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What changed in Where Food Comes From, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Where Food Comes From, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+142 added−138 removedSource: 10-K (2024-02-15) vs 10-K (2023-02-23)

Top changes in Where Food Comes From, Inc.'s 2023 10-K

142 paragraphs added · 138 removed · 111 edited across 5 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeOur product sales are an ancillary part of our verification and certification services and represent sales of cattle identification ear tags. Our product sales allow us to offer our customers a comprehensive solution. Approximately 17.6% and 17.5% of our total revenue was generated by the sale of product during the years ended December 31, 2022 and 2021, respectively.
Biggest changeOur product sales allow us to offer our customers a comprehensive solution. Approximately 15.9% and 17.6% of our total revenue was generated by the sale of product during the years ended December 31, 2023 and 2022, respectively. We continue to see some new customer growth, but our customers are ordering less tags due to smaller beef cow herd size.
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.
Department of Agriculture’s (“USDA”) Animal Disease Traceability program, international export requirements, non-GMO and gluten-free testing requirements, and ingredient labeling regulations are all impacting product verification.
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 2022 or 2021. With each acquisition, we assess the need to disclose discrete information related to our operating segments.
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 2023 or 2022. With each acquisition, we assess the need to disclose discrete information related to our operating segments.
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.
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 professional services for most food groups and over 50 programs and organizations.
As of December 31, 2022, 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.
As of December 31, 2023, 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.
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 John Saunders , 51, founded the Company in 1998 and has served as the Chief Executive Officer since then. Mr.
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 John Saunders , 52, founded the Company in 1998 and has served as the Chief Executive Officer since then. Mr.
Leann Saunders , 52, 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.
Leann Saunders , 53, 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.
This segment includes a wide range of professional consulting services and 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.
This segment includes a wide range of professional consulting, data analysis, reporting and 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.
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 and related consulting reportable segment. SureHarvest, which includes Postelsia, is the sole operating unit under the software and related consulting reportable segment.
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 segment offering professional services. SureHarvest, which includes Postelsia, is the sole operating unit under this reportable segment.
We believe our solutions and expertise within the agrifood supply chain can assist companies in pursuing and reporting their sustainability strategies. 6 REVENUES We offer a wide array of services, including verification, certification, consulting and software as a service (“SaaS”), to help food producers, brands and consumers differentiate certain attributes and production methods in the marketplace.
We believe our solutions and expertise within the agrifood supply chain can assist companies in pursuing and reporting their sustainability strategies. 6 REVENUES We offer a wide array of services, including verification, certification, consulting and other professional services, to help food producers, brands and consumers differentiate certain attributes and production methods in the marketplace.
We believe the EU quota will continue to fuel demand for non-hormone treated cattle (“NHTC”). ● Effective February 19, 2019, the USDA released a rule establishing the new national mandatory bioengineered (BE) food disclosure standard (NBFDS or Standard).
We believe the EU quota will continue to fuel demand for non-hormone treated cattle (“NHTC”). ● Effective February 19, 2019, the USDA released a rule establishing the new national mandatory bioengineered (“BE”) food disclosure standard (“NBFDS” or “Standard”).
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 $24.8 million in 2022, a 17-year compounded annual growth rate (“CAGR”) of approximately 20%. Our growth strategy is as follows: ● To cover more food groups than any other verification provider.
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 $25.1 million in 2023, an 18-year compounded annual growth rate (“CAGR”) of approximately 19%. Our growth strategy is as follows: ● To cover more food groups than any other verification provider.
For 2023, American ranchers have a TRQ of 27,800 metric tons annually, compared to 17,200 metric tons annually for all other eligible countries.
For 2024, American ranchers have a TRQ of 30,200 metric tons annually, compared to 14,800 metric tons annually for all other eligible countries.
Dannette Henning , 53, 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.
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.
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.
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. 9 Dannette Henning , 54, has been the Chief Financial Officer of the Company since January 2008.
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 30 years of professional experience.
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 30 years of professional experience. She received a B.B.A. degree in Accounting from the University of Texas at Arlington.
Increasing health concerns due to the growing number of chemical poisoning cases globally is acting as a driver in the organic food market. This is causing consumers to shift their focus towards organic food products.
Major players in the market include General Mills Inc., Nestle, Cargill, Inc., Danone, United Natural Foods Inc. and Amy’s Kitchen. Increasing health concerns due to the growing number of chemical poisoning cases globally is acting as a driver in the organic food market. This is causing consumers to shift their focus towards organic food products.
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.
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.
She received a B.B.A. degree in Accounting from the University of Texas at Arlington. 9 Jason Franco , 46, 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.
Jason Franco , 47, 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.
Something an increasing number of companies do to add transparency is use third-party verification, so consumers can buy with confidence.” ● Per the Organic Global Food Market Report 2022, the global organic food market is expected to grow from $227.19 billion in 2021 to $259.06 billion in 2022 at a compound annual growth rate (CAGR) of 14.0%.
Something an increasing number of companies do to add transparency is use third-party verification, so consumers can buy with confidence.” ● A 2023 report from The Business Research Company projected the global organic food market grew from $259.06 billion in 2022 to $294.54 billion in 2023 at a CAGR of 13.7%.
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.
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.
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.
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.
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.
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. 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.
To support these shifts, companies are building or expanding facilities with state-of-the-art technologies and systems for development, testing, processing, and packaging.” We can assist companies by providing third party verification and other technology solutions to help companies compete on brand innovation. 5 ● Per the May 2020 blog post from CompareEthics.com, “independent, third-party testing and certification benefits brands in many ways.
