UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the Quarterly period ended March 31, | |
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the transition period from ____________ to _____________ |
Commission File No. 333-133624001-40314
WHERE FOOD COMES FROM, INC.
(exact name of registrant as specified in its charter)
| Colorado | 43-1802805 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
202 6th Street, Suite 400
Castle Rock, CO80104
(Address of principal executive offices, including zip code)
Registrant’s telephone number, including area code:
(303)895-3002
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] ☒ No [ ]☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a small reporting company. See definitions of “large accelerated filer” and “accelerated filer” and “smaller reporting entity” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer: | Accelerated filer: | ||||
| Non-accelerated filer: | Smaller reporting company: | ||||
| Emerging growth company |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] ☐ No [X] ☒
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| Common Stock, $0.001 par value | WFCF | The NASDAQ Stock Market LLC |
The number of shares of the registrant’s common stock, $0.001 par value per share, outstanding as of April 30, 2021,29, 2022, was 6,123,512..
Where Food Comes From, Inc.
Table of Contents
March 31, 20212022
| Part 1 - Financial Information | ||
| Item 1. | Financial Statements | 3 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | |
| Item 4. | Controls and Procedures | |
| Part II - Other Information | ||
| Item 1. | Legal Proceedings | |
| Item 1A. | Risk Factors | |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | |
| Item 6. | Exhibits | |
| 2 |
Where Food Comes From, Inc.
Consolidated Balance Sheets
| (Amounts in thousands, except per share amounts) | March 31, 2021 | December 31, 2020 | ||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 4,996 | $ | 4,374 | ||||
| Accounts receivable, net of allowance | 1,866 | 2,508 | ||||||
| Prepaid expenses and other current assets | 973 | 592 | ||||||
| Total current assets | 7,835 | 7,474 | ||||||
| Property and equipment, net | 1,689 | 1,616 | ||||||
| Operating lease right-of-use assets, net | 2,960 | 3,030 | ||||||
| Investment in Progressive Beef | 991 | 991 | ||||||
| Intangible and other assets, net | 2,858 | 2,948 | ||||||
| Goodwill | 2,946 | 2,946 | ||||||
| Deferred tax assets, net | 409 | 443 | ||||||
| Total assets | $ | 19,688 | $ | 19,448 | ||||
| Liabilities and Equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 675 | $ | 649 | ||||
| Accrued expenses and other current liabilities | 908 | 599 | ||||||
| Deferred revenue | 1,335 | 1,132 | ||||||
| Current portion of long term debt | - | 463 | ||||||
| Current portion of finance lease obligations | 12 | 13 | ||||||
| Current portion of operating lease obligations | 275 | 268 | ||||||
| Total current liabilities | 3,205 | 3,124 | ||||||
| Long term debt, net of current portion | - | 572 | ||||||
| Finance lease obligations, net of current portion | 29 | 31 | ||||||
| Operating lease obligation, net of current portion | 3,186 | 3,257 | ||||||
| Total liabilities | 6,420 | 6,984 | ||||||
| Commitments and contingencies | ||||||||
| Equity: | ||||||||
| Preferred stock, $0.001 par value; 5,000 shares authorized; none issued or outstanding | - | - | ||||||
| Common stock, $0.001 par value; 95,000 shares authorized; 6,475 (2021) and 6,456 (2020) shares issued, and 6,107 (2021) and 6,118 (2020) shares outstanding | 6 | 6 | ||||||
| Additional paid-in-capital | 11,677 | 11,612 | ||||||
| Treasury stock of 367 (2021) and 338 (2020) shares | (3,113 | ) | (2,702 | ) | ||||
| Retained earnings | 4,698 | 3,548 | ||||||
| Total equity | 13,268 | 12,464 | ||||||
| Total liabilities and stockholders’ equity | $ | 19,688 | $ | 19,448 | ||||
| March 31, | December 31, | |||||||
| (Amounts in thousands, except per share amounts) | 2022 | 2021 | ||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 6,093 | $ | 5,414 | ||||
| Accounts receivable, net of allowance | 2,200 | 2,178 | ||||||
| Inventory | 815 | 767 | ||||||
| Prepaid expenses and other current assets | 381 | 325 | ||||||
| Total current assets | 9,489 | 8,684 | ||||||
| Property and equipment, net | 1,210 | 1,295 | ||||||
| Right-of-use assets, net | 2,744 | 2,823 | ||||||
| Investment in Progressive Beef | 991 | 991 | ||||||
| Intangible and other assets, net | 2,491 | 2,581 | ||||||
| Goodwill, net | 2,946 | 2,946 | ||||||
| Deferred tax assets, net | 483 | 464 | ||||||
| Total assets | $ | 20,354 | $ | 19,784 | ||||
| Liabilities and Equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 594 | $ | 447 | ||||
| Accrued expenses and other current liabilities | 1,324 | 710 | ||||||
| Deferred revenue | 1,277 | 1,513 | ||||||
| Current portion of finance lease obligations | 12 | 13 | ||||||
| Current portion of operating lease obligations | 314 | 313 | ||||||
| Total current liabilities | 3,521 | 2,996 | ||||||
| Finance lease obligations, net of current portion | 17 | 19 | ||||||
| Operating lease obligation, net of current portion | 2,941 | 3,020 | ||||||
| Total liabilities | 6,479 | 6,035 | ||||||
| Commitments and contingencies | - | |||||||
| Equity: | ||||||||
| Preferred stock, $ par value; shares authorized; issued or outstanding | - | - | ||||||
| Common stock, $ par value; shares authorized; (2022) and (2021) shares issued, and (2022) and (2021) shares outstanding | 6 | 6 | ||||||
| Additional paid-in-capital | 12,006 | 11,955 | ||||||
| Treasury stock of (2022) and (2021) shares | (4,229 | ) | (3,807 | ) | ||||
| Retained earnings | 6,092 | 5,595 | ||||||
| Total equity | 13,875 | 13,749 | ||||||
| Total liabilities and stockholders’ equity | $ | 20,354 | $ | 19,784 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
| 3 |
Where Food Comes From, Inc.
Consolidated Statements of Operations
(Unaudited)
| Three months ended March 31, | ||||||||
| (Amounts in thousands, except per share amounts) | 2021 | 2020 | ||||||
| Revenues: | ||||||||
| Verification and certification service revenue | $ | 3,263 | $ | 2,803 | ||||
| Product sales | 724 | 725 | ||||||
| Software license, maintenance and support services revenue | 141 | 143 | ||||||
| Software-related consulting service revenue | 312 | 241 | ||||||
| Total revenues | 4,440 | 3,912 | ||||||
| Costs of revenues: | ||||||||
| Costs of verification and certification services | 1,793 | 1,534 | ||||||
| Costs of products | 457 | 502 | ||||||
| Costs of software license, maintenance and support services | 100 | 146 | ||||||
| Costs of software-related consulting services | 228 | 120 | ||||||
| Total costs of revenues | 2,578 | 2,302 | ||||||
| Gross profit | 1,862 | 1,610 | ||||||
| Selling, general and administrative expenses | 1,773 | 1,964 | ||||||
| Income/(loss) from operations | 89 | (354 | ) | |||||
| Other income/(expense): | ||||||||
| Dividend income from Progressive Beef | 30 | 30 | ||||||
| Other income, net | 1 | 2 | ||||||
| Loan forgiveness from Paycheck Protection Program | 1,037 | - | ||||||
| Gain on sale of assets | 9 | - | ||||||
| (Loss)/gain on foreign currency exchange | (2 | ) | 3 | |||||
| Interest expense | (3 | ) | (2 | ) | ||||
| Income/(loss) before income taxes | 1,161 | (321 | ) | |||||
| Income tax expense/(benefit) | 11 | (80 | ) | |||||
| Net income/(loss) | $ | 1,150 | $ | (241 | ) | |||
| Per share - net income/(loss): | ||||||||
| Basic | $ | 0.19 | $ | (0.04 | ) | |||
| Diluted | $ | 0.19 | $ | (0.04 | ) | |||
| Weighted average number of common shares outstanding: | ||||||||
| Basic | 6,136 | 6,237 | ||||||
| Diluted | 6,231 | 6,237 | ||||||
| Three months ended March 31, | ||||||||
| (Amounts in thousands, except per share amounts) | 2022 | 2021 | ||||||
| Revenues: | ||||||||
| Verification and certification service revenue | $ | 3,784 | $ | 3,263 | ||||
| Product sales | 1,007 | 724 | ||||||
| Software and related consulting revenue | 1,365 | 453 | ||||||
| Total revenues | 6,156 | 4,440 | ||||||
| Costs of revenues: | ||||||||
| Costs of verification and certification services | 2,036 | 1,793 | ||||||
| Costs of products | 537 | 457 | ||||||
| Costs of software and related consulting | 1,186 | 328 | ||||||
| Total costs of revenues | 3,759 | 2,578 | ||||||
| Gross profit | 2,397 | 1,862 | ||||||
| Selling, general and administrative expenses | 1,774 | 1,773 | ||||||
| Income from operations | 623 | 89 | ||||||
| Other income/(expense): | ||||||||
| Dividend income from Progressive Beef | 50 | 30 | ||||||
| Other income, net | - | 1 | ||||||
| Loan forgiveness from Paycheck Protection Program | - | 1,037 | ||||||
| Gain on sale of assets | - | 9 | ||||||
| Loss on foreign currency exchange | (12 | ) | (2 | ) | ||||
| Interest expense | (1 | ) | (3 | ) | ||||
| Income before income taxes | 660 | 1,161 | ||||||
