller a 40% membership interest in SureHarvest.

On December 17, 2019 the Company exercised its option to acquire the remaining 40% membership interest in SureHarvest for $1.0 million in cash and 75,988 shares of common stock of WFCF valued at approximately $0.5 million based on the closing price of our stock on December 17, 2019 of $7.20 per share (all share and dollar amounts have been adjusted to reflect the 1-for-4 reverse split that occurred in December 2020).

SureHarvest provides services related to sustainability measurement and benchmarking, traceability, verification and certification to the food and agriculture industries. Its patented sustainability software solutions support more than 6,000 agri-food operations, including growers, packers, shippers, processors, wineries and trade associations. We believe that SureHarvest provides us with complementary solutions and services, a unique customer base and a valuable patent portfolio. It expands and diversifies our commodity reach with high value specialty crops, including wine grapes, almonds, hazelnuts, mushrooms, cut flowers, leafy greens and other fresh produce. Additionally, the SaaS model bundles annual software subscriptions with professional services to provide predictable, recurring revenue.

Acquisition of Postelsia Holdings, Ltd.

On February 21, 2020 we acquired all of the stock of privately held Postelsia Holdings, Ltd. (“Postelsia”) for $0.3 million in cash. We believe the transaction expands our services into a new market food group, seafood. Postelsia, based in Victoria, British Columbia, is a leader in the emerging field of environmental and social sustainability programs for the seafood industry. Postelsia provides a range of programs and consulting services designed to improve and promote sustainable practices, including environmental conservation, worker care, and food safety compliance.

INDUSTRY BACKGROUND

The value-added food industry has been growing rapidly for the past several years in response to increased consumer interest about social responsibility, sustainability and food safety production practices. We continue to see a growing interest from consumers regarding how their food is produced. We are in an increasingly global food market with food products traveling around the world, and brands differentiating themselves in the market. These key drivers are increasing the number of food labeling claims made on food products.

Natural and/or organic are examples of food labels that indicate that the food or other agricultural product has been produced in a certain way. Natural and organic sales are only part of the story of how consumers look for the verification of practices tied to food labeling claims. Other factors are also becoming increasingly more important to consumers, evidenced on menus and product labels. While not an exhaustive list, some of the issues that farms, ranches, producers, processors, restaurants and retailers are addressing include how animals are cared for and handled, how a product’s production impacts the environment and societies, and what inputs were used in the production of food items (like antibiotics).

As consumers want more assurance about the trustworthiness of labeling claims, there is a growing trend for verification of practices around sustainability. As the agriculture, livestock and food industries continue to mature and expand internationally, there is an increasing need to record, manage, report and verify information regarding the source, age, genetic background, animal husbandry, environmental stewardship, practices surrounding the people and community, and other credence attributes. We believe verification of labeling claims by an independent third-party can meet consumer demands and expectations. Third-party verification also benefits producers, processors, distributors, restaurants, and retailers by addressing marketplace differentiation and global competitiveness.

Current Marketplace Opportunities

Because of growing demand for increased transparency into food production practices, we believe there are three main market drivers to promote forward momentum for our business:

Market Driver #1 - Consumer awareness and expectations

Market Driver #2 - Global competitiveness and risk mitigation among producers, restaurants, and retailers

Market Driver #3 - Government regulation

REVENUES

We offer a wide array of services, including verification, certification, consulting and SaaS,software as a service (“SaaS”), to help food producers, brands and consumers differentiate certain attributes and production methods in the marketplace. We sell our services directly to customers at various levels in the agriculture, food and livestock supply chain. Most of our service offerings can be bundled to provide a “one-stop shop” for customers that have multiple levels of verification and certification needs, such as source verification and food safety certification. Our customers include some of the largest U.S. beef and pork packers, organic producers and processors, and specialty retail chains. No single customer generated more than 10% of the Company’s consolidated revenue in 20202021 or 2019.2020.

With each acquisition, we assess the need to disclose discrete information related to our operating segments. Because of the similarities of certain of our acquisitions that provide certification and verification services, we aggregate operations into one verification and certification reportable segment. The operating segments included in the aggregated verification and certification segment include IMI Global, ICSWFCFO and Validus. The factors considered in determining this aggregated reporting segment include the economic similarity of the businesses, the nature of services provided, production processes, types of customers and distribution methods.

The Company also determined that it has a software sales and related consulting reportable segment. SureHarvest, which includes Postelsia, is the sole operating segmentunit under the software sales and related consulting reportable segment. This segment includes software license, maintenance, supporta wide range of professional consulting services and software-related consulting service revenues.technology solutions that generate incremental revenue specific to the food and agricultural industry and drive sustainable value creation.

The Company’s chief operating decision maker (the Company’s CEO) allocates resources and assesses the performance of its operating segments. Segment management makes decisions, measures performance, and manages the business utilizing internal operating segment information. Performance of operating segments are based on net sales, gross profit, selling, general and administrative expenses and most importantly, operating income.

Verification and Certification Segment

Our verification and certification service revenues consist of fees charged for verification audits and other verification and certification related services that the Company performs for customers. We include fees earned from our WFCF labeling program and consulting/program development services in our verification and certification revenues due to the immateriality of the revenue stream and because it represents a value-added extension of our source verification. We are recognized and utilized by numerous standard-setting bodies as an accredited verification or certification service provider. We enable food producers and brands to make certain claims on live animals or packaged food products by verifying that they are meeting the standards or guidelines associated with the claim(s) they are making. For the years ended December 31, 20202021 and 2019,2020, our third-party verification programs provided 71.0%73.2% and 74.9%71.0% of our total revenue, respectively.

Our product sales are an ancillary part of our verification and certification services and represent sales of cattle identification ear tags. While our product sales have lower profit margins than do our proprietary offerings, the products allow us to offer our customers a comprehensive solution. Approximately 19.2%17.5% and 15.9%19.2% of our total revenue was generated by the sale of product during the years ended December 31, 2021 and 2020, respectively.

We purchase most of our electronic identification (“EID”) tags from one significant supplier and 2019, respectively.source the remainder of our EID tags from alternate smaller suppliers. We have been informed by our key tag supplier that materials are becoming scarcer and their ability to meet our need is becoming more difficult. In anticipation of this risk, we have worked with all our tag suppliers to build our inventory by purchasing excess supply. Should material shortages continue to impact our tag suppliers, we may be unable to meet the needs of our customers which could have an impact on our costs and margins. Due to the overall uncertainty in our EID tag supply, we are uncertain of the material impact that it may have on our business.

Software Sales and Related Consulting Segment

Software license, maintenance and support services represents a SaaS revenue model that bundles annual software licenses with ongoing software customizations, enhancements and upgrades andrelated consulting includes a wide range of professional consulting services and technology solutions that support our verification business and generate incremental revenue specific to the food and agricultural industry.

Software-related consulting service revenue represents fees earned from professional appearances, industry data analysis, customer education and training related services.MARKETING

MARKETING

Our marketing strategy includes direct marketing, advertising, event sponsorship, and trade show participation. From a public relations perspective, members of our staff are frequently quoted in industry trade journals and requested as speakers at various industry events as subject matter experts on the topics of animal identification, traceability, branding, third-party verification and certification, and the USDA verification programs.