To support these shifts, companies are building or expanding facilities with state-of-the-art technologies and systems for development, testing, processing, and packaging.” We can assist companies by providing third party verification and other technology solutions to help companies compete on brand innovation. 5 ● Per various experts in the LinkedIn article dated December 18, 2023, “Using third-party certification programs for suppliers can offer several benefits for your business, such as enhancing your reputation and credibility, reducing risks and liabilities, improving efficiency and quality, and supporting innovation and differentiation.
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.
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.
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, 2022 and 2021, our third-party verification programs provided 70.9% and 73.2% of our total revenue, respectively.
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.
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.
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.
Obviously brands themselves also benefit from enhanced product quality and minimize risks, losses, and negative press by verifying each product.” ● Producers, restaurant chains and retailers with dominant market shares and large buying power, like Dannon, Tyson, McDonald’s, Chick-Fil-A, Costco, and Wal-Mart, are leading the way in prioritizing sustainable food supply initiatives in response to consumer demands.
This can be achieved by demonstrating a commitment to ethical and sustainable sourcing, avoiding suppliers that violate laws or human rights, accessing new markets and opportunities, and creating value-added products and services by working with high-performance suppliers.” ● Producers, restaurant chains and retailers with dominant market shares and large buying power, like Dannon, Tyson, McDonald’s, Chick-Fil-A, Costco, and Wal-Mart, are leading the way in prioritizing sustainable food supply initiatives in response to consumer demands.
We also worked with all our tag suppliers to build our inventory by purchasing excess supply. 7 Software and Related Consulting Segment Software and related 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.
We believe we are at a low point of a contraction phase within the cattle cycle which is negatively impacting revenue tied directly to price per head of cattle. 7 Professional Services Segment Professional services includes a wide range of professional consulting, data analysis, reporting and technology solutions that support our verification business and generate incremental revenue specific to the food and agricultural industry.
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The market is expected to grow to $437.36 billion in 2026 at a compound annual growth rate (CAGR) of 14.0%. Major players in the market include General Mills Inc., Nestle, Cargill, Inc., Danone, United Natural Foods Inc. and Amy’s Kitchen.
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For the years ended December 31, 2023 and 2022, our third-party verification programs provided 77.2% and 70.9% of our total revenue, respectively.
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Firstly, verification showcases compliance with national or international standards and regulations. Consumers and brand competitors should have no reason to be suspicious of your business. Verification also demonstrates a commitment to safety and quality. This is key for customer retention. Verifying a product also increases credibility, trust and acceptance with retailers, consumers, and other regulators.
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While our verification and certification service revenue continues to improve due to new customer growth and bundling opportunities, we believe we are at a low point of a contraction phase within the cattle cycle which negatively impacts revenue tied directly to price per head of cattle.
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This essentially strengthens your business case and future proofs your company.
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We also believe inflationary pressure on packers, producers, growers, brands, and retailers is putting downward pressure on verified and certified foods as consumers have switched to lower priced food products. Our product sales are an ancillary part of our verification and certification services and represent sales of cattle identification ear tags.
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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.
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According to the USDA July 2023 statistics, overall beef cow inventories have declined over 3% compared to last year.
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We historically purchased most of our electronic identification (“EID”) tags from one significant supplier and sourced the remainder of our EID tags from alternate smaller suppliers. In late 2021, we were informed by our key tag supplier that materials were becoming scarcer and their ability to meet our need was becoming more difficult.
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Additionally, the cattle industry is cyclical by nature based on factors impacting current and future supplies such as drought-induced feedlot placements, higher cow and heifer slaughter, and lower auction receipts. The production lags inherent to this industry lead to long-lasting impacts of production decisions. For example, increased liquidation implies tighter supplies for next year.
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Accordingly, we identified multiple players in the market and contracted with all tag suppliers thereby changing the market dynamics. It has given us a strategic advantage, effectively minimizing our concentration risk.
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Similarly, times of herd expansion are typically a multi-year period. These cycles typically last roughly 10 years. The beginning of 2023 marks the ninth year of the current cycle that began in 2014. We are currently in the contraction phase of the cycle after peaking in 2018-2019.
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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. 8 EMPLOYEES As of December 31, 2022, we had 93 total employees, of which 88 were full-time employees. Approximately 78% of our workforce is comprised of female and other minority employees.
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How long we continue to contract will be directly impacted by drought and pasture conditions. 8 INTELLECTUAL PROPERTY We create, own and maintain a variety of intellectual property assets that we believe are among our most valuable assets.
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AVAILABLE INFORMATION Our corporate website is located at www.wherefoodcomesfrom.com.
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EMPLOYEES As of December 31, 2023, we had 102 total employees, of which 89 were full-time employees. Approximately 78% of our workforce is comprised of female and other minority 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.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeSimilarly, 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. 13 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.
Biggest changeSimilarly, 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.
Companies across many industries are facing increasing scrutiny related to their environmental, social and governance (ESG) practices. Investor advocacy groups, certain institutional investors, investment funds and other influential investors are also increasingly focused on ESG practices and in recent years have placed increasing importance on the non-financial impacts of their investments. We take social responsibility very seriously.
Companies across many industries are facing increasing scrutiny related to their environmental, social and governance (“ESG”) practices. Investor advocacy groups, certain institutional investors, investment funds and other influential investors are also increasingly focused on ESG practices and in recent years have placed increasing importance on the non-financial impacts of their investments. We take social responsibility very seriously.
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. 15 Our common stock has traded in low volumes. We cannot predict whether an active trading market for our common stock will ever develop.
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.
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.
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. 14 We may also be subject to audits by various taxing authorities.
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.
In the absence of regular dividends, investors will only see a return on their investment if the value of our common stock appreciates. 16 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.
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. 14 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.
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. 15 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.
Therefore, our ability to generate revenue is subject to the risks and uncertainties relating to the financial condition of our customers. 10 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.