| Income tax expense | 163 | 11 | ||||||
| Net income | $ | 497 | $ | 1,150 | ||||
| Per share - net income: | ||||||||
| Basic | $ | 0.08 | $ | 0.19 | ||||
| Diluted | $ | 0.08 | $ | 0.19 | ||||
| Weighted average number of common shares outstanding: | ||||||||
| Basic | 6,067 | 6,136 | ||||||
| Diluted | 6,150 | 6,231 | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 4 |
Where Food Comes From, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
| Three months ended March 31, | ||||||||
| (Amounts in thousands) | 2021 | 2020 | ||||||
| Operating activities: | ||||||||
| Net income/(loss) | $ | 1,150 | $ | (241 | ) | |||
| Adjustments to reconcile net loss to net cash | ||||||||
| provided by operating activities: | ||||||||
| Depreciation and amortization | 202 | 233 | ||||||
| Gain on sale of assets | (9 | ) | - | |||||
| Stock-based compensation expense | 25 | 31 | ||||||
| Deferred tax expense/(benefit) | 34 | (5 | ) | |||||
| Bad debt expense | 28 | - | ||||||
| Forgiveness of note payable from Paycheck Protection Program | (1,037 | ) | - | |||||
| Changes in operating assets and liabilities, net of effect from acquisitions: | ||||||||
| Accounts receivable | 614 | 543 | ||||||
| Short-term investments | - | (1 | ) | |||||
| Prepaid expenses and other assets | (381 | ) | 161 | |||||
| Accounts payable | 26 | (342 | ) | |||||
| Accrued expenses and other current liabilities | 309 | (91 | ) | |||||
| Deferred revenue | 203 | 616 | ||||||
| Right of use assets and liabilities, net | 2 | (8 | ) | |||||
| Net cash provided by operating activities | 1,166 | 896 | ||||||
| Investing activities: | ||||||||
| Acquisition of Postelsia Holdings, Ltd. | - | (300 | ) | |||||
| Purchases of property, equipment and software development costs | (170 | ) | (110 | ) | ||||
| Net cash used in investing activities | (170 | ) | (410 | ) | ||||
| Financing activities: | ||||||||
| Repayments of finance lease obligations | (3 | ) | (2 | ) | ||||
| Proceeds from stock option exercise | 40 | - | ||||||
| Stock repurchase under Stock Buyback Plan | (411 | ) | (158 | ) | ||||
| Net cash used in financing activities | (374 | ) | (160 | ) | ||||
| Net change in cash | 622 | 326 | ||||||
| Cash at beginning of period | 4,374 | 2,638 | ||||||
| Cash at end of period | $ | 4,996 | $ | 2,964 | ||||
| Three months ended March 31, | ||||||||
| (Amounts in thousands) | 2022 | 2021 | ||||||
| Operating activities: | ||||||||
| Net income | $ | 497 | $ | 1,150 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | 195 | 202 | ||||||
| Gain on sale of assets | - | (9 | ) | |||||
| Stock-based compensation expense | 51 | 25 | ||||||
| Deferred tax (benefit) / expense | (19 | ) | 34 | |||||
| Bad debt expense | 5 | 28 | ||||||
| Forgiveness of note payable from Paycheck Protection Program | - | (1,037 | ) | |||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | (27 | ) | 614 | |||||
| Inventory | (48 | ) | (350 | ) | ||||
| Prepaid expenses and other assets | (56 | ) | (31 | ) | ||||
| Accounts payable | 147 | 26 | ||||||
| Accrued expenses and other current liabilities | 613 | 309 | ||||||
| Deferred revenue | (236 | ) | 203 | |||||
| Right of use assets and liabilities, net | (2 | ) | 2 | |||||
| Net cash provided by operating activities | 1,120 | 1,166 | ||||||
| Investing activities: | ||||||||
| Purchases of property, equipment and software development costs | (16 | ) | (170 | ) | ||||
| Net cash used in investing activities | (16 | ) | (170 | ) | ||||
| Financing activities: | ||||||||
| Repayments of finance lease obligations | (3 | ) | (3 | ) | ||||
| Proceeds from stock option exercise | - | 40 | ||||||
| Stock repurchase under Stock Buyback Plan | (422 | ) | (411 | ) | ||||
| Net cash used in financing activities | (425 | ) | (374 | ) | ||||
| Net change in cash | 679 | 622 | ||||||
| Cash at beginning of period | 5,414 | 4,374 | ||||||
| Cash at end of period | $ | 6,093 | $ | 4,996 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
| 5 |
Where Food Comes From, Inc.
Consolidated Statement of Equity
(Unaudited)
| Additional | Additional | |||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock | Paid-in | Treasury | Retained | Common Stock | Paid-in | Treasury | Retained | |||||||||||||||||||||||||||||||||||||||||
| (Amounts in thousands) | Shares | Amount | Capital | Stock | Earnings | Total | Shares | Amount | Capital | Stock | Earnings | Total | ||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2019 (1) | 6,245 | $ | 6 | $ | 11,445 | $ | (1,665 | ) | $ | 2,163 | $ | 11,949 | ||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | - | - | 31 | - | - | 31 | ||||||||||||||||||||||||||||||||||||||||||
| Repurchase of common shares under Stock Buyback Plan | (21 | ) | - | - | (158 | ) | - | (158 | ) | |||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | (241 | ) | (241 | ) | ||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2020 | 6,224 | $ | 6 | $ | 11,476 | $ | (1,823 | ) | $ | 1,922 | $ | 11,581 | ||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2020 | 6,118 | $ | 6 | $ | 11,612 | $ | (2,702 | ) | $ | 3,548 | $ | 12,464 | 6,118 | $ | 6 | $ | 11,612 | $ | (2,702 | ) | $ | 3,548 | $ | 12,464 | ||||||||||||||||||||||||
| Stock-based compensation expense | - | - | 25 | - | - | 25 | - | - | 25 | - | - | 25 | ||||||||||||||||||||||||||||||||||||
Stock-based compensation expense, shares | ||||||||||||||||||||||||||||||||||||||||||||||||
| Stock options exercised | 18 | - | 40 | - | - | 40 | 18 | - | 40 | - | - | 40 | ||||||||||||||||||||||||||||||||||||
| Repurchase of common shares under Stock Buyback Plan | (29 | ) | - | - | (411 | ) | - | (411 | ) | (29 | ) | - | - | (411 | ) | - | (411 | ) | ||||||||||||||||||||||||||||||
| Net income | - | - | - | - | 1,150 | 1,150 | - | - | - | - | 1,150 | 1,150 | ||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2021 | 6,107 | $ | 6 | $ | 11,677 | $ | (3,113 | ) | $ | 4,698 | $ | 13,268 | 6,107 | $ | 6 | $ | 11,677 | $ | (3,113 | ) | $ | 4,698 | $ | 13,268 | ||||||||||||||||||||||||
| Balance at December 31, 2021 | 6,071 | $ | 6 | $ | 11,955 | $ | (3,807 | ) | $ | 5,595 | $ | 13,749 | ||||||||||||||||||||||||||||||||||||
| Beginning balance, value | 6,071 | $ | 6 | $ | 11,955 | $ | (3,807 | ) | $ | 5,595 | $ | 13,749 | ||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | 2 | - | 51 | - | - | 51 | ||||||||||||||||||||||||||||||||||||||||||
| Repurchase of common shares under Stock Buyback Plan | (34 | ) | - | - | (422 | ) | - | (422 | ) | |||||||||||||||||||||||||||||||||||||||
| Net income | - | - | - | - | 497 | 497 | ||||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2022 | 6,039 | $ | 6 | $ | 12,006 | $ | (4,229 | ) | $ | 6,092 | $ | 13,875 | ||||||||||||||||||||||||||||||||||||
| Ending balance, value | 6,039 | $ | 6 | $ | 12,006 | $ | (4,229 | ) | $ | 6,092 | $ | 13,875 | ||||||||||||||||||||||||||||||||||||
(1) The Balance at December 31, 2019 has been updated to reflect the impact of the 1-for-4 reverse stock split effective December 1, 2020.
The accompanying notes are an integral part of these consolidated financial statements.
| 6 |
Where Food Comes From, Inc.
Notes to the Consolidated Financial Statements
(Unaudited)
Note 1 - The Company and Basis of Presentation
Business Overview
Where Food Comes From, Inc. is a Colorado corporation based in Castle Rock, Colorado (“WFCF”, the “Company,” “our,” “we,” or “us”). We are an independent, third-party food verification company conducting 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 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. We strive to ensure that everyone involved in the food business - from growers and farmers to retailers and shoppers – can count on WFCF to provide authentic and transparent information about the food we eat and how, where, and by whom it is produced.
We also 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.
Most of our customers are located throughout the United States.
Basis of Presentation
Our unaudited consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and include the results of operations, financial position and cash flows of Where Food Comes From, Inc. and its subsidiaries, Where Food Comes From Organic, Inc. (“WFCFO”), Validus Verifications Services, LLC (“Validus”), Sterling Solutions (“Sterling”), SureHarvest Services, Inc. (“SureHarvest”), A Bee Organic, Sow Organic, JVF Consulting and Postelsia Holdings, Ltd. (“Postelsia”) (collectively referred to as “we,” “us,” and “our” throughout this Form 10-Q). The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues, costs and expenses during the reporting period. All significant intercompany transactions and amounts have been eliminated. The results of businesses acquired are included in the consolidated financial statements from the date of the acquisition. Actual results could differ from the estimates.
The consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and should be read in conjunction with our audited financial statements and footnotes thereto for the year ended December 31, 2020,2021, included in our Form 10-K filed on February 18, 2021.28, 2022. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to such rules and regulations. However, we believe that the disclosures are adequate to make the information presented not misleading. Certain prior year amounts have been reclassified to conform to current year presentation. Net lossincome and shareholders’ equity were not affected by these reclassifications. The financial statements reflect all adjustments (consisting primarily of normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation of our financial position and results of operations. The consolidated operating results for the three months ended March 31, 20212022 are not necessarily indicative of the results to be expected for any other interim period of any future year.
| 7 |
Where Food Comes From, Inc.
Notes to the Consolidated Financial Statements
(Unaudited)
Except as specifically indicated, all information in this Quarterly Report on Form 10-Q has been retroactively adjusted to give effect to a 1-for-4 reverse stock split that was effective on December 1, 2020.Seasonality
Seasonality
Our business is subject to seasonal fluctuations. Significant portions of our verification and certification service revenue are 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.
Recent Accounting Pronouncements
The Financial Accounting Standards Board (FASB) Accounting Standards Codification is the sole source of authoritative GAAP other than SEC issued rules and regulations that apply only to SEC registrants. The FASB issues an Accounting Standards Update (ASU) to communicate changes to the codification. The Company considers the applicability and impact of all ASU’s. ASU’s not listed below were assessed and determined to be either not applicable or are not expected to have a material impact on the consolidated financial statements.
Basic net income / (loss) per share was computed by dividing income available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted net income per share is based on the assumption that all dilutive convertible shares and stock options were converted or exercised. Dilution is computed by applying the treasury stock method. Under this method, options and restricted stock awards are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period.
The following is a reconciliation of the share data used in the basic and diluted income / (loss) per share computations (amounts in thousands):
| Three months ended March 31, | ||||||||
| (in thousands) | 2021 | 2020 | ||||||
| Basic: | ||||||||
| Weighted average shares outstanding | 6,136 | 6,237 | ||||||
| Diluted: | ||||||||
| Weighted average shares outstanding | 6,136 | 6,237 | ||||||
| Weighted average effects of dilutive securities | 95 | - | ||||||
| Total | 6,231 | 6,237 | ||||||
| Antidilutive securities: | - | 52 | ||||||
Schedule of Reconciliation of Basic and Diluted Income Per Share Computations
| Three months ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Basic: | ||||||||
| Weighted average shares outstanding | 6,067 | 6,136 | ||||||
| Diluted: | ||||||||
| Weighted average shares outstanding | 6,067 | 6,136 | ||||||
| Weighted average effects of dilutive securities | 83 | 95 | ||||||
| Total | 6,150 | 6,231 | ||||||
| Antidilutive securities: | 17 | - | ||||||
The effect of the inclusion of the antidilutive shares would have resulted in an increase in earnings per share. Accordingly, the weighted average shares outstanding have not been adjusted for antidilutive shares.
| 8 |
Where Food Comes From, Inc.
Notes to the Consolidated Financial Statements
(Unaudited)
Note 3 - Investment in Progressive Beef, LLC
For the three months ended March 31, 20212022 and March 31, 2020,2021, the Company received dividend income from Progressive Beef of $30,000$50,000 and $30,000, respectively, representing a distribution of their earnings. The income is reflected within the “Other income/(expense)” section of the Company’s Consolidated Statement of IncomeOperations for the three months ended March 31, 20212022 and March 31, 2020.2021.
Note 4 – Intangible and Other Assets
The following table summarizes our intangible and other assets (amounts in thousands, except useful life):
Schedule of Intangible and Other Assets
| March 31, | December 31, | Estimated | March 31, | December 31, | Estimated | ||||||||||||||||||
| 2021 | 2020 | Useful Life | 2022 | 2021 | Useful Life | ||||||||||||||||||
| Intangible assets subject to amortization: | |||||||||||||||||||||||
| Tradenames and trademarks | $ | 417 | $ | 417 | 2.5 - 8.0 years | $ | 417 | $ | 417 | 2.5 - 8.0 years | |||||||||||||
| Accreditations | 85 | 85 | 5.0 years | 75 | 75 | 5.0 years | |||||||||||||||||
| Customer relationships | 3,664 | 3,664 | 3.0 - 15.0 years | 3,664 | 3,664 | 3.0 - 15.0 years | |||||||||||||||||
| Patents | 970 | 970 | 4.0 years | 970 | 970 | 4.0 years | |||||||||||||||||
| Non-compete agreements | 121 | 121 | 5.0 years | 121 | 121 | 5.0 years | |||||||||||||||||
| 5,257 | 5,257 | ||||||||||||||||||||||
| Intangible and other assets, gross | 5,247 | 5,247 | |||||||||||||||||||||
| Less accumulated amortization | 2,877 | 2,795 | 3,246 | 3,154 | |||||||||||||||||||
| 2,380 | 2,462 | ||||||||||||||||||||||
| Intangible and other assets, net | 2,001 | 2,093 | |||||||||||||||||||||
| Tradenames/trademarks (not subject to amortization) | 465 | 465 | 465 | 465 | |||||||||||||||||||
| 2,845 | 2,927 | ||||||||||||||||||||||
| Intangible assets | 2,466 | 2,558 | |||||||||||||||||||||
| Other assets | 13 | 21 | 25 | 23 | |||||||||||||||||||
| Intangible and other assets: | $ | 2,858 | $ | 2,948 | $ | 2,491 | $ | 2,581 | |||||||||||||||
Note 5 – Accrued Expenses and Other Current Liabilities
The following table summarizes our accrued expenses and other current liabilities as of (amounts in thousands):
Schedule of Accrued Expenses and Other Current Liabilities
| March 31, | December 31, | March 31, | December 31, | |||||||||||||
| 2021 | 2020 | 2022 | 2021 | |||||||||||||
| Income and sales taxes payable | $ | 136 | $ | 168 | $ | 376 | $ | 185 | ||||||||
| Payroll related accruals | 416 | 271 | 412 | 288 | ||||||||||||
| Customer deposits | 68 | 31 | 101 | 76 | ||||||||||||
| Professional fees and other expenses | 288 | 129 | 435 | 161 | ||||||||||||
| $ | 908 | $ | 599 | |||||||||||||
| Accrued expenses and other current liabilities | $ | 1,324 | $ | 710 | ||||||||||||
| 9 |
Where Food Comes From, Inc.
Notes to the Consolidated Financial Statements
(Unaudited)
Note 6 – Notes Payable
Long Term Debt
| March 31, | December 31, | |||||||
| 2021 | 2020 | |||||||
| (In thousands) | ||||||||
| Paycheck Protection Program Loan | $ | - | $ | 1,035 | ||||
| Less current portion of notes payable and other long-term debt | - | (463 | ) | |||||
| Notes payable and other long-term debt | $ | - | $ | 572 | ||||
The Coronavirus Aid, Relief, and Economic Security (“CARES”) Act allocated $350 billion to help small businesses keep workers employed amid the pandemic and economic downturn. Known as the Paycheck Protection Program (“PPP”), the initiative provides federally guaranteed loans to small businesses. These loans may be forgiven if borrowers maintain their payrolls during the crisis or restore their payrolls afterward. The Company received notification the loan and accrued interest was forgiven on March 4, 2021.
Unison Revolving Line of Credit
The Company has a revolving line of credit (“LOC”) agreement which matures April 12, 2022.2025. The LOC provides for $75,080$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 on maturity. As of March 31, 20212022 and December 31, 2020,2021, the effective interest rate for both periods was 5.00% and 4.75%., respectively. The LOC is collateralized by all the business assets of ICS. As of March 31, 2021,2022, and December 31, 2020,2021, there were no0 amounts outstanding under this LOC.
In addition to cash compensation, the Company may compensate certain service providers, including employees, directors, consultants, and other advisors, with equity-based compensation in the form of stock options, stock awards and restricted stock awards. 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 at the date of grant using the Black-Scholes-Merton option pricing model. For stock awards and 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. For the periods presented, all stock-based compensation expense was classified as a component within selling, general and administrative expense in the Company’s consolidated statements of operations.
Schedule of Stock-based Compensation Expense
| Three months ended March 31, | Three months ended March 31, | |||||||||||||||
| 2021 | 2020 | 2022 | 2021 | |||||||||||||
| Stock options | $ | 24 | $ | 30 | $ | 31 | $ | 24 | ||||||||
| Stock awards | 20 | - | ||||||||||||||
| Restricted stock awards | 1 | 1 | - | 1 | ||||||||||||
| Total | $ | 25 | $ | 31 | $ | 51 | $ | 25 | ||||||||
During the three months ended March 31, 2022, the Company awarded shares of the Company’s common stock at a fair market value price of $ per share to an employee of the Company. During the three months ended March 31, 2021, no stock options were awarded. During the three months ended March 31, 2020, the Company awarded stock options to purchase 5,000 shares of the Company’s common stock at an exercise price of $7.24 per share to employees of the Company (all share and dollar amounts have been adjusted to reflect the 1-for-4 reverse split that occurred in December 2020).