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

We also use social media sites such as Facebook and Twitter to help promote our business, market our product offerings, and connect consumers with current topics in the agriculture, livestock and food industries.

COMPETITION

The competition for third-party verification services in the food and agriculture industry is growing more intense, especially within the organic market. As of December 31, 2020,2021, we estimate that there are approximately eight key competitors serving the food and agricultural industry, including Quality Assurance International, California Certified Organic Farmers, Oregon Tilth, Organic Crop Improvement Association, Earth Claims, FoodChain ID, NSF International, SGS and SCS Global Services. Differentiation hinges upon understanding all facets of food verification and the complex compliance challenges to make product verifications efficient, cost-effective, and seamless. Our core business and expertise focus on the “on farm” verifications to a variety of standards, guidelines and criteria, including source verification, natural, animal care and well-being, and sustainability verification.

SEASONALITY

Our business is subject to seasonal fluctuations. Significant portions of our verification and certification service revenue is typically realized during late May through early October 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.

INTELLECTUAL PROPERTY

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

EMPLOYEES

As of December 31, 2020,2021, we had 6887 total employees, of which 6080 were full-time employees. Approximately 78% of our workforce is comprised of minority and female employees. Our future success is substantially dependent upon the performance of our key senior management personnel, as well as our ability to attract and retain highly qualified technical personnel. Additional information regarding certain risks related to our employees is included in Part I, Item 1A “Risk Factors” of this Annual Report on Form 10-K.

AVAILABLE INFORMATION

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

INFORMATION ABOUT OUR EXECUTIVE OFFICERS OF THE REGISTRANT

John Saunders, 49,50, founded the Company in 1998 and has served as the Chief Executive Officer since then. Mr. Saunders is also the Chairman of the Board of Directors of the Company and has served in this position since 1998. Previously, Mr. Saunders was a partner and consultant for Pathfinder Consulting Services, Inc. in Parker, Colorado. An expert in both technology and the livestock industry, Mr. Saunders is a graduate of Yale University.

Leann Saunders, 50,51, began working for the Company in 2003 and has been the President of the Company since 2008. Mrs. Saunders is also a Director on our Board of Directors and has served in this position since January 2012. Prior to 2003, Mrs. Saunders worked for PM Beef Holdings (“PM”), an integrated beef company, and developed a supply system for PM’s Ranch to Retail product line and managed PM’s USDA Process Verified program. She then served as the company’s Vice President of Marketing and Communications. Prior to joining PM in 1996, Mrs. Saunders worked for McDonald’s Corporation as a Purchasing Specialist, and Hudson Foods Corporation. Mrs. Saunders graduated with a B.S. in Agriculture Business and an M.S. in Beef Industry Leadership from Colorado State University. Mrs. Saunders currently sits on the Colorado State University Agriculture Dean’s Advisory Board, the University of Nebraska’s Engler Agribusiness Entrepreneurship Program Advisory Board, the Board of Directors for the International Stockmen’s Education Foundation and was the Chair for the United States Meat Export Federation for the 2015-2016 year.

Dannette Henning, 51,52, has been the Chief Financial Officer of the Company since January 2008. Prior to her appointment, she was engaged by the Company as a consultant beginning in November 2007. From 2004 to 2007, Mrs. Henning was the Corporate Controller for Einstein Noah Restaurant Group. From 2001 to 2003, she served as the Controller for Vari-L Company. Mrs. Henning’s previous experience includes financial management positions with KPMG Peat Marwick, DF&R Restaurant Company, and CSI/CDC Company. Mrs. Henning is a Certified Public Accountant with more than 2530 years of professional experience. She received a B.B.A. degree in Accounting from the University of Texas at Arlington.

Jason Franco, 45, has been the Chief Technology Officer of the Company since August 2021. Previously, Mr. Franco served as Senior Vice President of Technology since September 2018 when WFCF acquired JVF Consulting, LLC, the consulting firm Mr. Franco founded in 2004 serving as President. From 2000 to 2004, Mr. Franco worked as a technical application consultant and integration specialist with Peoplesoft / Oracle. He began his career in 1998 as a software developer with John Deere Special Technologies Group, where he specialized in traceability applications. He received his B.S. degree in Computer Science from the University of the Pacific in Stockton, CA.

Family Relationships

John Saunders, our CEO and Chairman of the Board, is married to Leann Saunders, our President. Both Mr. and Mrs. Saunders serve on our Board of Directors.

ITEM 1A. RISK FACTORS

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

Coronavirus Pandemic (COVID-19)

In March 2020, the World Health Organization declared the outbreak of novel coronavirus disease (“COVID-19”) as a pandemic. The recent global outbreak of COVID-19 and the resulting government-mandated closures and social distancing measures have disrupted economic markets, potentially triggering a global recession. Continued closures and social distancing measures could have had a detrimental effect in which the prolonged economic impact is uncertain. This could resultWhile our business has not been significantly impacted by the COVID-19 pandemic, continued uncertainty has resulted in a variety of risks to our business including the inability to perform audits at our customers locations due to social distancing and tag supplier disruptions as a result of business closures,material shortages. We also continue to see food systems that are in disarray resulting in global food shortages and euthanasia of animals and dumping of dairy products because farmers have no distribution channel, allchannel. All of whichthese risks could negatively influence our revenue and costs. TheAdditionally, the government may introduce healthcare reform measures, including vaccination mandates, for which we cannot predict the financial implication of on our personnel and business. A weak or declining economy could cause our customers to delay purchases or payments for our services and products. Additionally, COVID-19 may introduce additional challenges including our ability to produce sufficient cash flows from operations or to raise capital when needed at acceptable terms, if at all.

All of our locations have been affected. We have adjusted certain aspects of our operations to protect our employees while avoiding business interruption. As an essential business to the food and agriculture industries, we have maintained standard business operations while under stay at home (and similar) guidelines from various states, by allowing a majority of our employees to work remotely until government mandates allow for normal business operations.remotely. Employees essential to operations, management and the accounting function remain on-site at our corporate headquarters. Internal controls over financial reporting have not been impacted by employees working remotely. Management is continuously monitoring to ensure controls are effective and properly maintained.

The Company generally performs onsite audits in connection with its verification and certification activity. Due to safety and social distancing reasons, some customers have requested postponement of onsite visits. At this time, we are uncertain of the material impact that continued social distancing measures will have upon our business. We continue to work with standard setting bodies and identify innovative solutions to offer our customers. We believe that our transformative approach will help further differentiate us from competitors. Additionally, we believe third party verification is an essential component to the food and agricultural supply chain and ensures our future as a high qualityhigh-quality provider of assurance services, thereby increasing the value of products in the food supply chain. However, should social distancing measures continue extensively, we are uncertain of the material impact that it will have upon our business and financial results.