Therefore, our ability to generate revenue is subject to the risks and uncertainties relating to the financial condition of our customers. 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.
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 and continues to impact poultry operations today in 2022/2023.
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 and continues to impact poultry operations today in 2022/2023.
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.
Certain international markets may develop more slowly than domestic markets, and our operations in international markets may not develop at a rate that supports our level of investment.
In March 2020, the Global Health Organization declared the outbreak of the Corona Virus as a pandemic in human populations. Contagious diseases or viral outbreaks create increased bio-exclusion and social distancing considerations in our business. 11 These diseases and viral outbreaks frequently impact our business resulting in some customers requesting postponement of onsite visits.
In March 2020, the Global Health Organization declared the outbreak of the Corona Virus as a pandemic in human populations. Contagious diseases or viral outbreaks create increased bio-exclusion and social distancing considerations in our business. 12 These diseases and viral outbreaks frequently impact our business resulting in some customers requesting postponement of onsite visits.
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.
As a public company, we are subject to numerous legal, accounting and NASDAQ listing 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.
One or more of these factors could harm our future international operations and consequently could harm our brand, business, operating results and financial condition. 12 Our business could suffer if we are unsuccessful in making, integrating, and maintaining our acquisitions and investments.
One or more of these factors could harm our future international operations and consequently could harm our brand, business, operating results and financial condition. 13 Our business could suffer if we are unsuccessful in making, integrating, and maintaining our acquisitions and investments.
The effectiveness of our controls and procedures may in the future be limited by a variety of factors, including: ● faulty human judgment and simple errors, omissions or mistakes; ● fraudulent action of an individual or collusion of two or more people; ● inappropriate management override of procedures; and ● the possibility that any enhancements to controls and procedures may still not be adequate to assure timely and accurate financial information.
As a result, management’s attention may be diverted from other business concerns. 17 The effectiveness of our controls and procedures may in the future be limited by a variety of factors, including: ● faulty human judgment and simple errors, omissions or mistakes; ● fraudulent action of an individual or collusion of two or more people; ● inappropriate management override of procedures; and ● the possibility that any enhancements to controls and procedures may still not be adequate to assure timely and accurate financial information.
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.
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.
We actively market our sustainability solutions and services to new types of customers. We believe the growing awareness of environmental, social and governance (“ESG”) matters creates a key opportunity for us because we have the expertise and technology needed to help companies achieve ESG objectives within the food supply chain.
We believe the growing awareness of environmental, social and governance (“ESG”) matters creates a key opportunity for us because we have the expertise and technology needed to help companies achieve ESG objectives within the food supply chain.
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 create internal controls and strategies to ensure those controls are effective at producing accurate financial reports. Our compliance with Sarbanes-Oxley requires that we incur substantial accounting expenses and expend significant management efforts.
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 create internal controls and strategies to ensure those controls are effective at producing accurate financial reports.
As of February 17, 2023, John Saunders, our Chairman and CEO, and Leann Saunders, our President, beneficially owned in the aggregate approximately 30.4% of our common stock. The Saunders, together with the rest of our Board, beneficially own approximately 57.7% of our common stock.
As of February 9, 2024, John Saunders, our Chairman and CEO, and Leann Saunders, our President, beneficially owned in the aggregate approximately 31.7% of our common stock. The Saunders, together with the rest of our Board, beneficially own approximately 60.4% of our common stock.
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.
We have not declared or paid any cash dividends on our common stock since 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.
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.
Additionally, new technology may render our products and services obsolete. 11 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.
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.
Such attacks are increasing in their frequency, levels of persistence, levels of sophistication and intensity. 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.
If we are not able to comply with the requirements of Sarbanes-Oxley 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. 16
If we are not able to comply with the requirements of Sarbanes-Oxley 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 need to restate our financial statements and incur remediation expenses.
We face risks due to changing weather patterns and other environmental factors Over the past several years, changing weather patterns and climatic conditions have added to the unpredictability and frequency of natural disasters, such as drought, hailstorms, wildfires and wind, snow and ice storms.
Furthermore, our stock price may decline due in part to the volatility of the stock market and the general economic downturn. 10 We face risks due to changing weather patterns and other environmental factors Over the past several years, changing weather patterns and climatic conditions have added to the unpredictability and frequency of natural disasters, such as drought, hailstorms, wildfires and wind, snow and ice storms.
Additionally, we are experiencing higher labor and benefit related costs to retain our existing personnel. We believe we will continue to see significant pressure in our labor and benefit related costs which impacts both our gross margins and net income.
Additionally, we are experiencing higher labor and benefit related costs to retain our existing personnel. We believe we will continue to see significant pressure in our labor and benefit related costs which impacts both our gross margins and net income. We also continue to monitor for weakened demand in our professional services business segment due to significant customer concentration.
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.
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. In March 2020, the World Health Organization declared a pandemic which negatively impacted certain aspects of our business due to government-mandated closures and social distancing measures.
We also continue to monitor for weakened demand in our software and related consulting business segment due to significant customer concentration. Increased inflation could place pressure on our customers’ timing of approval for consulting projects to move forward. Currently, it is difficult to estimate the financial impact to our software and related consulting revenue, if any.
Increased inflation could place pressure on our customers’ timing of approval for consulting projects to move forward. Currently, it is difficult to estimate the financial impact to this revenue stream, if any. We actively market our sustainability solutions and services to new types of customers.
We cannot anticipate changes in weather patterns/conditions, and we cannot predict their impact on our customer’s operations if they were to occur. If the operating results of our customers are impaired, the financial resources of our customers may limit purchases of our verification solutions and consulting services.