Where Food Comes From, Inc.
Notes to the Consolidated Financial Statements
(Unaudited)
The Company estimated the fair value of stock options using the Black-Scholes-Merton option pricing model with the following assumptions (all share amounts have been adjusted to reflect the 1-for-4 reverse split that occurred in December 2020):
| Three months ended March 31, | ||||||||
| 2021 | 2020 | |||||||
| Number of options awarded to purchase common shares | 0 | 5,000 | ||||||
| Risk-free interest rate | N/A | 1.56 | % | |||||
| Expected volatility | N/A | 97.0 | % | |||||
| Assumed dividend yield | N/A | N/A | ||||||
| Expected life of options from the date of grant | N/A | 9.9 years | ||||||
The estimated unrecognized compensation cost from unvested awards which will be recognized ratably over the remaining vesting phase is as follows (amounts in thousands):
Schedule of Unrecognized Compensation Cost from Unvested Awards
| Years ended December 31st: | Unvested stock options | Unvested restricted stock awards | Total unrecognized compensation expense | |||||||||
| 2022 (remaining nine months) | $ | 67 | $ | - | $ | 67 | ||||||
| 2023 | 40 | - | 40 | |||||||||
| 2024 | 11 | - | 11 | |||||||||
| $ | 118 | $ | - | $ | 118 | |||||||
| 10 |
| Years ended December 31st: | Unvested stock options | Unvested restricted stock awards | Total unrecognized compensation expense | |||||||||
| 2021 (remaining nine months) | 49 | - | 49 | |||||||||
| 2022 | 20 | - | 20 | |||||||||
| 2023 | 4 | - | 4 | |||||||||
| 2024 | - | - | - | |||||||||
| $ | 73 | $ | - | $ | 73 | |||||||
Where Food Comes From, Inc.
Notes to the Consolidated Financial Statements
(Unaudited)
Equity Incentive Plans
Our 2006 Equity Incentive Plan (the “2006 Plan”) and 2016 Equity Incentive Plan (the “2016 Plan,” and together with the 2006 Plan, the “Plans”) provide for the issuance of stock-based awards to employees, officers, directors and consultants. The Plans permit the granting of stock awards and stock options. The vesting of stock-based awards is generally subject to the passage of time and continued employment through the vesting period.
Where Food Comes From, Inc.
Notes to the Consolidated Financial Statements
(Unaudited)
Stock Option Activity
| Weighted avg. | ||||||||||||||||||||
| Weighted avg. | Weighted avg. | remaining | ||||||||||||||||||
| Number of | exercise price | grant date fair | contractual life | Aggregate | ||||||||||||||||
| awards | per share | value per share | (in years) | intrinsic value | ||||||||||||||||
| Outstanding, December 31, 2020 | 105,086 | $ | 6.25 | $ | 6.06 | 5.38 | $ | 814,090 | ||||||||||||
| Granted | - | $ | - | $ | - | - | ||||||||||||||
| Exercised | (17,195 | ) | $ | 2.31 | $ | 2.25 | 1.27 | |||||||||||||
| Expired/Forfeited | (1,343 | ) | $ | 7.11 | $ | 6.65 | - | |||||||||||||
| Outstanding, March 31, 2021 | 86,548 | $ | 7.02 | $ | 6.81 | 5.86 | $ | 560,478 | ||||||||||||
| Exercisable, March 31, 2021 | 69,526 | $ | 6.93 | $ | 6.80 | 5.30 | $ | 456,726 | ||||||||||||
| Unvested, March 31, 2021 | 17,022 | $ | 7.40 | $ | 7.16 | 8.11 | $ | 103,752 | ||||||||||||
Schedule of Stock Option Activity
| Weighted avg. | ||||||||||||||||||||
| Weighted avg. | Weighted avg. | remaining | ||||||||||||||||||
| Number of | exercise price | grant date fair | contractual life | Aggregate | ||||||||||||||||
| awards | per share | value per share | (in years) | intrinsic value | ||||||||||||||||
| Outstanding, December 31, 2021 | 100,235 | $ | 8.36 | $ | 7.53 | $ | ||||||||||||||
| Granted | - | $ | - | $ | - | |||||||||||||||
| Exercised | - | $ | - | $ | - | |||||||||||||||
| Expired/Forfeited | - | $ | - | $ | - | |||||||||||||||
| Outstanding, March 31, 2022 | 100,235 | $ | 8.36 | $ | 7.53 | $ | 365,787 | |||||||||||||
| Exercisable, March 31, 2022 | 79,587 | $ | 7.03 | $ | 6.85 | $ | 351,711 | |||||||||||||
| Unvested, March 31, 2022 | 20,648 | $ | 13.50 | $ | 10.14 | $ | 14,076 | |||||||||||||
The aggregate intrinsic value represents the total pre-tax intrinsic value (the aggregate difference between the closing price of our common stock on March 31, 20212022 and the exercise price for the in-the-money options) that would have been received by the option holders if all the in-the-money options had been exercised on March 31, 2021.2022.
Restricted Stock Activity
RestrictedNon-vested stock award activity under our Equity Incentive Plans is summarized as follows (all share and dollar amounts have been adjustedfollows:
Schedule of Restricted Stock Activity Under Equity Incentive Plan
| Weighted avg. | ||||||||
| Number of | grant date | |||||||
| options | fair value | |||||||
| Non-vested shares, December 31, 2021 | - | $ | - | |||||
| Granted | 1,500 | $ | 13.45 | |||||
| Vested | (1,500 | ) | $ | 13.45 | ||||
| Forfeited | - | $ | - | |||||
| Non-vested shares, March 31, 2022 | - | $ | - | |||||
| 11 |
Where Food Comes From, Inc.
Notes to reflect the 1-for-4 reverse split that occurred in December 2020):Consolidated Financial Statements
| Weighted avg. | ||||||||
| Number of | grant date | |||||||
| options | fair value | |||||||
| Non-vested restricted shares, December 31, 2020 | 1,250 | $ | 10.20 | |||||
| Granted | - | $ | - | |||||
| Vested | (1,250 | ) | $ | 10.20 | ||||
| Forfeited | - | $ | - | |||||
| Non-vested restricted shares, March 31, 2021 | - | $ | - | |||||
(Unaudited)
Note 8 – Income Taxes
Deferred tax assets and liabilities have been determined based upon the differences between the financial statement amounts and the tax bases of assets and liabilities as measured by enacted tax rates expected to be in effect when these differences are expected to reverse. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized.
The provision or benefit for income taxes is recorded at the end of each interim period based on the Company’s best estimate of its effective income tax rate expected to be applicable for the full fiscal year. For the three months ended March 31, 20212022 we recorded an income tax expense of approximately $11,000,$163,000, compared to income tax benefitexpense of $80,000$11,000 for the same 20202021 period. The effective tax rate for the three months ended March 31, 2021 iswas favorably impacted by the non-taxability of the PPP loan forgiveness income.
Where Food Comes From, Inc.
Notes to the Consolidated Financial Statements
(Unaudited)
Note 9 - Revenue Recognition
Disaggregation of Revenue
We have identified fourthree material revenue categories in our business: (i) verification and certification service revenue, (ii) product sales, (iii) software license, maintenance and support services revenue and (iv) software-relatedrelated consulting service revenue.
Revenue attributable to each of our identified revenue categories is disaggregated in the table below (amounts in thousands).
| Three months ended March 31, 2021 | Three months ended March 31, 2020 | |||||||||||||||||||||||||||||||
| Verification and Certification Segment | Software Sales and Related Consulting Segment | Eliminations and Other | Consolidated Totals | Verification and Certification Segment | Software Sales and Related Consulting Segment | Eliminations and Other | Consolidated Totals | |||||||||||||||||||||||||
| Revenues: | ||||||||||||||||||||||||||||||||
| Verification and certification service revenue | $ | 3,263 | $ | - | $ | - | $ | 3,263 | $ | 2,803 | $ | - | $ | - | $ | 2,803 | ||||||||||||||||
| Product sales | 724 | - | - | 724 | 725 | - | - | 725 | ||||||||||||||||||||||||
| Software license, maintenance and support services revenue | - | 141 | - | 141 | - | 233 | (90 | ) | 143 | |||||||||||||||||||||||
| Software-related consulting service revenue | - | 312 | - | 312 | - | 265 | (24 | ) | 241 | |||||||||||||||||||||||
| Total revenues | $ | 3,987 | $ | 453 | $ | - | $ | 4,440 | $ | 3,528 | $ | 498 | $ | (114 | ) | $ | 3,912 | |||||||||||||||
Schedule of Revenues Disaggregated by Revenue
| Three months ended March 31, 2022 | Three months ended March 31, 2021 | |||||||||||||||||||||||||||||||
| Verification and Certification Segment | Software Sales and Related Consulting Segment | Eliminations and Other | Consolidated Totals | Verification and Certification Segment | Software Sales and Related Consulting Segment | Eliminations and Other | Consolidated Totals | |||||||||||||||||||||||||
| Revenues: | ||||||||||||||||||||||||||||||||
| Verification and certification service revenue | $ | 3,784 | $ | - | $ | - | $ | 3,784 | $ | 3,263 | $ | - | $ | - | $ | 3,263 | ||||||||||||||||
| Product sales | 1,007 | - | - | 1,007 | 724 | - | - | 724 | ||||||||||||||||||||||||
| Software and related consulting revenue | - | 1,365 | - | 1,365 | - | 453 | - | 453 | ||||||||||||||||||||||||
| Total revenues | $ | 4,791 | $ | 1,365 | $ | - | $ | 6,156 | $ | 3,987 | $ | 453 | $ | - | $ | 4,440 | ||||||||||||||||
Contract Balances
As of March 31, 2021,2022 and December 31, 2020,2021, accounts receivable from contracts with customers, net of allowance for doubtful accounts, werewas approximately $1.9 and $2.5 million, respectively.$2.2 million.