We purchase most of our EID tags from one significant supplier and source the remainder of our EID tags from alternate smaller suppliers. We have been informed by our key tag supplier that materials are becoming scarcer and their ability to meet our need is becoming difficult. In anticipation of this risk, we have worked with all our tag suppliers to build our inventory by purchasing excess supply. Should material shortages continue to impact our tag suppliers, we may be unable to meet the needs of our customers which could materially impact our revenues. Additionally, as demand increases and supply decreases, shortages could have an impact our costs and margins. Due to the overall uncertainty in our EID tag supply, we are uncertain of the material impact that it may have on our business.

We will continue to monitor the COVID-19 situation closely and react accordingly to any future restrictions or limitations, while keeping the interest of our customers and business in mind. Due to the uncertainty in the severity and duration of the pandemic, the extent and effectiveness of containment actions and the impact of these and other factors on our employees, customers and suppliers, the full impact of the COVID-19 pandemic on our business revenues, profitability and statement of financial positioncondition is uncertain at this time.

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

We compete with many other vendors of products and services designed for tracking cattle and other livestock, and for herd management, andfor crop production practices.practices and other verification of marketing claims over processed foods. Our competitors range from small start-up companies to multi-national firms. Our competitors may have significantly more financial, technical and marketing resources than we do. Competition is likely to intensify as current competitors expand their service offerings and as new companies enter the market. Additionally, competition may intensify as our competitors enter into business combinations or alliances, and established companies in other market segments expand to become competitive with our business. Increasing competition may result in reduced margins and the loss of market share. Our competitors may offer broader service offerings or technologies that are more commercially attractive and gain greater market acceptance than our current or future products. Additionally, new technology may render our products and services obsolete.

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

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

We face risks of rapidly changing regulations which may negatively impact our programs.

Regulations and standards are continually evolving and present a challenging risk. For example, in January 2013, the Japanese government announced a change to its import requirements on U.S. beef. Because the change enabled a significant increase in the amount of product qualifying for export to Japan, it negatively impacted the premiums typically seen in the marketplace for source and age verified cattle. As a result, it negatively impacted our source and age verification business by approximately 68% from 2012 to 2013. Due to the diversification of our product offerings and our strategy of managing to profitability, we werebelieve we are able to quickly minimize the impact of theseany adverse changes.changes in regulations or verification standards. While we attempt to mitigate these risks by creating innovative programs that mitigate the risk of rapidly changing regulations and verification standards, we can give no assurance that we will be successful in overcoming the potential negative impact to the results of our operations.

We face risks that highly contagious diseases or viral outbreaks may negatively impact the source of product we are able to verify.

Today, infectious disease and viral outbreaks appear to be emerging more quickly than ever. For example, Porcine Epidemic Diarrhea Virus (PEDv) negatively impacted the pork/sow industry in 2014 and Highly Pathogenic Avian Influenza, more commonly known as Bird Flu, impacted poultry operations in 2016. The Coronavirus is causing financial panicAs discussed above, COVID-19 impacted our business resulting in China and has caused GDP growth to hit a wall and importssome customers requesting postponement of food related products to be halted. Additionally, contagiousonsite visits. Contagious disease or viral outbreaks create increased bio-exclusion considerations in our business. While we have created innovative solutions that mitigate the risk of transferring disease, we can give no assurance that we will be successful in overcoming the potential negative impact to the results of our operations.

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

Public attitudes towards food production practices may be influenced by claims that these products are unsafe for consumption or pose unknown health risks. For example, decreased demand for beef and other livestock products could have a material adverse effect on the operating results and financial condition of our existing or prospective customers. If operating results of our customers are impaired, the resources that our customers can devote to building information systems for tracking cattle and other livestock and herd management are reduced, which in turn may limit purchases of our verification solutions and consulting services. Therefore, our ability to generate revenue is subject to the risks and uncertainties relating to the financial condition of our customers.

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

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

In addition to uncertainty about our ability to expand into international markets, there are certain risks inherent in doing business internationally, including, but not limited to:

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

Our business could suffer if we are unsuccessful in making, integrating, and maintaining our acquisitions and investments.

We have acquired and invested in a number of companies, and we may acquire or invest in or enter into joint ventures with additional companies. These transactions create risks such as:

As a result of future acquisitions or mergers, we might need to issue additional equity securities, spend our cash, or incur debt, contingent liabilities, or amortization expenses related to intangible assets, any of which could reduce our profitability and harm our business. In addition, valuations supporting our acquisitions and strategic investments could change rapidly given the current global economic climate. We could determine that such valuations have experienced impairments or other-than-temporary declines in fair value which could adversely impact our financial results.

Federal, state or local laws and regulations, or our failure to comply with such laws and regulations, could increase our expenses and expose us to legal risks.

We are subject to a wide range of general and industry-specific laws and regulations imposed by federal, state and local authorities such as sales tax, intellectual property infringement, zoning and occupancy matters. In addition, various federal and state laws govern our relationship with, and other matters pertaining to, our employees, including wage and hour laws, laws governing independent contractor classifications, requirements to provide meal and rest periods or other benefits, family leave mandates, requirements regarding working conditions and accommodations to certain employees, citizenship or work authorization and related requirements, insurance and workers’ compensation rules and anti-discrimination laws. We believe that we have complied with these laws and regulations; however, there is a risk that we will become subject to claims that allege we have failed to do so. Any claim that alleges a failure by us to comply with any of the foregoing laws and regulations may subject us to fines, penalties, injunctions, litigation and/or potential criminal violations, which could adversely affect our reputation, business, financial condition and operating results.

Any changes to the foregoing laws or regulations or any new laws or regulations that are passed or go into effect may make it more difficult for us to operate our business and in turn adversely affect our operating results.

We may also be subject to audits by various taxing authorities. Similarly, changes in tax laws in any of the multiple jurisdictions in which we operate, or adverse outcomes from tax audits that we may be subject to in any of the jurisdictions in which we operate, could result in an unfavorable change in our effective tax rate, which could adversely affect our business, financial condition and operating results.

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

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

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

A significant data breach or information technology system disruption could adversely affect our business, financial results, or reputation, and we may be required to increase our spending on data and system security.

We rely heavily on information technology networks and systems, including the Internet, to manage or support a wide variety of important business processes and activities throughout our operations.

Our information technology systems may be susceptible to damage, disruptions or shutdowns due to failures during the process of upgrading or replacing software, databases or components thereof, power outages, hardware failures, computer viruses, cyber-attacks, ransomware attacks, malware attacks, malicious employees or other insiders, telecommunications failures, human errors or catastrophic events. Hackers, foreign governments, cyber-terrorists and cyber-criminals, acting individually or in coordinated groups, may launch distributed denial of service attacks or other coordinated attacks that may cause service outages, gain inappropriate or block legitimate access to systems or information, or result in other interruptions in our business. In addition, breaches in security could expose us and our customers, or the individuals affected, to a risk of loss or misuse of proprietary information and sensitive or confidential data, including personal information of customers, employees and others. The techniques used to obtain unauthorized access, disable or degrade service or sabotage systems change frequently, may be difficult to detect for a long time and often are not recognized until launched against a target. As a result, we may be unable to anticipate these techniques or to implement adequate preventive measures.