We are currently in the contraction phase of the cycle after peaking in 2018-2019. How long we continue to contract will be directly impacted by drought and pasture conditions. If the operating results of our customers are impaired, the financial resources of our customers may limit purchases of our verification solutions and consulting services.
Removed
In March 2020, the World Health Organization declared the outbreak of novel coronavirus disease (“COVID-19”) as a pandemic which negatively impacted certain aspects of our business due to government-mandated closures and social distancing measures.
Added
Unfavorable global economic conditions, including any adverse macroeconomic conditions or geopolitical events, including the conflict between Ukraine and Russia, and the conflict between Israel and Hamas could adversely affect our business, financial condition, results of operations or liquidity. Our results of operations could be adversely affected by general conditions in the global economy and in the global financial markets.
Removed
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.
Added
Global economic and business activities continue to face widespread uncertainties, and global credit and financial markets have experienced extreme volatility and disruptions in the past several years, including severely diminished liquidity and credit availability, rising inflation and monetary supply shifts, rising interest rates, labor shortages, declines in consumer confidence, declines in economic growth, increases in unemployment rates, recession risks, and uncertainty about economic and geopolitical stability.
Removed
We have not declared or paid any regular cash dividends on our common stock since our incorporation. A special cash dividend was paid on August 16, 2021 to shareholders of record at the close of business on July 27, 2021.
Added
A severe or prolonged economic downturn, or additional global financial or political crises, could result in a variety of risks to our business, including weakened demand for our products and/or services or our ability to raise additional capital when needed on acceptable terms, if at all.
Added
The extent of the impact of these conditions on our operational and financial performance, including our ability to execute our business strategies and initiatives in the expected timeframe, will depend on future developments which are uncertain and cannot be predicted.
Added
Any of the foregoing could harm our business and we cannot anticipate all of the ways in which the current economic climate and financial market conditions could adversely impact our business.
Added
We cannot anticipate changes in weather patterns/conditions, and we cannot predict their impact on our customer’s operations if they were to occur. Additionally, the cattle industry is cyclical by nature based on factors impacting current and future supplies such as drought-induced feedlot placements, higher cow and heifer slaughter, and lower auction receipts.
Added
The production lags inherent to this industry lead to long-lasting impacts of production decisions. For example, increased liquidation implies tighter supplies for next year. Similarly, times of herd expansion are typically a multi-year period. These cycles typically last roughly 10 years. The beginning of 2023 marks the ninth year of the current cycle that began in 2014.
Added
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.
Added
Like many other companies, we experience attempted cybersecurity actions on a periodic basis, and the frequency of such attempts could increase in the future. While we have invested in the protection of data and information technology, there can be no assurance that our efforts will prevent or quickly identify service interruptions or security breaches.
Added
The techniques used by cybercriminals change frequently, may not be recognized until launched and can originate from a wide variety of sources. We cannot assure that our data protection efforts and our investment in information technology will prevent significant breakdowns, data leakages or breaches in our systems or those of our third-party services providers or partners.
Added
However, for as long as we are a smaller reporting company, our independent registered public accounting firm will not be required to attest to the effectiveness of our internal controls over financial reporting pursuant to Section 404. An independent assessment of the effectiveness of our internal controls over financial reporting could detect problems that our management’s assessment might not.
Added
Our compliance with Sarbanes-Oxley requires that we incur substantial accounting expenses and expend significant management efforts.
Added
In addition, we may be subject to delisting, investigations by the SEC and civil or criminal sanctions.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeThe lease is for a period of two years and expires on May 31, 2023. Rental payments are approximately Canadian $1,850 or US$1,400 per month as of December 31, 2022, which includes common area charges, and are not subject to annual increases over the term of the lease.
Biggest changeThe lease is for a period of two years and expired on May 31, 2023. Currently, the office space is leased on a month-to-month basis and payments are approximately Canadian dollar 500 per month, which includes common area charges. In December 2021, the Company entered into a lease agreement for the Medina, North Dakota office space.
Rental payments are approximately $3,500 per month, which includes common area charges, and are not subject to annual increases over the term of the lease. 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 $3,500 per month, which includes common area charges, and are not subject to annual increases over the term of the lease. 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 March 1, 2024.
ITEM 2. PROPERTIES The Company leases approximately 15,700 square feet of office space for its corporate headquarters. Total rental payments are approximately $43,800 per month as of December 31, 2022, which includes common area charges, and are subject to annual increases over the term of the lease.
ITEM 2. PROPERTIES The Company leases approximately 15,700 square feet of office space for its corporate headquarters. Total rental payments are approximately $45,500 per month as of December 31, 2023, which includes common area charges, and are subject to annual increases over the term of the lease.
Rental payments are approximately $6,750 per month as of December 31, 2022, 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.
Rental payments are approximately $7,000 per month as of December 31, 2023, which includes common area charges, and are subject to annual increases over the term of the lease. Management is actively reviewing its options for renewal or relocation. In June 2021, the Company entered into a new lease agreement in Victoria, British Columbia, Canada for Postelsia office space.
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.
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.
Removed
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.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeDividends For the year ended December 31, 2022, there have been no cash dividends declared or paid. For the year ended December 31, 2021, we declared a special cash dividend of $0.15 per share for shareholders of record on July 27, 2021, with a payment date of August 16, 2021.
Biggest changeDividends For the years ended December 31, 2023 and 2022, there have been no cash dividends declared or paid. Recent Sales of Unregistered Securities There have been no unregistered sales of securities for the years ended December 31, 2023 and 2022.
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 on the NASDAQ Stock Market LLC under the symbol “WFCF.” Stockholders As of February 16, 2023, we estimate that there were 87 record holders of our common stock.
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 on the NASDAQ Stock Market LLC under the symbol “WFCF.” Stockholders As of February 8, 2024, we estimate that there were 63 record holders of our common stock.