As of March 31, 2021,2022 and December 31, 2020,2021, deferred revenue from contracts with customers was approximately $1.3$1.3 and $1.1$1.5 million, respectively. The balance of the contract liabilities at March 31, 20212022 and December 31, 20202021 are expected to be recognized as revenue within one year or less of the invoice date.
The following table reflects the changes in our contract liabilities during the three month period ended March 31, 20212022 (amounts in thousands):
Schedule of Changes in Contract with Customer Liabilities
| Deferred revenue: | ||||||||
| Unearned revenue January 1, 2021 | $ | 1,132 | ||||||
| Unearned revenue December 31, 2021 | $ | 1,513 | ||||||
| Unearned billings | 1,604 | 1,771 | ||||||
| Revenue recognized | (1,401 | ) | (2,007 | ) | ||||
| Unearned revenue March 31, 2021 | $ | 1,335 | ||||||
| Unearned revenue March 31, 2022 | $ | 1,277 | ||||||
Where Food Comes From, Inc.
Notes to the Consolidated Financial Statements
(Unaudited)
Note 10 – Leases
The components of lease expense were as follows (amounts in thousands):
Schedule of Lease Expense
| Three months ended | ||||||||
| March 31, 2021 | March 31, 2020 | |||||||
| Operating lease cost | $ | 116 | $ | 116 | ||||
| Finance lease cost | ||||||||
| Amortization of assets | 2 | 2 | ||||||
| Interest on finance lease obligations | 1 | 1 | ||||||
| Total net lease cost | $ | 119 | $ | 119 | ||||
| Three months ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Operating lease cost | $ | 123 | $ | 116 | ||||
| Finance lease cost | ||||||||
| Amortization of assets | 2 | 2 | ||||||
| Interest on finance lease obligations | 1 | 1 | ||||||
| Variable lease cost | - | - | ||||||
| Total net lease cost | $ | 126 | $ | 119 | ||||
Included in the table above, is $0.1$0.1 million for the three months ended March 31, 2022 and 2021, of operating lease cost for our corporate headquarters. This space is being leased from The Move, LLC. Our CEO and President, each a related party to WFCF, have a 24.3% jointly-held ownership interest in The Move, LLC.
Supplemental balance sheet information related to leases was as follows (amounts in thousands):
Schedule of Supplemental Balance Sheet Information Related to Leases
| March 31, 2022 | December 31, 2021 | |||||||||||||||||||||||
| Operating leases: | Related Party | Other | Total | Related Party | Other | Total | ||||||||||||||||||
| Operating lease ROU assets | $ | 2,518 | $ | 203 | $ | 2,721 | $ | 2,568 | $ | 230 | $ | 2,798 | ||||||||||||
| Current operating lease liabilities | $ | 206 | $ | 108 | $ | 314 | $ | 201 | $ | 112 | $ | 313 | ||||||||||||
| Noncurrent operating lease liabilities | 2,826 | 115 | 2,941 | 2,880 | 140 | 3,020 | ||||||||||||||||||
| Total operating lease liabilities | $ | 3,032 | $ | 223 | $ | 3,255 | $ | 3,081 | $ | 252 | $ | 3,333 | ||||||||||||
| March 31, 2022 | December 31, 2021 | |||||||
| Finance leases: | ||||||||
| Property and equipment, at cost | $ | 51 | $ | 51 | ||||
| Accumulated amortization | (28 | ) | (26 | ) | ||||
| Property and equipment, net | $ | 23 | $ | 25 | ||||
| Current obligations of finance leases | $ | 12 | $ | 13 | ||||
| Finance leases, net of current obligations | 17 | 19 | ||||||
| Total finance lease liabilities | $ | 29 | $ | 32 | ||||
| Weighted average remaining lease term (in years): | ||||||||
| Operating leases | 8.9 | 9.1 | ||||||
| Finance leases | 2.9 | 3.1 | ||||||
| Weighted average discount rate: | ||||||||
| Operating leases | 5.7 | % | 5.7 | % | ||||
| Finance leases | 11.1 | % | 11.5 | % | ||||
| 13 |
| March 31, 2021 | December 31, 2020 | |||||||||||||||||||||||
| Operating leases: | Related Party | Other | Total | Related Party | Other | Total | ||||||||||||||||||
| Operating lease ROU assets | $ | 2,709 | $ | 217 | $ | 2,926 | $ | 2,755 | $ | 238 | $ | 2,993 | ||||||||||||
| Current operating lease liabilities | $ | 184 | $ | 91 | $ | 275 | $ | 179 | $ | 89 | $ | 268 | ||||||||||||
| Noncurrent operating lease liabilities | 3,032 | 154 | 3,186 | 3,079 | 178 | 3,257 | ||||||||||||||||||
| Total operating lease liabilities | $ | 3,216 | $ | 245 | $ | 3,461 | $ | 3,258 | $ | 267 | $ | 3,525 | ||||||||||||
| Finance leases: | March 31, 2021 | December 31, 2020 | ||||||
| Property and equipment, at cost | $ | 67 | $ | 67 | ||||
| Accumulated amortization | (33 | ) | (30 | ) | ||||
| Property and equipment, net | $ | 34 | $ | 37 | ||||
| Current obligations of finance leases | $ | 12 | $ | 13 | ||||
| Finance leases, net of current obligations | 29 | 31 | ||||||
| Total finance lease liabilities | $ | 41 | $ | 44 | ||||
| Weighted average remaining lease term (in years): | ||||||||
| Operating leases | 9.8 | 10.0 | ||||||
| Finance leases | 3.6 | 3.7 | ||||||
| Weighted average discount rate: | ||||||||
| Operating leases | 5.8 | % | 5.8 | % | ||||
| Finance leases | 12.6 | % | 13.0 | % | ||||
Where Food Comes From, Inc.
Notes to the Consolidated Financial Statements
(Unaudited)
Supplemental cash flow and other information related to leases was as follows (amounts in thousands):
Schedule of Supplemental Cash Flow Information Related to Leases
| Three months ended | Three months ended March 31, | |||||||||||||||
| March 31, 2021 | March 31, 2020 | 2022 | 2021 | |||||||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||||||||||
| Operating cash flows from operating leases | $ | 114 | $ | 111 | $ | 125 | $ | 114 | ||||||||
| Operating cash flows from finance leases | $ | 1 | $ | 1 | $ | 1 | $ | 1 | ||||||||
| Financing cash flows from finance leases | $ | 3 | $ | 2 | $ | 3 | $ | 3 | ||||||||
| ROU assets obtained in exchange for lease liabilities: | ||||||||||||||||
| Operating leases | $ | 3,531 | $ | 3,507 | $ | 3,110 | $ | 3,531 | ||||||||
Maturities of lease liabilities were as follows (amounts in thousands):
Schedule of Maturities of Operating Lease and Finance Lease Liabilities
| Years Ending December 31st, | Operating Leases | Finance Leases | Operating Leases | Finance Leases | ||||||||||||
| 2021 (nine remaining months) | $ | 347 | $ | 13 | ||||||||||||
| 2022 | 466 | 15 | ||||||||||||||
| 2022 (nine remaining months) | $ | 369 | $ | 11 | ||||||||||||
| 2023 | 461 | 10 | 480 | 10 | ||||||||||||
| 2024 | 407 | 5 | 419 | 5 | ||||||||||||
| 2025 | 405 | 5 | 417 | 6 | ||||||||||||
| 2026 | 430 | - | ||||||||||||||
| Thereafter | 2,497 | - | 2,078 | - | ||||||||||||
| Total lease payments | 4,583 | 48 | 4,193 | 32 | ||||||||||||
| Less amount representing interest | (1,122 | ) | (7 | ) | (938 | ) | (3 | ) | ||||||||
| Total lease obligations | 3,461 | 41 | 3,255 | 29 | ||||||||||||
| Less current portion | (275 | ) | (12 | ) | (314 | ) | (12 | ) | ||||||||
| Long-term lease obligations | $ | 3,186 | $ | 29 | $ | 2,941 | $ | 17 | ||||||||
Note 11 – Commitments and Contingencies
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.
Note 12 - Segments
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 one1 verification and certification reportable segment. The operating segments included in the aggregated verification and certification segment include IMI Global, WFCFO 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.
| 14 |
Where Food Comes From, Inc.
Notes to the Consolidated Financial Statements
(Unaudited)
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, support and software-relatedrelated consulting service revenues.
Where Food Comes From, Inc.
Notes to the Consolidated Financial Statements
(Unaudited)
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 reporting operating segment information. Performance of operating segments are based on net sales, gross profit, selling, general and administrative expenses and most importantly, operating income.