We also depend on and interact with the information technology networks and systems of third parties for many aspects of our business operations, including our customers and service providers such as cloud service providers and third-party delivery services. These third parties may have access to information we maintain about our company, operations, customers, employees and vendors, or operating systems that are critical to or can significantly impact our business operations. Like us, these third parties are subject to risks imposed by data breaches and cyber-attacks and other events or actions that could damage, disrupt or close down their networks or systems. Security processes, protocols and standards that we have implemented and contractual provisions requiring security measures that we may have sought to impose on such third parties may not be sufficient or effective at preventing such events, which could result in unauthorized access to, or disruptions or denials of access to, or misuse of, information or systems that are important to our business, including proprietary information, sensitive or confidential data, and other information about our operations, customers, employees and suppliers, including personal information.

Any of these events that impact our information technology networks or systems, or those of acquired businesses, customers, service providers or other third parties, could result in disruptions in our operations, the loss of existing or potential customers, damage to our brand and reputation, regulatory scrutiny, and litigation and potential liability for the Company. Among other consequences, our customers’ confidence in our ability to protect data and systems and to provide services consistent with their expectations could be impacted, further disrupting our operations. Similarly, an actual or alleged failure to comply with applicable U.S. or foreign data protection regulations or other data protection standards may expose us to litigation, fines, sanctions or other penalties.

We have invested and continue to invest in technology security initiatives, information technology risk management and disaster recovery plans. The cost and operational consequences of implementing, maintaining and enhancing further data or system protection measures could increase significantly to overcome increasingly intense, complex and sophisticated global cyber threats. Despite our best efforts, we are not fully insulated from data breaches and system disruptions. There is no assurance that such impacts will not be material in the future, and our efforts to deter, identify, mitigate and/or eliminate future breaches may require significant additional effort and expense and may not be successful.

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

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

Directors, executive officers, principal stockholders and affiliated entities beneficially own or control a significant amount of our outstanding common stock and together meaningfully influence our activities.

As of February 5, 2021,25, 2022, John Saunders, our Chairman and CEO, and Leann Saunders, our President, beneficially owned in the aggregate approximately 28%29% of our common stock. The Saunders, together with the rest of our Board, beneficially own approximately 55% of our common stock. These directors and officers, if they determine to vote in the same manner, would have a significant impact on the outcome of any matter requiring approval by our shareholders, including the election of directors and the approval of mergers or other business combination transactions or terms of any liquidation. This concentration of ownership may have the effect of delaying or preventing a change in control of our company that may be favored by other shareholders. This could prevent transactions in which shareholders might otherwise recover a premium for their shares over current market prices.

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

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

We have not paid any regular cash dividends.

We have not declared or paid any regular cash dividends on our common stock since our incorporationincorporation. A special cash dividend was paid on August 16, 2021 to shareholders of record at the close of business on July 27, 2021. Payment of future cash dividends, if any, will be at the discretion of the Board of Directors and will depend on our financial condition, results of operations, contractual restrictions, business prospects and other factors that the Board of Directors considers relevant. In the absence of regular dividends, investors will only see a return on their investment if the value of our common stock appreciates.

Future sales of our securities in the public or private markets could adversely affect the trading price of our common stock and our ability to continue to raise funds in new stock offerings.

We have historically used common stock or securities exercisable or convertible into common stock in order to finance our future growth plans. Future sales of substantial amounts of our securities in the public or private markets would dilute our existing shareholders and potentially adversely affect the trading prices of our common stock and could impair our ability to raise capital through future offerings of securities. Alternatively, we may rely on debt financing and assume debt obligations that require us to make substantial interest and principal payments that could adversely affect our business and future growth potential.

Our common stock has traded in low volumes. We cannot predict whether an active trading market for our common stock will ever develop.

Historically, our common stock has experienced a lack of trading liquidity. In the absence of an active trading market:

Price and volume volatility of our publicly traded securities could adversely affect investors’ portfolios.

In recent months and years, the securities markets in the United States have experienced high levels of price and volume volatility, and the market prices of securities of many companies have experienced wide fluctuations that have not necessarily been related to the operating performance or prospects of such companies. It is likely that continual fluctuations in market and share prices will occur. Our shares of common stock trade on the OTCQB marketplace, which may not provide as much liquidity for our common stock as would a registered stock exchange.NASDAQ Stock Market LLC. The price of our common stock has been subject to price and volume volatility in the past and will likely continue to be subject to such volatility in the future. In addition, unlike the registered stock exchanges, there are few corporate governance requirements imposed on OTCQB quoted companies.

As a public company, we are subject to complex legal and accounting requirements that require us to incur substantial expenses, and our financial controls and procedures may not be sufficient to ensure timely and reliable reporting of financial information, which, as a public company, could materially harm our stock price and listing on the OTCQBNASDAQ marketplace.

As a public company, we are subject to numerous legal and accounting requirements that do not apply to private companies. The cost of compliance with many of these requirements is substantial, not only in absolute terms but, more importantly, in relation to the overall scope of the operations of a small company. Failure to comply with these requirements can have numerous adverse consequences, including, but not limited to, our inability to file required periodic reports on a timely basis, loss of market confidence, delisting of our securities and/or governmental or private actions against us. We cannot assure you that we will be able to comply with all of these requirements or that the cost of such compliance will not prove to be a substantial competitive disadvantage as compared with privately held and larger public competitors.

The Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”) requires, among other things, that we maintain effective internal controls over financial reporting and disclosure controls and procedures. In particular, we must perform system and process evaluation and testing of our internal control over financial reporting to allow management to report on the effectiveness of our internal control over financial reporting, as required by Section 404 of Sarbanes-Oxley (“Section 404”). Our compliance with Section 404 of Sarbanes-Oxley requires that we incur substantial accounting expenses and expend significant management efforts. The effectiveness of our controls and procedures may in the future be limited by a variety of factors, including:

If we are not able to comply with the requirements of Section 404 in a timely manner, or if we or our independent registered public accounting firm identifies deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, we may be subject to delisting, investigations by the SEC and civil or criminal sanctions.

None.ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

The Company leases approximately 15,700 square feet of office space for its corporate headquarters. Total rental payments are approximately $40,900$42,600 per month as of December 31, 2020,2021, which includes common area charges, and are subject to annual increases over the term of the lease. The lease agreement has an initial term of five years plus two renewal periods. The Company has exercised the first renewal period and is likely to renew for the second renewal period. This space is being leased from a company in which our CEO and President, each a related party to the Company, have a 24.3% jointly held ownership interest.

In September 2017, the Company entered into a lease agreement for our Urbandale, Iowa office space. The lease is for a period of two years and expired on August 31, 2019. This lease was extended for an additional 3 years, terminating on August 31, 2022. Rental payments are approximately $3,400 per month, which includes common area charges, and are not subject to annual increases over the term of the lease.

The Company owns approximately ¾ acre on which a 2,300-square foot building is located, in Medina, North Dakota.