Recent Sales of Unregistered Securities There have been no unregistered sales of securities for the years ended December 31, 2022 and 2021. Issuer Purchases of Equity Securities On September 30, 2019, our Board of Directors approved a plan to buy back up to 2.5 million additional shares of our common stock from the open market (“Stock Buyback Plan”).
Issuer Purchases of Equity Securities On September 30, 2019, our Board of Directors approved a plan to buy back up to 2.5 million additional shares of our common stock from the open market (“Stock Buyback Plan”).
Activity for the quarter ended December 31, 2022 is as follows: Number of Shares Cost of Shares (in thousands) Average Cost per Share Shares purchased - October 2022 45,000 $ 492 $ 10.94 Shares purchased - November 2022 46,100 560 $ 12.15 Shares purchased - December 2022 14,001 196 $ 13.97 Total 105,101 $ 1,248 $ 11.88 18
Activity for the quarter ended December 31, 2023 is as follows: Number of Shares Cost of Shares (in thousands) Average Cost per Share Shares purchased - October 2023 25,530 $ 351 $ 13.73 Shares purchased - November 2023 22,643 307 $ 13.57 Shares purchased - December 2023 27,936 377 $ 13.51 Total 76,109 $ 1,035 21

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeRESULTS OF OPERATIONS Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 The following table shows information for reportable operating business segments: Year ended December 31, 2022 Year ended December 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 9,949 3,182 2,219 15,350 14,267 3,848 (1,277 ) 16,838 Total assets $ 11,896 $ 4,181 $ 2,219 $ 18,296 $ 16,214 $ 4,847 $ (1,277 ) $ 19,784 Revenues: Verification and certification service revenue $ 17,610 $ - $ - $ 17,610 $ 16,058 $ - $ - $ 16,058 Product sales 4,364 - - 4,364 3,830 - - 3,830 Software and related consulting revenue - 2,871 - 2,871 - 2,044 - 2,044 Total revenues $ 21,974 $ 2,871 $ - $ 24,845 $ 19,888 $ 2,044 $ - $ 21,932 Costs of revenues: Costs of verification and certification services 9,748 - - 9,748 8,402 - - 8,402 Costs of products 2,333 - - 2,333 2,441 - - 2,441 Costs of software and related consulting - 2,296 - 2,296 - 1,352 - 1,352 Total costs of revenues 12,081 2,296 - 14,377 10,843 1,352 - 12,195 Gross profit 9,893 575 - 10,468 9,045 692 - 9,737 Depreciation & amortization 582 183 - 765 597 202 - 799 Other operating expenses 6,805 246 - 7,051 6,324 311 - 6,635 Segment operating income/(loss) $ 2,506 $ 146 $ - $ 2,652 $ 2,124 $ 179 $ - $ 2,303 Other items to reconcile segment operating income/(loss) to net income/(loss): Other income/(loss) 202 (38 ) - 164 1,329 (12 ) - 1,317 Income tax benefit/(expense) - - (822 ) (822 ) - - (659 ) (659 ) Net income/(loss) $ 2,708 $ 108 $ (822 ) $ 1,994 $ 3,453 $ 167 $ (659 ) $ 2,961 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.
Biggest changeWe 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. 22 RESULTS OF OPERATIONS Year Ended December 31, 2023 Compared to Year Ended December 31, 2022 The following table shows information for reportable operating business segments: Year ended December 31, 2023 Year ended December 31, 2022 Verification and Certification Segment Professional Services Segment Eliminations and Other Consolidated Totals Verification and Certification Segment Professional Services Segment Eliminations and Other Consolidated Totals Assets: Goodwill $ 1,947 $ 999 $ - $ 2,946 $ 1,947 $ 999 $ - $ 2,946 All other assets, net 3,501 2,707 7,132 13,340 9,949 3,182 2,219 15,350 Total assets $ 5,448 $ 3,706 $ 7,132 $ 16,286 $ 11,896 $ 4,181 $ 2,219 $ 18,296 Revenues: Verification and certification service revenue $ 19,413 $ - $ - $ 19,413 $ 17,610 $ - $ - $ 17,610 Product sales 4,001 - - 4,001 4,364 - - 4,364 Professional services - 1,721 - 1,721 - 2,871 - 2,871 Total revenues $ 23,414 $ 1,721 $ - $ 25,135 $ 21,974 $ 2,871 $ - $ 24,845 Costs of revenues: Costs of verification and certification services 10,986 - - 10,986 9,748 - - 9,748 Costs of products 2,272 - - 2,272 2,333 - - 2,333 Costs of professional services - 1,355 - 1,355 - 2,296 - 2,296 Total costs of revenues 13,258 1,355 - 14,613 12,081 2,296 - 14,377 Gross profit 10,156 366 - 10,522 9,893 575 - 10,468 Depreciation & amortization 466 168 - 634 582 183 - 765 Other operating expenses 6,885 306 - 7,191 6,805 246 - 7,051 Segment operating income/(loss) $ 2,805 $ (108 ) $ - $ 2,697 $ 2,506 $ 146 $ - $ 2,652 Other items to reconcile segment operating income/(loss) to net income/(loss): Other income/(loss) 374 (6 ) - 368 202 (38 ) - 164 Income tax benefit/(expense) - - (913 ) (913 ) - - (822 ) (822 ) Net income/(loss) $ 3,179 $ (114 ) $ (913 ) $ 2,152 $ 2,708 $ 108 $ (822 ) $ 1,994 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.
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in Part I, Item 1A. “Risk Factors.” 19 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.
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in Part I, Item 1A. “Risk Factors.” 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.