The Company eliminates intercompany transfers between segments for management reporting purposes. The following table shows information for reportable operating segments (amounts in thousands):
Schedule of Operating Segments
| Three months ended March 31, 2021 | Three months ended March 31, 2020 | |||||||||||||||||||||||||||||||
| Verification and Certification Segment | Software Sales and Related Consulting Segment | Eliminations and Other | Consolidated Totals | Verification and Certification Segment | Software Sales and Related Consulting Segment | Eliminations and Other | Consolidated Totals | |||||||||||||||||||||||||
| Assets: | ||||||||||||||||||||||||||||||||
| Goodwill | $ | 1,947 | $ | 999 | $ | - | $ | 2,946 | $ | 1,133 | $ | 1,813 | $ | - | $ | 2,946 | ||||||||||||||||
| All other assets, net | 17,545 | 2,891 | (3,694 | ) | 16,742 | 15,866 | 3,711 | (4,530 | ) | 15,047 | ||||||||||||||||||||||
| Total assets | $ | 19,492 | $ | 3,890 | $ | (3,694 | ) | $ | 19,688 | $ | 16,999 | $ | 5,524 | $ | (4,530 | ) | $ | 17,993 | ||||||||||||||
| Revenues: | ||||||||||||||||||||||||||||||||
| Verification and certification service revenue | $ | 3,263 | $ | - | $ | - | $ | 3,263 | $ | 2,803 | $ | - | $ | - | $ | 2,803 | ||||||||||||||||
| Product sales | 724 | - | - | 724 | 725 | - | - | 725 | ||||||||||||||||||||||||
| Software license, maintenance and support services revenue | - | 141 | - | 141 | - | 233 | (90 | ) | 143 | |||||||||||||||||||||||
| Software-related consulting service revenue | - | 312 | - | 312 | - | 265 | (24 | ) | 241 | |||||||||||||||||||||||
| Total revenues | $ | 3,987 | $ | 453 | $ | - | $ | 4,440 | $ | 3,528 | $ | 498 | $ | (114 | ) | $ | 3,912 | |||||||||||||||
| Costs of revenues: | ||||||||||||||||||||||||||||||||
| Costs of verification and certification services | 1,793 | - | - | 1,793 | 1,624 | - | (90 | ) | 1,534 | |||||||||||||||||||||||
| Costs of products | 457 | - | - | 457 | 502 | - | - | 502 | ||||||||||||||||||||||||
| Costs of software license, maintenance and support services | - | 100 | - | 100 | - | 146 | - | 146 | ||||||||||||||||||||||||
| Costs of software-related consulting services | - | 228 | - | 228 | - | 120 | - | 120 | ||||||||||||||||||||||||
| Total costs of revenues | 2,250 | 328 | - | 2,578 | 2,126 | 266 | (90 | ) | 2,302 | |||||||||||||||||||||||
| Gross profit | 1,737 | 125 | - | 1,862 | 1,402 | 232 | (24 | ) | 1,610 | |||||||||||||||||||||||
| Depreciation & amortization | 151 | 51 | - | 202 | 88 | 146 | - | 234 | ||||||||||||||||||||||||
| Other operating expenses | 1,479 | 92 | - | 1,571 | 1,537 | 217 | (24 | ) | 1,730 | |||||||||||||||||||||||
| Segment operating income/(loss) | $ | 107 | $ | (18 | ) | $ | - | $ | 89 | $ | (223 | ) | $ | (131 | ) | $ | - | $ | (354 | ) | ||||||||||||
| Other items to reconcile segment operating income (loss) to net income/(loss): | ||||||||||||||||||||||||||||||||
| Other income | 35 | - | 1,037 | 1,072 | 30 | 3 | - | 33 | ||||||||||||||||||||||||
| Income tax (expense)/benefit | - | - | (11 | ) | (11 | ) | - | - | 80 | 80 | ||||||||||||||||||||||
| Net income/(loss) | $ | 142 | $ | (18 | ) | $ | 1,026 | $ | 1,150 | $ | (193 | ) | $ | (128 | ) | $ | 80 | $ | (241 | ) | ||||||||||||
| Three months ended March 31, 2022 | Three months ended March 31, 2021 | |||||||||||||||||||||||||||||||
| Verification and Certification Segment | Software Sales and Related Consulting Segment | Eliminations and Other | Consolidated Totals | Verification and Certification Segment | Software Sales and Related Consulting Segment | Eliminations and Other | Consolidated Totals | |||||||||||||||||||||||||
| Assets: | ||||||||||||||||||||||||||||||||
| Goodwill | $ | 1,947 | $ | 999 | $ | - | $ | 2,946 | $ | 1,947 | $ | 999 | $ | - | $ | 2,946 | ||||||||||||||||
| All other assets, net | 14,860 | 3,815 | (1,267 | ) | 17,408 | 17,545 | 2,891 | (3,694 | ) | 16,742 | ||||||||||||||||||||||
| Total assets | $ | 16,807 | $ | 4,814 | $ | (1,267 | ) | $ | 20,354 | $ | 19,492 | $ | 3,890 | $ | (3,694 | ) | $ | 19,688 | ||||||||||||||
| Revenues: | ||||||||||||||||||||||||||||||||
| Verification and certification service revenue | $ | 3,784 | $ | - | $ | - | $ | 3,784 | $ | 3,263 | $ | - | $ | - | $ | 3,263 | ||||||||||||||||
| Product sales | 1,007 | - | - | 1,007 | 724 | - | - | 724 | ||||||||||||||||||||||||
| Software and related consulting revenue | - | 1,365 | - | 1,365 | - | 453 | - | 453 | ||||||||||||||||||||||||
| Total revenues | $ | 4,791 | $ | 1,365 | $ | - | $ | 6,156 | $ | 3,987 | $ | 453 | $ | - | $ | 4,440 | ||||||||||||||||
| Costs of revenues: | ||||||||||||||||||||||||||||||||
| Costs of verification and certification services | 2,036 | - | - | 2,036 | 1,793 | - | - | 1,793 | ||||||||||||||||||||||||
| Costs of products | 537 | - | - | 537 | 457 | - | - | 457 | ||||||||||||||||||||||||
| Costs of software and related consulting | - | 1,186 | - | 1,186 | - | 328 | - | 328 | ||||||||||||||||||||||||
| Total costs of revenues | 2,573 | 1,186 | - | 3,759 | 2,250 | 328 | - | 2,578 | ||||||||||||||||||||||||
| Gross profit | 2,218 | 179 | - | 2,397 | 1,737 | 125 | - | 1,862 | ||||||||||||||||||||||||
| Depreciation & amortization | 145 | 50 | - | 195 | 151 | 51 | - | 202 | ||||||||||||||||||||||||
| Other operating expenses | 1,513 | 66 | - | 1,579 | 1,479 | 92 | - | 1,571 | ||||||||||||||||||||||||
| Segment operating income/(loss) | $ | 560 | $ | 63 | $ | - | $ | 623 | $ | 107 | $ | (18 | ) | $ | - | $ | 89 | |||||||||||||||
| Other items to reconcile segment operating income (loss) to net income/(loss): | ||||||||||||||||||||||||||||||||
| Other income / (expense) | 49 | (12 | ) | - | 37 | 35 | - | 1,037 | 1,072 | |||||||||||||||||||||||
| Income tax expense | - | - | (163 | ) | (163 | ) | - | - | (11 | ) | (11 | ) | ||||||||||||||||||||
| Net income/(loss) | $ | 609 | $ | 51 | $ | (163 | ) | $ | 497 | $ | 142 | $ | (18 | ) | $ | 1,026 | $ | 1,150 | ||||||||||||||
Note 13 – Supplemental Cash Flow Information
Schedule of Supplemental Cash Flow Information
| Three months ended March 31, | ||||||||
| (Amounts in thousands) | 2021 | 2020 | ||||||
| Cash paid during the year: | ||||||||
| Interest expense | $ | 1 | $ | 2 | ||||
| Income taxes | $ | - | $ | - | ||||
| Three months ended March 31, | ||||||||
| (Amounts in thousands) | 2022 | 2021 | ||||||
| Cash paid during the year: | ||||||||
| Interest expense | $ | - | $ | 1 | ||||
| Income taxes | $ | - | $ | - | ||||
Note 14 – Subsequent Events
The Company has had no material, significant or unusual transactions or events from the financial statement date through the issuance of the financial statements.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
This information should be read in conjunction with the consolidated financial statements and the notes included in Item 1 of Part I of this Quarterly Report and the audited consolidated financial statements and notes, and Management’s Discussion and Analysis of Financial Condition and Results of Operations, contained in the Form 10−K for the fiscal year ended December 31, 2020.2021. The following discussion and analysis includes historical and certain forward−looking information that should be read together with the accompanying consolidated financial statements, related footnotes and the discussion below of certain risks and uncertainties that could cause future operating results to differ materially from historical results or from the expected results indicated by forward−looking statements.
Business Overview
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 WFCFO,(“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 NASDAQ Capital Market (“NASDAQ”), under the stock ticker symbol, “WFCF.”
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.