In December 2018, the Company entered into a new lease agreement in San Ramon, California for SureHarvest office space. The lease is for a period of sixty-six months and expires on May 1, 2024. Rental payments are approximately $6,300$6,600 per month as of December 31, 2020,2021, which includes common area charges, and are subject to annual increases over the term of the lease.

In June 2021, the Company entered into a new lease agreement in Victoria, British Columbia, Canada for Postelsia office space. The lease is for a period of two years and expires on May 31, 2023. Rental payments are approximately Canadian $1,700 or US$1,340 per month as of December 31, 2021, which includes common area charges, and are not subject to annual increases over the term of the lease.

In December 2021, the Company sold the 2,300-square foot building located in Medina, North Dakota. In December 2021, the Company entered into a lease agreement for the Medina, North Dakota office space. The lease is for sixty-one months and expires on December 31, 2026. Rental payments are approximately $1,000 per month, which includes common area charges, and are not subject to annual increases over the term of the lease.

ITEM 3. LEGAL PROCEEDINGS

From time to time, we may become involved in various legal actions, administrative proceedings and claims in the ordinary course of business. We generally record losses for claims in excess of the limits of purchased insurance in earnings at the time and to the extent they are probable and estimable.

There are currently no material pending proceedings against the Company.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

PART II

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

Market Information for Common Stock

The Company’s common stock is traded over-the-counteron the NASDAQ Stock Market LLC under the symbol “WFCF.”

Stockholders

As of February 5, 2021,25, 2022, we estimate that there were 108121 record holders of our common stock. A significant number of the outstanding shares of common stock which are beneficially owned by individuals and entities are registered in the name of Cede & Co. A nominee of The Depository Trust Company, Cede & Co. is a securities depository for banks and brokerage firms.

Dividends

We have not declared or paid anya special cash dividendsdividend of $0.15 per share for shareholders of record on our common stock.July 27, 2021, with a payment date of August 16, 2021.

Recent Sales of Unregistered Securities

In connection with the acquisition of the non-controlling interest in SureHarvest Services, LLC, we issued 75,988 shares of common stock of Where Food Comes From, Inc. valued at approximately $0.5 million based upon the closing price of our stock on December 17, 2019, of $7.20 per share (all share and dollar amountsThere have been adjusted to reflectno unregistered sales of securities for the 1-for-4 reverse split that occurred inyears ended December 2020).31, 2021 and 2020.

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

Issuer Purchases of Equity Securities

On September 30, 2019, our Board of Directors approved a plan to buy back up to ten million additional shares of our common stock from the open market (“Stock Buyback Plan”). 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. Our Board of Directors did not specify an expiration date for repurchases under the Stock Buyback Plan.

Activity for the quarter ended December 31, 20202021 is as follows:

Not applicable.

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

Cautionary Note Regarding Forward-Looking Statements

This Annual Report on Form 10-K and other publicly available documents, including the documents incorporated herein and therein by reference, contain “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Additionally, our officers and representatives may from time to time make forward-looking statements. Forward-looking statements can be identified by words such as “anticipate,” “intend,” “plan,” “goal,” “seek,” “believe,” “project,” “estimate,” “expect,” “strategy,” “future,” “likely,” “may,” “should,” “will” and similar references to future periods. Examples of forward-looking statements include, among others, statements we make regarding:

Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, the following:

Any forward-looking statement made by us in this Annual Report on Form 10-K is based only on information currently available to us and speaks only as of the date on which it is made. We undertake no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise.

RESULTS OF OPERATIONS

Year Ended December 31, 20202021 Compared to Year Ended December 31, 20192020

The following table shows information for reportable operating business segments:

Verification and Certification Segment

Verification and certification service revenues consist of fees charged for verification audits and other verification and certification related services that the Company performs for customers. Fees earned from our WFCF labeling program are also included in our verification and certification revenues as it represents a value-added extension of our source verification. Verification and certification service revenue for the year ended December 31, 2020 decreased2021 increased approximately $1.3$1.8 million, or 8.4%12.7% compared to 2019.2020. Overall, the decreaseincrease is due primarily to audit delays as a result of COVID-19.increased customer demand for our product offerings.

Our product sales are an ancillary part of our verification and certification services and represent sales of cattle identification ear tags. Product sales for the year ended December 31, 2020 increased2021 decreased slightly by approximately $0.6 million,$29,000, or 16.9%0.8% compared to 2019.2020. Overall, our product sales have increased primarilybeen stable in response to the requirement for source and age verification using an identification tag at birth for cattle.

Costs of revenues (for services and product sales) for the verification and certification segment for the year ended December 31, 20202021 were approximately $9.9$10.8 million compared to approximately $10.6$9.9 million in 2019.2020. Gross margin (including intercompany sales) for the year ended December 31, 20202021 increased slightly to 44.6%45.5% compared to 42.2%44.7% in 2019. Our margins2020. The changes are impacted primarily due to shifting some verification activity to a desk audit performed by internal staff resulting from COVID-19 on farm biosecurity restrictions and due to introductionchange in product mix of our offerings which included new CARE verification program.customers and new offerings. Our margins are generally impacted by various costs such as cost of products, salaries and benefits, insurance and taxes.

Selling, general and administrative expenses for the year ended December 31, 20202021 increased 3.4%14.1% compared to 2019.2020. Overall, the increase in our selling, general and administrative expenses is due to increased discretionary compensation expense, public listing costs and in part to an increase in depreciation, amortization and personnel costs from shifting certain assets and personnel from SureHarvest to WFCF in 2020 to better support the entire Company.

Software Sales and Related Consulting Segment

Software license, maintenance and support servicesrelated consulting revenue is a revenue stream specific to our acquisitions of SureHarvest and Postelsia. We employ a SaaS revenue model that bundles annual software licenses with ongoing software enhancements and upgrades andOfferings include a wide range of professional consulting services and technology solutions that support our verification business and generate incremental revenue specific to the food and agricultural industry. For the year ended December 31, 2020,2021, software license, maintenance and support servicesrelated consulting service revenue decreasedincreased approximately 18.7%4.1% over 20192020 predominately due to the acquisition of Postelsia during 2020, offset by customer-related budget delays for significant software enhancements because of COVID-19 concerns which results in a decrease in the number of billable hours of staff focused on software enhancements and upgrades.

Software-related consulting service revenue primarily represents fees earned from professional appearances, customer education and training related services. Software-related consulting service revenue for the year ended December 31, 2020 increased approximately 30.0% over 2019 predominately due to the acquisition of Postelsia during 2020.

Costs of revenues for our software sales and related consulting segment for the years ended December 31, 20202021 and 20192020 were approximately $1.2$1.4 and $1.1$1.2 million, respectively. For the year ended December 31, 2020,2021, gross margin (including intercompany sales) had decreased to 43.0% compared to 58.6%33.9% from 40.6% in 2019.2020. The lower margin in 2020 was due to additional costs absorbed from the Postelsia acquisition during 2020 and decrease in billable hoursgross margin is due primarily to increased cost of staff focused on softwarelabor to support our enhancements and upgrades.to our customer’s technology.