Under this pricing model, which incorporates ranges of assumptions for inputs, our assumptions are as follows: ● Dividend yield is based on our historical policy of not paying cash dividends. 24 ● Expected volatility assumptions were derived from our actual volatilities. ● The risk-free interest rate is based on the U.S.
Under this pricing model, which incorporates ranges of assumptions for inputs, our assumptions are as follows: ● Dividend yield is based on our historical policy of not paying cash dividends. ● Expected volatility assumptions were derived from our actual volatilities. ● The risk-free interest rate is based on the U.S.
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. 23 Product sales are primarily generated from the sale of cattle identification ear tags.
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.
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.
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. 28 We evaluate our reporting units on an annual basis or when events or circumstances indicate our reporting units might change.
However, we may first assess the qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. 25 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.
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.
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. 22 Debt Facility The Company has a revolving line of credit (“LOC”) agreement which matures April 12, 2025.
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. 25 Debt Facility The Company has a revolving line of credit (“LOC”) agreement which matures April 12, 2025.
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: ● changing technology and evolving standards in the livestock and food industry; ● consumer focus on social responsibility, sustainability, food safety and assurance; ● competition from other providers serving the food and agriculture industry; ● economic and financial conditions in the livestock and food industry; ● international export market activities, including trade barriers to certain beef and other livestock exports; ● market demand for beef and other livestock products; ● seasonal volatility in business activity; ● developments and changes in laws and regulations, including increased regulation of the livestock and food industry through legislative action and revised rules and standards; ● strategic actions, including acquisitions and our success in integrating acquired businesses; ● enforceability of our patents, trademarks and other intellectual property rights; ● continued service of key senior management personnel; ● the impact of COVID-19 on our business, customers, suppliers and employees; ● disruptions of inefficiencies in the supply chain, including any impact of COVID-19; and ● such other factors as discussed throughout Part II, “Item 7.
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: ● changing technology and evolving standards in the livestock and food industry; ● consumer focus on social responsibility, sustainability, food safety and assurance; ● competition from other providers serving the food and agriculture industry; ● economic and financial conditions in the livestock and food industry; ● international export market activities, including trade barriers to certain beef and other livestock exports; ● market demand for beef and other livestock products; ● seasonal volatility in business activity; ● developments and changes in laws and regulations, including increased regulation of the livestock and food industry through legislative action and revised rules and standards; ● strategic actions, including acquisitions and our success in integrating acquired businesses; ● enforceability of our patents, trademarks and other intellectual property rights; ● continued service of key senior management personnel; ● the impact of government regulation on our business, customers, suppliers and employees; ● disruptions of inefficiencies in the supply chain, including any impact of inflation and/or regulation; and ● such other factors as discussed throughout Part II, “Item 7.
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, 2022, we concluded that a valuation allowance against our deferred tax assets was not considered necessary. As of December 31, 2022 and 2021, the Company did not have an unrecognized tax liability.
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, 2023, we concluded that a valuation allowance against our deferred tax assets was not considered necessary. As of December 31, 2023 and 2022, the Company did not have an unrecognized tax liability.
As of December 31, 2022, there have been no changes to the indefinite life determination pertaining to the trademarks/tradenames 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.
As of December 31, 2023, there have been no changes to the indefinite life determination pertaining to the trademarks/tradenames 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.
As of December 31, 2022 and 2021, we had approximately $2.9 million of goodwill. During the fourth quarter of 2022 and 2021, we performed a qualitative assessment on our WFCF, WFCFO, Validus and SureHarvest units and concluded that the fair value of the reporting units exceeded their carrying value.
As of December 31, 2023 and 2022, we had approximately $2.9 million of goodwill. During the fourth quarter of 2023 and 2022, we performed a qualitative assessment on our WFCF, WFCFO, Validus and SureHarvest units and concluded that the fair value of the reporting units exceeded their carrying value.
Finance leases are included in property and equipment, current finance lease obligations and long-term finance lease obligations in our consolidated balance sheet. 26 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.
Finance leases are included in property and equipment, current finance lease obligations and long-term finance lease obligations in our consolidated balance sheet. 29 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.
As of December 31, 2022, and 2021, the effective interest rate was 9.0% and 4.75%, respectively. The LOC is collateralized by all the business assets of Where Food Comes From Organic, Inc. (“WFCFO”), a subsidiary of WFCF. As of December 31, 2022, and 2021, there were no amounts outstanding under this LOC.
As of December 31, 2023 and 2022, the effective interest rate was 10.0% and 9.0%, respectively. The LOC is collateralized by all the business assets of Where Food Comes From Organic, Inc. (“WFCFO”), a subsidiary of WFCF. As of December 31, 2023 and 2022, there were no amounts outstanding under this LOC.
Off Balance Sheet Arrangements As of December 31, 2022, we had no off-balance sheet arrangements of any type.
Off Balance Sheet Arrangements As of December 31, 2023, we had no off-balance sheet arrangements of any type.
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.
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.
The Company received dividend income of $250,000 and $200,000 for the years ended December 31, 2022 and 2021, respectively, from Progressive Beef representing a distribution of their earnings. Income Tax Expense For the years ended December 31, 2022 and 2021, we recorded income tax expense of approximately $0.8 million and $0.7 million, respectively.
The Company received dividend income of $320,000 and $250,000 for the years ended December 31, 2023 and 2022, respectively, from Progressive Beef representing a distribution of their earnings. Income Tax Expense For the years ended December 31, 2023 and 2022, we recorded income tax expense of approximately $0.9 million and $0.8 million, respectively.
Fluctuations are primarily due to operating performance offset by the timing of cash receipts and cash disbursements. The cash provided by operating activities for 2022 was primarily driven by a decrease in deferred revenue and cash used for inventory, offset by an increase in prepaid expenses and accounts payable.