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 ofuptick in 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 a detrimental effect in which the prolonged economicoutbreaks has continued to impact is uncertain. This could result in a variety of risks to our business including the inability to perform audits at our customers locations due to social distancing, supplier disruptions as a result of business closures, food systems that are in disarray resulting in global food shortages, euthanasia of animals and dumping of dairy products because farmers have no distribution channel, all of which could negatively influence our revenue and costs. The government may introduce healthcare reform measures for which we cannot predict the financial implication of on our 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 employees to work remotely until government mandates allow for normal business operations. 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 our customers and standard setting bodies andto identify innovative solutionssolutions. Additionally, in late 2021, we were informed by our key tag supplier that materials were becoming scarcer and the ability to offermeet our customers.need was difficult. In anticipation of this risk, we worked with all our tag suppliers to build our inventory by purchasing excess supply. We believe thatwe have reduced this risk, however, should material shortages continue to impact our transformative approach will help further differentiate us from competitors. Additionally,tag suppliers, we believe third party verification is an essential componentmay be unable to meet the food and agricultural supply chain and ensuresneeds of our future as a high quality provider of assurance services, thereby increasing the value of products in the food supply chain.customers which could materially impact our revenues.
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We will continue to monitor the COVID-19 situation closely and will react accordingly to any future restrictions or limitations, while keeping the interest of our customers and business in mind. DuePlease refer to our risk factors included in our Form 10-K for the uncertainty in the severity and duration of the pandemic, the impact on our revenues, profitability and statement of financial position is uncertain at this time.fiscal year ended December 31, 2021 for additional information related to COVID-19.
Seasonality
Our business is subject to seasonal fluctuations. Significant portions of our verification and certification service revenue areis 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.
Liquidity and Capital Resources
At March 31, 2021,2022, we had cash and cash equivalents and certificates of deposits (classified as short-term and long-term investments) of approximately $5.0$6.1 million compared to approximately $4.4$5.4 million at December 31, 2020.2021. Our working capital at March 31, 20212022 was approximately $4.6$6.0 million compared to $4.4$5.7 million at December 31, 2020.2021.
Net cash provided by operating activities for the three months ended March 31, 20212022 was approximately $1.2$1.1 million compared to $0.9$1.2 million during the same period in 2020.2021. Net cash provided by operating activities is driven by our net income and adjusted by non-cash items. Non-cash adjustments primarily include depreciation, amortization of intangible assets, 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 the periodsperiod ending March 31, 20212022 was primarily driven by a change in accrued expenses and 2020prepaid expenses. The cash provided by operating activities for the period ending March 31, 2021 was primarily driven by a change in accounts receivable, accounts payableinventory and deferred revenue.accrued expenses and other current liabilities.
Net cash used in investing activities for the three months ended March 31, 2021,2022, was approximately $0.2 million$16,000 compared to $0.4$0.2 million in the 20202021 period. Net cash used in the period ending March 31, 2022 and 2021 was primarily for the further development of internal use software. Net cash used in the March 31, 2020 period was primarily attributable to acquisition of Postelsia Holdings, Ltd for $0.3 million.
Net cash used in financing activities for the three months ended March 31, 2022 and 2021 was approximately $0.4 million compared to $0.2 million in the 2020 period.million. Cash used for the periodperiods ending March 31, 20212022 and March 31, 2020,2021, was primarily due to the repurchase of common shares under the Stock Buyback Plan.
Over the past several years, our growth has been funded primarily through 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.
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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 and bundling opportunities 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, 2022.2025. 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 March 31, 2021,2022, and December 31, 2020,2021, the effective interest rate was 4.75%5.00% and 4.75%, respectively. The LOC is collateralized by all the business assets of Where Food Comes From Organic, Inc. (“WFCFO”). As of March 31, 2021,2022, and December 31, 2020,2021, there were no amounts outstanding under this LOC.
On April 17, 2020, the Company received a $1.0 million loan under the PPP with a maturity date of April 17, 2022 and an annual interest rate of 1.00%. The Company received notification the loan and accrued interest amount was forgiven on March 4, 2021.
Off-Balance Sheet Arrangements
As of March 31, 2021,2022, we had no off-balance sheet arrangements of any type.
RESULTS OF OPERATIONS
Three months ended March 31, 20212022 compared to the same period in fiscal year 20202021
The following table shows information for reportable operating segments (amounts in thousands):
| Three months ended March 31, 2022 | Three months ended March 31, 2021 | |||||||||||||||||||||||||||||||
| Verification and Certification Segment | Software Sales and Related Consulting Segment | Eliminations and Other | Consolidated Totals | Verification and Certification Segment | Software Sales and Related Consulting Segment | Eliminations and Other | Consolidated Totals | |||||||||||||||||||||||||
| Assets: | ||||||||||||||||||||||||||||||||
| Goodwill | $ | 1,947 | $ | 999 | $ | - | $ | 2,946 | $ | 1,947 | $ | 999 | $ | - | $ | 2,946 | ||||||||||||||||
| All other assets, net | 14,860 | 3,815 | (1,267 | ) | 17,408 | 17,545 | 2,891 | (3,694 | ) | 16,742 | ||||||||||||||||||||||
| Total assets | $ | 16,807 | $ | 4,814 | $ | (1,267 | ) | $ | 20,354 | $ | 19,492 | $ | 3,890 | $ | (3,694 | ) | $ | 19,688 | ||||||||||||||
| Revenues: | ||||||||||||||||||||||||||||||||
| Verification and certification service revenue | $ | 3,784 | $ | - | $ | - | $ | 3,784 | $ | 3,263 | $ | - | $ | - | $ | 3,263 | ||||||||||||||||
| Product sales | 1,007 | - | - | 1,007 | 724 | - | - | 724 | ||||||||||||||||||||||||
| Software and related consulting revenue | - | 1,365 | - | 1,365 | - | 453 | - | 453 | ||||||||||||||||||||||||
| Total revenues | $ | 4,791 | $ | 1,365 | $ | - | $ | 6,156 | $ | 3,987 | $ | 453 | $ | - | $ | 4,440 | ||||||||||||||||
| Costs of revenues: | ||||||||||||||||||||||||||||||||
| Costs of verification and certification services | 2,036 | - | - | 2,036 | 1,793 | - | - | 1,793 | ||||||||||||||||||||||||
| Costs of products | 537 | - | - | 537 | 457 | - | - | 457 | ||||||||||||||||||||||||
| Costs of software and related consulting | - | 1,186 | - | 1,186 | - | 328 | - | 328 | ||||||||||||||||||||||||
| Total costs of revenues | 2,573 | 1,186 | - | 3,759 | 2,250 | 328 | - | 2,578 | ||||||||||||||||||||||||
| Gross profit | 2,218 | 179 | - | 2,397 | 1,737 | 125 | - | 1,862 | ||||||||||||||||||||||||
| Depreciation & amortization | 145 | 50 | - | 195 | 151 | 51 | - | 202 | ||||||||||||||||||||||||
| Other operating expenses | 1,513 | 66 | - | 1,579 | 1,479 | 92 | - | 1,571 | ||||||||||||||||||||||||
| Segment operating income/(loss) | $ | 560 | $ | 63 | $ | - | $ | 623 | $ | 107 | $ | (18 | ) | $ | - | $ | 89 | |||||||||||||||
| Other items to reconcile segment operating income (loss) to net income/(loss): | ||||||||||||||||||||||||||||||||
| Other income / (expense) | 49 | (12 | ) | - | 37 | 35 | - | 1,037 | 1,072 | |||||||||||||||||||||||
| Income tax expense | - | - | (163 | ) | (163 | ) | - | - | (11 | ) | (11 | ) | ||||||||||||||||||||
| Net income/(loss) | $ | 609 | $ | 51 | $ | (163 | ) | $ | 497 | $ | 142 | $ | (18 | ) | $ | 1,026 | $ | 1,150 | ||||||||||||||
| 18 |
| Three months ended March 31, 2021 | Three months ended March 31, 2020 | |||||||||||||||||||||||||||||||
| Verification and Certification Segment | Software Sales and Related Consulting Segment | Eliminations and Other | Consolidated Totals | Verification and Certification Segment | Software Sales and Related Consulting Segment | Eliminations and Other | Consolidated Totals | |||||||||||||||||||||||||
| Assets: | ||||||||||||||||||||||||||||||||
| Goodwill | $ | 1,947 | $ | 999 | $ | - | $ | 2,946 | $ | 1,133 | $ | 1,813 | $ | - | $ | 2,946 | ||||||||||||||||
| All other assets, net | 17,545 | 2,891 | (3,694 | ) | 16,742 | 15,866 | 3,711 | (4,530 | ) | 15,047 | ||||||||||||||||||||||
| Total assets | $ | 19,492 | $ | 3,890 | $ | (3,694 | ) | $ | 19,688 | $ | 16,999 | $ | 5,524 | $ | (4,530 | ) | $ | 17,993 | ||||||||||||||
| Revenues: | ||||||||||||||||||||||||||||||||
| Verification and certification service revenue | $ | 3,263 | $ | - | $ | - | $ | 3,263 | $ | 2,803 | $ | - | $ | - | $ | 2,803 | ||||||||||||||||
| Product sales | 724 | - | - | 724 | 725 | - | - | 725 | ||||||||||||||||||||||||
| Software license, maintenance and support services revenue | - | 141 | - | 141 | - | 233 | (90 | ) | 143 | |||||||||||||||||||||||
| Software-related consulting service revenue | - | 312 | - | 312 | - | 265 | (24 | ) | 241 | |||||||||||||||||||||||
| Total revenues | $ | 3,987 | $ | 453 | $ | - | $ | 4,440 | $ | 3,528 | $ | 498 | $ | (114 | ) | $ | 3,912 | |||||||||||||||
| Costs of revenues: | ||||||||||||||||||||||||||||||||
| Costs of verification and certification services | 1,793 | - | - | 1,793 | 1,624 | - | (90 | ) | 1,534 | |||||||||||||||||||||||
| Costs of products | 457 | - | - | 457 | 502 | - | - | 502 | ||||||||||||||||||||||||
| Costs of software license, maintenance and support services | - | 100 | - | 100 | - | 146 | - | 146 | ||||||||||||||||||||||||
| Costs of software-related consulting services | - | 228 | - | 228 | - | 120 | - | 120 | ||||||||||||||||||||||||
| Total costs of revenues | 2,250 | 328 | - | 2,578 | 2,126 | 266 | (90 | ) | 2,302 | |||||||||||||||||||||||
| Gross profit | 1,737 | 125 | - | 1,862 | 1,402 | 232 | (24 | ) | 1,610 | |||||||||||||||||||||||
| Depreciation & amortization | 151 | 51 | - | 202 | 88 | 146 | - | 234 | ||||||||||||||||||||||||
| Other operating expenses | 1,479 | 92 | - | 1,571 | 1,537 | 217 | (24 | ) | 1,730 | |||||||||||||||||||||||
| Segment operating income/(loss) | $ | 107 | $ | (18 | ) | $ | - | $ | 89 | $ | (223 | ) | $ | (131 | ) | $ | - | $ | (354 | ) | ||||||||||||
| Other items to reconcile segment operating income (loss) to net income/(loss): | ||||||||||||||||||||||||||||||||
| Other income | 35 | - | 1,037 | 1,072 | 30 | 3 | - | 33 | ||||||||||||||||||||||||
| Income tax (expense)/benefit | - | - | (11 | ) | (11 | ) | - | - | 80 | 80 | ||||||||||||||||||||||
| Net income/(loss) | $ | 142 | $ | (18 | ) | $ | 1,026 | $ | 1,150 | $ | (193 | ) | $ | (128 | ) | $ | 80 | $ | (241 | ) | ||||||||||||
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 three months ended March 31, 20212022 increased 16.4%16.0% compared to 2020,the same period in 2021, primarily due to 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 three months ended March 31, 2021 were relatively flat2022 increased 39.0% compared to the same period in 2020.2021, primarily due to increased pricing, increased demand and limited supply elsewhere in the market.