Selling, general and administrative expenses for the year ended December 31, 20202021 decreased 29.2%56.7% compared to 2019.2020. The decrease is predominately due to the decrease in depreciation, amortization and personnel costs from shifting certain assets and personnel from SureHarvest to WFCF in 2020 to better support the entire Company.

As with all of our acquisitions, we continue to identify synergies and implement best practices. We focus our efforts to create value in various ways such as improving the performance of our acquired businesses, removing excess capacity, creating market access for products, acquiring skills and technologies more quickly or at a lower cost than we can build in-house, exploiting our industry-specific scalability and bundling opportunities, and picking winners early and helping them develop their businesses. Achieving any or all of these strategies take time to implement. We have learned that it can take two to three years after an acquisition to fully understand the complexities, at which time, we have generally seen solid improvements in revenues and/or costs.

Dividend Income from Progressive Beef, LLC

On August 9, 2018, the Company purchased a ten percent membership interest in Progressive Beef, LLC (“Progressive Beef”) for an aggregate purchase price of approximately $1.0 million. The Company received dividend income of $150,000$200,000 and $120,00$150,000 for the yearyears ended December 31, 20202021 and 2019,2020, respectively, from Progressive Beef representing a distribution of their earnings.

Income Tax Expense

For each of the years ended December 31, 20202021 and 2019,2020, we recorded income tax expense of approximately $0.7 million and $0.5 million.million, respectively. The effective tax rate for the year ended December 31, 2021 was 24.6% compared to a federal corporate rate of 21.0%. The effective tax rate for 2021 is favorably impacted by the non-taxability of the Paycheck Protection Program (“PPP) loan forgiveness income. The effective tax rate for the year ended December 31, 2020 was 24.6% compared to a federal corporate rate of 21.0%. The increase is primarily related to expired/forfeited stock options. The effective tax rate for the year ended December 31, 2019 was 30.1%.

Net Income and Per Share Information

As a result of the foregoing, net income attributable to WFCF shareholders for the year ended December 31, 20202021 was approximately $3.0 million or $0.49 per basic and $0.48 per diluted common share, compared to approximately $1.4 million or $0.23 per basic and $0.22 per diluted common share compared to approximately $1.3 million or $0.22 per basic and diluted common share in 2019.2020.

Liquidity and Capital Resources

At December 31, 2020,2021, we had cash and cash equivalents and certificates of deposits (classified as short-term investment) of approximately $4.4$5.4 million compared to approximately $2.9$4.4 million at December 31, 2019.2020. Our working capital at December 31, 20202021 was approximately $4.4$5.7 million compared to approximately $3.1$4.4 million at December 31, 2019.2020.

Net cash provided by operating activities during 20202021 was approximately $2.5$3.0 million compared to $2.9$2.5 million during the same period in 2019.2020. Net cash provided by operating activities is driven by an increase in our net income and adjusted by non-cash items.items and changes in current assets and liabilities. Non-cash adjustments primarily include depreciation, amortization of intangible assets, stock-based compensation expense, forgiveness of Paycheck Protection Program loan, and deferred taxes. Fluctuations are primarily due to operating performance offset by the timing of cash receipts and cash disbursements. The increase in cash provided by operating activities for 2021 was primarily driven by an increase in deferred revenue, decrease in accounts receivable and prepaid expenses and other assets, offset by cash used for inventory.

Net cash used in investing activities during 20202021 was approximately $3,000 compared to $0.7 million compared to approximately $1.1during 2020. Net cash used in the 2021 period was $0.2 million during 2019.for the purchase of a vehicle, equipment and software development offset by $0.2 million in proceeds from the sale of the Medina land and building. Net cash used in the 2020 period was $0.3 million cash paid in the acquisition of Postelsia and $0.5 million for the purchase of equipment and software development.

Net cashedcash used in the 2019 period was primarily the $1.0 million cash paid in the acquisition of the non-controlling interest in SureHarvest.

Net cash provided from financing activities during 20202021 was approximately $14,000$2.0 million compared to net cash provided of $14,000 in the 2020 period. Net cash used in the 2021 period was $1.1 million for the repurchase of $0.6common shares under the Stock Buyback Plan and $0.9 million in the 2019 period.dividends paid to shareholders. Cash provided during 2020 of $1.0 million was from loan proceeds. Cash used in the both the 2020 and 2019 period was primarily due toproceeds offset by $1.0 million for the repurchase of common shares under the Stock Buyback Plan.

Historically,Over the past several years, our growth has been funded primarily through a combination of convertible debt from private investors and private placement offerings and more recently cashflows from operations. 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, gross margin 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 has brought significant opportunities to us, including increased investor confidence and renewed interest in our company, 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 on diversification in our product offerings within national and international markets, as well as, potential acquisitions. We believe that there are significant growth opportunities available to us because of growing consumer awareness and demand on a national level. Internationally, a quality verification program is often the only way to overcome import or export restrictions.

Debt Facility

The Company has a revolving line of credit (“LOC”) agreement which matures April 12, 2022. The LOC provides for $75,080 in working capital. The interest rate is at the Wall Street Journal prime rate plus 1.50% and is adjusted daily. Principal and interest are payable upon demand, but if demand is not made, then annual payments of accrued interest only are due, with the principal balance due upon maturity. As of December 31, 2020,2021, and 2019,2020, the effective interest rate was 4.75% and 6.25%, respectively.. The LOC is collateralized by all the business assets of International Certification Services,Where Food Comes From Organic, Inc. (“ICS”WFCFO”), a subsidiary of WFCF. As of December 31, 2020,2021, and 2019,2020, there were no amounts outstanding under this LOC.

On April 17, 2020, the Company received a $1.0 million loan under the Paycheck Protection Program (“PPP”) with a maturity date of April 17, 2022 and an annual interest rate of 1.00%. The loan will be repaid in 12 monthly consecutive interest and principal payments and one balloon payment at maturity of approximately $351,000, commencing May 1, 2021. The Company has not received any notification if any, of the loan and accrued interest amount will be forgiven.was forgiven on March 4, 2021.

Off Balance Sheet Arrangements

As of December 31, 2020,2021, we had no off-balance sheet arrangements of any type.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Below is a discussion of the accounting policies and related estimates that we believe are the most critical to understanding our consolidated financial statements, financial condition and results of operations and which require complex management judgments, uncertainties and/or estimates. The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses during a reporting period; however, actual results could differ from those estimates. Management has discussed the development, selection and disclosure of the critical accounting policies and estimates with the Audit Committee of the Board of Directors. Information regarding our other accounting policies is included in Note 2 to our consolidated financial statements set forth in Item 8 of this Annual Report on Form 10-K.

Revenue Recognition

Verification and Certification Segment

We offer a range of products and services to maintain identification, traceability, and verification systems. We conduct both on-site and desk audits to verify that claims being made about livestock, food, other high-value specialty crops and agricultural products are accurate. We generate revenue primarily from the sale of our verification solutions, consulting services and hardware sales. We sell our products and services directly to customers at various levels in the livestock and agricultural supply chains.