Fluctuations are primarily due to operating performance offset by the timing of cash receipts and cash disbursements. The cash provided by operating activities for 2023 was primarily driven by a decrease in prepaid expenses and other assets, accounts payable, accrued expenses and other current liabilities and cash used for inventory, offset by an increase in deferred revenue.
Our working capital at December 31, 2022 was approximately $4.9 million compared to approximately $5.7 million at December 31, 2021. 21 Net cash provided by operating activities during 2022 was approximately $2.7 million compared to $3.0 million during the same period in 2021.
Our working capital at December 31, 2023 was approximately $3.2 million compared to approximately $4.9 million at December 31, 2022. Net cash provided by operating activities during 2023 was approximately $2.8 million compared to $2.7 million during the same period in 2022.
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.
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.
The 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 2022 was approximately $0.3 million compared to $3,000 during 2021.
The cash provided by operating activities for 2022 was primarily driven by a decrease in deferred revenue and cash used for inventory, offset by an increase in prepaid expenses and accounts payable. Net cash used in investing activities during 2023 was approximately $0.6 million compared to $0.3 million during 2022.
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, 2022 increased approximately $1.6 million, or 9.7% compared to 2021.
F ees 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, 2023 increased approximately $1.8 million, or 10.2% compared to 2022.
Treasury yield curve in effect at the date of grant with maturity dates approximately equal to the expected term at the grant date. ● The expected term of options represents the period of time that options granted are expected to be outstanding giving consideration to vesting schedules, based on historical exercise patterns, which we believe are representative of future behavior.
Treasury yield curve in effect at the date of grant with maturity dates approximately equal to the expected term at the grant date. ● The expected term of options represents the period of time that options granted are expected to be outstanding giving consideration to vesting schedules, based on historical exercise patterns, which we believe are representative of future behavior. 27 There is a risk that our estimates of the fair values may differ from the actual values.
Net cash provided by operating activities is driven by a decrease in our net income and adjusted by non-cash 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.
Net cash provided by operating activities is driven by an increase in our net income and adjusted by non-cash items and changes in current assets and liabilities. Non-cash adjustments primarily include depreciation, amortization of intangible assets, stock-based compensation expense, bad debt expense, and deferred taxes.
Net cash used in the 2022 period was $0.2 million for the purchase of digital assets and $0.1 million for the purchase of a vehicle, equipment and software development.
Net cash used in the 2022 period was $0.2 million for the purchase of digital assets and $0.1 million for the purchase of a vehicle, equipment and software development. Net cash used in financing activities during 2023 was approximately $3.9 million compared to net cash used of $3.4 million in the 2022 period.
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.
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.
Net Income and Per Share Information As a result of the foregoing, net income for the year ended December 31, 2022 was approximately $2.0 million or $0.34 per basic and $0.33 per diluted common share, compared to approximately $3.0 million or $0.49 per basic and $0.48 per diluted common share in 2021.
Net Income and Per Share Information As a result of the foregoing, net income for the year ended December 31, 2023 was approximately $2.2 million or $0.39 per basic and per diluted common share, compared to approximately $2.0 million or $0.34 per basic and $0.33 per diluted common share in 2022. 24 Liquidity and Capital Resources At December 31, 2023, we had cash and cash equivalents of approximately $2.6 million compared to approximately $4.4 million at December 31, 2022.
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.
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.
As of December 31, 2022, we have not sold any digital assets and have recognized an impairment loss of $62,000. As of December 31, 2022, the carrying value of our digital assets held was $0.1 million. Business Combinations A component of our growth strategy has been to acquire businesses that complement our existing operations.
As of December 31, 2023 and 2022, the carrying value of our digital assets held was $0.1 million. 30 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.
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 and stock awards, fair value is the closing stock price for the Company’s common stock on the grant date.
How long we continue to contract will be directly impacted by drought and pasture conditions. 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.
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.
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.
Our margins are generally impacted by various costs such as cost of products, salaries and benefits, insurance and taxes. 20 Selling, general and administrative expenses for the year ended December 31, 2022 increased 6.7% compared to 2021.
Gross margin for the year ended December 31, 2023 decreased slightly to 43.4% compared to 45.0% in 2022. Our margins are generally impacted by various costs such as cost of products, salaries and benefits, insurance and taxes.
We had deferred revenue of approximately $1.2 million and $1.0 million at December 31, 2022 and 2021, 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 2023.
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. 26 We had deferred revenue of approximately $1.4 million and $1.2 million at December 31, 2023 and 2022, respectively, primarily related to the annual certification period for certain of our third-party crop and other processed product audits.
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.
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.
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).
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.
The decrease is predominately due to the decrease in depreciation and personnel costs, slightly offset by increased travel related expenses. 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.
Selling, general and administrative expenses for the professional services segment for the year ended December 31, 2023 increased approximately $45,000 compared to 2022. 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 effective tax rate for the year ended December 31, 2022 and 2021 was 28.8% and 24.6%, respectively, compared to a federal corporate rate of 21.0%. The effective tax rate for 2021 was 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, 2023 and 2022 was 29.7% and 28.8%, respectively, compared to a federal corporate rate of 21.0%.
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.
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.
Overall, the increase is due primarily to increased customer awareness and 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.
Overall, the increase is due primarily to increased customer awareness and demand for our product offerings.
Offerings 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.
Selling, general and administrative expenses for the verification and certification segment for the year ended December 31, 2023 decreased approximately $36,000 compared to 2022. Professional Services Segment Professional services revenue include a wide range of professional consulting, data analysis, reporting 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, 2022, software and related consulting service revenue increased approximately 40.5% over 2021, due to a significant short-term engagement with a Japanese party to promote Japanese seafood products into the American supply chain.