Costs of revenues for our verification and certification segment for the three months ended March 31, 20212022 were approximately $1.8$2.0 million compared to approximately $1.5$1.8 million for the same period in 2020.2021. Gross margin for the three months ended March 31, 20212022 was 43.6%46.3% compared to 37.2% (including eliminations)43.6% in 20202021 primarily due to larger revenue basea change in product mix of our offerings which included new customers and the three months ended March 31, 2020 revenue base was negatively impacted due to COVID-19.new offerings. Our margins are generally impacted by various costs such as cost of products, salaries and benefits, insurance and taxes.
Other operating expenses for the three months ended March 31, 20212022 slightly decreasedincreased by approximately 3.8%2.3% compared to the same three month period in 2020.2021. The increase was primarily due to increased compensation expense related to an increase in headcount. Depreciation and amortization expense for the three months ended March 31, 2021 increased 71.6%2022 decreased 4.0% compared to the same three month period in 2020. The increase in depreciation and amortization is predominately from shifting certain assets and personnel from SureHarvest to WFCF in 2020 to better support the entire Company.2021.
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 andprimarily represents fees earned from 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 three months ended March 31, 2021, software license, maintenanceSoftware and support services revenue was relatively flat compared 2020 (including eliminations).
Software-relatedrelated consulting service revenue primarily represents fees earned from professional appearances, customer education and training related services. Software-related consulting service revenue for the three months ended March 31, 20212022 increased approximately 26.8%201.3% compared to the same period in 2020 (including eliminations).2021. The three month increase is due to fluctuations in customer demanda significant short-term engagement with a Japanese party to promote Japanese seafood products into the American supply chain. While we are hopeful that the engagement will be an annual recurring source of revenue for our consulting services.segment, as well as a potential opportunity for our verification and certification segment, we can give no assurance that it will be an ongoing source of revenue. Additionally, because this was a short-term engagement, it is not necessarily indicative of the results that may be achieved for any other quarter or for the full fiscal year.
Costs of revenues for our software sales and related consulting segment for the three months ended March 31, 20212022 and March 31, 20202021 was approximately $1.2 and $0.3 million.million, respectively. Gross margin for the three months ended March 31, 2021 increased2022 decreased to 27.6%13.1% compared to 23.7% (including eliminations)27.6% for the same period in 2020.2021. The three month increasedecrease in gross margin is due primarily to increased cost of contract labor to support the increase in billable hours of staff focused on software enhancements and upgrades.short-term consulting engagement mentioned above.
Other operating expenses for the three months ended March 31, 20212022 decreased approximately 52.3%28.3% compared to the same period in 2020 (including eliminations).2021. Depreciation and amortization for the three months ended March 31, 20212022 decreased 65.1%2.0% compared to the same three month period in 2020.2021. The decrease is predominately due to the decreasea reduction in depreciation, amortization and personnel costs from shifting certain assets and personnel from SureHarvest to WFCFheadcount resulting in 2020 to better support the entire Company.less compensation expense.
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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 seen solid improvements in revenues and/or costs.
Dividend Income from Progressive Beef
For the three months ended March 31, 20212022 and March 31, 2020,2021, the Company received dividend income of $50,000 and $30,000, respectively, from Progressive Beef representing a distribution of their earnings.
Income Tax Expense
The provision for income taxes is recorded at the end of each interim period based on the Company’s best estimate of its effective income tax rate expected to be applicable for the full fiscal year. For the three months ended March 31, 2021,2022, we recorded income tax expense of approximately $11,000$163,000 compared to income tax benefitexpense of $80,000$11,000 for the same period in 2020.2021. The effective tax rate for the three months ended March 31, 2021 iswas favorably impacted by the non-taxability of the PPP loan forgiveness income.
Net Income and Per Share Information
As a result of the foregoing, net income attributable to WFCF shareholders for the three months ended March 31, 20212022 was approximately $0.5 million and $0.08 per basic and diluted common share, respectively, compared to net income of approximately $1.2 million and $0.19 per basic and diluted common share respectively, compared to net loss of approximately $0.2 million and ($0.04) per basic and diluted common share for the same period in 2020.2021.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, including our principal executive and financial officers, have conducted an evaluation of the effectiveness of the design and operation of our “disclosure controls and procedures,” as such term is defined under Rules 13a-15(e) and 15d-15(e) of the Exchange Act, to ensure that information we are required to disclose in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and include controls and procedures designed to ensure that information we are required to disclose in such reports is accumulated and communicated to management, including our principal executive and financial officers, as appropriate, to allow timely decisions regarding required disclosure. Based on that evaluation, our principal executive and financial officers concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report. We believe that the financial statements included in this report fairly present in all material respects our financial condition, results of operations and cash flows for the periods presented.
Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) of the Exchange Act. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements and can only provide reasonable assurance with respect to financial statement preparation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
There have not been any other changes in the Company’s internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II – OTHER INFORMATION
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. We are not aware of any significant legal actions at this time.
Our business is subject to a number of risks, including those identified in Item 1A. — “Risk Factors” of our 20202021 Annual Report on Form 10−K, that could have a material effect on our business, results of operations, financial condition and/or liquidity and that could cause our operating results to vary significantly from period to period. As of March 31, 2021,2022, the Company recognizes the coronavirus pandemic may have ana continued economic impact on the Company, but management does not know and cannot estimate what the long-term financial impact may be. We may also disclose changes to such factors or disclose additional factors from time to time in our future filings with the SEC.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer Purchases of Equity Securities
On September 30, 2019, our Board of Directors approved a new plan to buyback up to ten million additional shares of our common stock from the open market (“Stock Buyback Plan”). Activity for the three months ended March 31, 20212022 is as follows:
| Number of Shares (in thousands) | Cost of Shares (in thousands) | Average Cost per Share | ||||||||||
| Shares purchased - January 2021 | 10 | $ | 144 | $ | 14.40 | |||||||
| Shares purchased - February 2021 | 9 | 130 | $ | 14.44 | ||||||||
| Shares purchased - March 2021 | 10 | 137 | $ | 13.70 | ||||||||
| Total | 29 | $ | 411 | $ | 14.17 | |||||||
| Number of Shares | Cost of Shares (in thousands) | Average Cost per Share | ||||||||||
| Shares purchased - January 2022 | 9,550 | $ | 135 | $ | 14.17 | |||||||
| Shares purchased - February 2022 | 15,000 | 178 | $ | 11.85 | ||||||||
| Shares purchased - March 2022 | 9,000 | 109 | $ | 12.11 | ||||||||
| Total | 33,550 | $ | 422 | $ | 12.58 | |||||||
(a) Exhibits
| Number | Description | ||
31.1 | Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||
| 31.2 | Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||
| 32.1 | Certification of CEO pursuant to 18 U.S.C. Section 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002 | ||
| 32.2 | Certification of CFO pursuant to 18 U.S.C. Section 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002 | ||
| 101.INS | Inline XBRL Instance Document | ||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | ||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | ||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | ||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | ||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | ||
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
SIGNATURES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Date: May | Where Food Comes From, Inc. | |
| By: | /s/ John K. Saunders | |
| Chief Executive Officer | ||
| By: | ||
| /s/ Dannette Henning | ||
| Chief Financial Officer |