Verification and certification service revenue primarily consists of fees charged for verification audits and other verification services that the Company performs for customers. We recognize revenue utilizing an input method to measure over-time progress of each verification audit based on the number of audit days performed.

For certain of our third-party crop and other processed product audits, we assess a fixed fee for the annual certification period. We recognize revenue utilizing an input method to measure progress toward satisfaction of the annual assessment based on the percentage of activities/phases or input reviews completed under the annual assessment.

Product sales are primarily generated from the sale of cattle identification ear tags. Revenue for product sales is recognized upon delivery of the goods to customer, at which point title, custody and risk of loss transfer to the customer.

We had deferred revenue of approximately $0.9$1.0 million and $0.6$0.9 million at December 31, 20202021 and 2019,2020, respectively, primarily related to the annual certification period for certain of our third-party crop and other processed product audits. The balance of these contract liabilities at the beginning of the period is expected to be recognized as revenue during 2021.2022.

Software Sales and Related Consulting Segment

We predominately offer software products via a SaaS model, which is an annual subscription-based model. Support services are generally included in the subscription. We also provide web-hosting services on an annual basis to all of our customers in conjunction with their software subscription.

We recognize revenue related to the SaaS arrangement over an annual subscription period utilizing a time-based output measure of progress that results in a straight-line attribution of revenue. We had deferred revenue of approximately $0.2 million at both December 31, 2020 and 2019, primarily due to the SaaS arrangements.

In some of our SaaS contracts, we also provide software-related consulting services to our customers during an annual software subscription period. Consulting services fees are derived from a standard rate card by employee level, and we invoice for consulting services monthly on a time-incurred basis. We recognize revenue over time utilizing the practical expedient that allows us to recognize revenue in the amount to which we have a right to invoice.

We also offer software products via a SaaS model, which is an annual subscription-based model. Support services and web-hosting are generally included in the subscription.

We recognize revenue related to the SaaS arrangement over an annual subscription period utilizing a time-based output measure of progress that results in a straight-line attribution of revenue. We had deferred revenue of approximately $0.5 and $0.2 million at December 31, 2021 and 2020, respectively, primarily due to the SaaS arrangements.

In connection with web-hosting services under our SaaS arrangements, we present revenue on a gross basis, with consideration received from our customer for the web-hosting service recorded as revenue and the cost paid to the third-party to provide those web-hosting services recorded as an expense.

Other

Generally, we do not provide right of return or warranty on product sales or services performed.

In connection with the provision of on-site audits, reimbursable expenses are incurred and billed to customers, and such amounts are recognized on a gross basis as both revenue and cost of revenue.

Any amounts collected on behalf of a third-party and remitted in full to that third-party are excluded from the transaction price and, thus, revenue.

Our business is subject to seasonal fluctuations. Significant portions of our verification and certification service revenue is typically realized during late May through early October when the calf marketings and the growing seasons are at their peak. Although this seasonality does not impact our policies for revenue recognition, it does generally impact our results of operations by potentially causing an increase in our profit margins during May through October and decreased margins during November through April.

Stock-Based Compensation

The Company recognizes all equity-based compensation as stock-based compensation expense based on the fair value of the compensation measured at the grant date. For stock options, fair value is calculated using the Black-Scholes-Merton option-pricing model. For restricted stock awards, fair value is the closing stock price for the Company’s common stock on the grant date. The expense is recognized over the vesting period of the grant.

Calculating stock-based compensation expense using the Black-Scholes-Merton option-pricing model requires the input of highly subjective assumptions, including the expected term of the stock-based awards, stock price volatility, and the pre-vesting option forfeiture rate. We consider many factors when estimating expected forfeitures, including the types of awards, employee classification and historical experience. Actual forfeitures may differ substantially from our current estimate. Under this pricing model, which incorporates ranges of assumptions for inputs, our assumptions are as follows:

There is a risk that our estimates of the fair values may differ from the actual values. It is possible that employee stock options may expire worthless or otherwise result in zero intrinsic value as compared to the fair values originally estimated on the grant date and reported in our financial statements. Alternatively, value may be realized from these instruments that are significantly in excess of the fair values originally estimated on the grant date and reported in our financial statements. The fair value determined using the Black-Scholes-Merton option-pricing model may not be indicative of the fair value observed in a willing buyer / willing seller market transaction.

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

Income Taxes

We record income taxes under the asset and liability method. Deferred tax assets and liabilities reflect our estimation of the future tax consequences of temporary differences between the carrying amounts of assets and liabilities for book and tax purposes. We determine deferred income taxes based on the differences in accounting methods and timing between financial statement and income tax reporting. Accordingly, we determine the deferred tax asset or liability for each temporary difference based on the enacted tax rates expected to be in effect when we realize the underlying items of income and expense.

We consider the probability of future taxable income and our historical profitability, among other factors, in assessing the amount of the valuation allowance. Significant judgment is involved in this determination, including projections of future taxable income.

Our liability for unrecognized tax benefits contains uncertainties because management is required to make assumptions and to apply judgment to estimate the exposures associated with our various filing positions.

Our effective income tax rate is also affected by changes in tax law, our level of earnings and the results of tax audits.

As of December 31, 2020,2021, we concluded that a valuation allowance against our deferred tax assets was not considered necessary. As of December 31, 20202021 and 2019,2020, the Company did not have an unrecognized tax liability. Changes in these estimates and assumptions could materially affect the tax provision as recorded.

Goodwill

We perform an impairment test of our goodwill annually or when events and circumstances indicate goodwill might be impaired. Impairment testing of goodwill is required at the reporting unit level and involves a two-step process. However, we may first assess the qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test.

The first step of the impairment test involves comparing the estimated fair value of our reporting units with the reporting unit’s carrying amount, including goodwill. If we determine that the carrying value of a reporting unit exceeds its estimated fair value, we perform a second step to compare the carrying amount of goodwill to the implied fair value of that goodwill. The implied fair value of goodwill is determined in the same manner as utilized to recognize goodwill in a business combination. If the carrying amount of goodwill exceeds the implied fair value of that goodwill, an impairment loss would be recognized in an amount equal to the excess.

We evaluate our reporting units on an annual basis or when events or circumstances indicate our reporting units might change.

Application of the goodwill impairment test requires judgment, including performing the qualitative assessment, the identification of reporting units, assigning assets and liabilities to reporting units, assigning goodwill to reporting units, and determining the fair value of each reporting unit.

Estimating the fair value of an individual reporting unit requires us to make assumptions and estimates regarding our future plans, industry and economic conditions and our actual results and conditions may differ over time. Examples of events or circumstances that could have a negative effect on the estimated fair value of our reporting units include (i) changes in technology or customer demands that were not anticipated; (ii) competition or regulatory developments in the industry that may adversely affect profitability; (iii) a prolonged weakness in general economic conditions; (iv) a sustained decrease in share price; (v) volatility in the equity and debt markets which could result in a higher discount rate; and (vi) the inability to execute our strategy to grow our growth products.

These types of analyses contain uncertainties because they require management to make assumptions and to apply judgment to estimate industry economic factors and the profitability of future business strategies.

We have not made any material changes in the accounting methodology used to evaluate impairment of goodwill during the past two years.

As of December 31, 20202021 and 2019,2020, we had approximately $2.9 million of goodwill.

During the fourth quarter of 2021 and 2020, we performed a qualitative assessment on our ICS,WFCFO, Validus and SureHarvest units and concluded that the fair value of the reporting units exceeded their carrying value.

During the fourth quarter of 2019, we performed a qualitative assessment on our ICS and Validus reporting units (within the Verification and Certification Services segment) and concluded that the fair value of the reporting units exceeded their carrying value.

Also, during the fourth quarter of 2019, we utilized a valuation expert to estimate the fair value of our SureHarvest reporting unit. SureHarvest, which included Sow Organic and JVF Consulting, was the sole operating segment within the Software Sales and Related Consulting segment. We estimated fair value using a 14-year projection of discounted cash flows which incorporates planned growth rates, market-based discount rates and estimates of residual value. Additionally, we used a market-based, weighted-average cost of capital of 20.1% to discount the projected cash flows of those operations. As of December 31, 2019, the fair value did not exceed the carrying value of net assets by approximately 4.0%. An impairment of goodwill was recognized of $0.2 million during the year ended 2019.

Long-Lived Assets

Our definite-lived intangible assets consist of customer relationships, accreditations, tradenames/tradenames / trademarks and patents related to our acquisitions, recorded at estimated fair value. It also consists of our trademark rights and the related costs incurred to obtain the trademark rights recorded at cost. These definite-lived assets are subject to amortization using the straight-line method over the estimated useful-lives of the respective assets, which range from two to fifteen years. Estimates of useful-lives are based on the nature of the underlying assets as well as our experience with similar assets and intended use. We periodically review estimated useful-lives for reasonableness.

We evaluate recoverability of long-lived assets, including property and equipment and definite-lived intangible assets, when events or changes in circumstances indicate that the carrying amount may not be recoverable.

Assumptions and estimates about future values and remaining useful-lives can be affected by a variety of factors, including external factors such as consumer spending habits and general economic trends, and internal factors such as changes in our business strategy and our internal forecasts.

We have not made any material changes in the accounting methodology or useful-lives we use to account for long-lived assets during the past two years.

We adopted ASU 2016-02: Leases (Topic 842) as of January 1, 2019. WePursuant to Accounting Standards Update 2016-02 (“ASU”) Topic 842, we determine if an arrangement is a lease at inception. Operating leases are included in the right-of-use (ROU) assets, current operating lease liabilities and noncurrent operating lease liabilities in our consolidated balance sheet. Finance leases are included in property and equipment, current finance lease obligations and long-term finance lease obligations in our consolidated balance sheet.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term.

Indefinite-Lived Assets

Our non-amortizable intangible assets which have an indefinite life relate to the trademarks/tradenames acquired in the Validus acquisition. Pursuant to Accounting Standards Codification (“ASC”) Topic 350, if an intangible asset is determined to have an indefinite useful life, it shall not be amortized until its useful life is determined to no longer be indefinite. Accordingly, we evaluate the remaining useful life of an intangible asset that is not being amortized each reporting period to determine whether events or circumstances continue to support an indefinite useful life.

In addition, an intangible asset that is not subject to amortization shall be tested for impairment annually, or more frequently if events or changes in circumstances indicate that the asset might be impaired. Entities testing an indefinite-lived intangible asset for impairment have the option of performing a qualitative assessment before calculating the fair value of the asset. If entities determine, on the basis of qualitative factors, that the likelihood of the indefinite-lived intangible asset being impaired is below a “more-likely-than-not” threshold (i.e., a likelihood of more than 50 percent), the entity would not need to calculate the fair value of the asset.

As of December 31, 2020,2021, there have been no changes to the indefinite life determination pertaining to these intangible assets. Based on the qualitative assessment on Validus reporting unit, we concluded that the likelihood of the indefinite lived asset being impaired was below a “more-likely-than-not” threshold.

Business Combinations

A component of our growth strategy has been to acquire businesses that complement our existing operations. We account for business combinations in accordance with the guidance for business combinations and related literature. Accordingly, we allocate the purchase price of acquired companies to the tangible and intangible assets acquired and liabilities assumed based upon their estimated fair values at the date of purchase. The excess of the purchase price over the fair value of the net assets acquired is recorded as goodwill.

In determining the fair values of assets acquired and liabilities assumed in a business combination, we use various recognized valuation methods, including present value modeling and referenced market values (where available). Further, we make assumptions within certain valuation techniques, including discount rates and the timing of future cash flows. Valuations are performed by management or independent valuation specialists under management’s supervision, where appropriate. We believe that the estimated fair values assigned to the assets acquired and liabilities assumed are based on reasonable assumptions that marketplace participants would use. However, such assumptions are inherently uncertain and actual results could differ from those estimates.

RECENT ACCOUNTING PRONOUNCEMENTS

See Note 2 to our consolidated financial statements set forth in Item 8 of this Annual Report on Form 10-K for a detailed description of recent accounting pronouncements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to Financial Statements

	Certified Public Accountants and Consultants
	1099 Eighteenth Street - Suite 2300
	Denver, Colorado 80202
	Telephone: (303) 296-2229
	Facsimile: (303) 296-3731
	www.causeycpas.com

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of

Where Food Comes From, Inc.

Castle Rock, Colorado

OPINION ON THE FINANCIAL STATEMENTS

We have audited the accompanying consolidated balance sheetsheets of Where Food Comes From, Inc. and its subsidiaries (the “Company”) as of December 31, 20202021 and 2019,2020, and the related consolidated statements of income, equity, and cash flows, for the years ended December 31, 20202021 and 2019,2020, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20202021 and 20192020 and the results of its operations and its cash flows for the years ended December 31, 20202021 and 2019,2020, in conformity with accounting principles generally accepted in the United States of America.

BASIS FOR OPINION

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

CRITICAL AUDIT MATTER

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Revenue Recognition – Refer to Note 2 to the financial statements

Critical Audit Matter Description

The Company recognizes revenue upon transfer of control of promised products or services to customers in an amount that reflects the consideration the Company expects to receive in exchange for those products or services. The Company offers customers the ability to acquire multiple licenses of software products and services, in its customer agreements through its service and licensing programs.

Significant judgment is exercised by the Company in determining revenue recognition for these customer agreements, and includes the following:

Given these factors and due to the volume of transactions, the related audit effort in evaluating management’s judgments in determining revenue recognition for these customer agreements was extensive and required a high degree of auditor judgment.

How the Critical Audit Matter Was Addressed in the Audit

Our principal audit procedures related to the Company’s revenue recognition for these customer agreements included the following:

Causey Demgen & Moore, P.C.
We have served as the Company’s auditors since 2019.
Denver, Colorado
February 28, 2022

/s/ Causey Demgen & Moore, P.C.

We have served as the Company’s auditors since 2019.

Denver, Colorado

February 18, 2021

Where Food Comes From, Inc.

Consolidated Balance Sheets