Our consulting revenue stream is predominantly project based and not recurring in nature. For the year ended December 31, 2023, professional service revenue decreased approximately $1.2 million over 2022. The 2022 period included a significant short-term engagement with a Japanese party to promote Japanese seafood products into the American supply chain during 2022.
The decline is primarily due to increases in compensation related costs due to a tight labor market and inflation, offset by increased margins for our product sales.
The decline is primarily due to inflationary increases in the costs of products shipped and increases in compensation related costs due to a tight labor market impacting our margins. New customer growth helps offset to some extent the inflationary impacts on our margins.
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.
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.
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.
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.
Costs of revenues (for services and product sales) for the verification and certification segment for the year ended December 31, 2022 were approximately $12.1 million compared to approximately $10.8 million in 2021. Gross margin for the year ended December 31, 2022 decreased slightly to 45.0% compared to 45.5% in 2021.
Costs of revenues for our professional services segment for the years ended December 31, 2023 and 2022 were approximately $1.4 and $2.3 million, respectively. For the year ended December 31, 2023, gross margin increased to 21.3% from 20.0% in 2022.
Net cash used in the 2022 period was primarily for the repurchase of common shares under the Stock Buyback Plan. Net cash used in the 2021 period was $1.1 million for the repurchase of common shares under the Stock Buyback Plan and $0.9 million in dividends paid to shareholders.
Net cash used in the 2023 period was primarily for the repurchase of common shares under the Stock Buyback Plan. Net cash used in the 2022 period was primarily for 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.
Software and Related Consulting Segment 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.
The balance of these contract liabilities at the beginning of the period is expected to be recognized as revenue during 2024. Professional Services Segment Professional services fees are derived from a standard rate card by employee level, and we invoice for consulting, data analysis and other reporting services, monthly, on a time-incurred basis.
Net cash used in the 2021 period was $0.2 million 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 financing activities during 2022 was approximately $3.4 million compared to net cash used of $2.0 million in the 2021 period.
Net cash used in the 2023 period was $0.2 million for the acquisition of Blue Trace, $0.3 million for the acquisition of Upcycled Foods and $0.1 million for the purchase of equipment and internal use software development.
Removed
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.
Added
While our verification and certification service revenue continues to improve due to new customer growth and bundling opportunities, we believe we are at a low point of a contraction phase within the cattle cycle which negatively impacts revenue tied directly to price per head of cattle.
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Product sales for the year ended December 31, 2022 increased approximately $0.5 million or 13.9% compared to 2021, primarily due to increased pricing reflective of the market, and limited supply elsewhere in the market.
Added
We also believe inflationary pressure on packers, producers, growers, brands, and retailers is putting downward pressure on verified and certified foods as consumers have switched to lower priced food products. Our product sales are an ancillary part of our verification and certification services and represent sales of cattle identification ear tags.
Removed
Overall, the increase in our selling, general and administrative expenses is due to increased compensation related costs due to a tight labor market and inflation, as well as, an increase in headcount. Software and Related Consulting Segment Software and related consulting revenue is a revenue stream specific to our acquisitions of SureHarvest and Postelsia.
Added
Product sales for the year ended December 31, 2023 decreased approximately $0.4 million or 8.3% compared to 2022. We continue to see some new customer growth, but our customers are ordering less tags due to smaller beef cow herd size. According to the USDA July 2023 statistics, overall beef cow inventories have declined over 3% compared to last year.
Removed
While we do not believe this engagement will be an annual recurring source of revenue for our consulting segment, we are hopeful that it is a long-term potential opportunity for our verification and certification segment.
Added
We believe we are at a low point of a contraction phase within the cattle cycle which is negatively impacting revenue tied directly to price per head of cattle. 23 Costs of revenues (for services and product sales) for the verification and certification segment for the year ended December 31, 2023 were approximately $13.3 million compared to approximately $12.1 million in 2022.
Removed
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 and related consulting segment for the years ended December 31, 2022 and 2021 were approximately $2.3 and $1.4 million, respectively.
Added
Because our consulting revenue is predominately project based, margins are greatly impacted by the timing of the project work and the fixed and/or variable labor necessary to complete the project. The 2022 margins were negatively impacted by an increased use of contract labor to support the short-term consulting engagement mentioned above.
Removed
For the year ended December 31, 2022, gross margin had decreased to 20.0% from 33.9% in 2021. The decrease in gross margin is due primarily to increased cost of contract labor to support the short-term consulting engagement mentioned above. Selling, general and administrative expenses for the year ended December 31, 2022 decreased 16.4% compared to 2021.
Added
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. Other Generally, we do not provide right of return or warranty on product sales or services performed.
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Liquidity and Capital Resources At December 31, 2022, we had cash and cash equivalents of approximately $4.4 million compared to approximately $5.4 million at December 31, 2021.
Added
Additionally, the cattle industry is cyclical by nature based on factors impacting current and future supplies such as drought-induced feedlot placements, higher cow and heifer slaughter, and lower auction receipts. The production lags inherent to this industry lead to long-lasting impacts of production decisions. For example, increased liquidation implies tighter supplies for next year.
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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.
Added
Similarly, times of herd expansion are typically a multi-year period. These cycles typically last roughly 10 years. The beginning of 2023 marks the ninth year of the current cycle that began in 2014. We are currently in the contraction phase of the cycle after peaking in 2018-2019.
Removed
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 Company received notification the loan and accrued interest amount was forgiven on March 4, 2021.
Added
For 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.
Removed
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.
Added
As of December 31, 2023, we have not sold any digital assets and have not recognized an impairment loss for the year ended December 31, 2023. An impairment loss of $62,000 was recognized for the year ended December 31, 2022.
Removed
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.
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We had deferred revenue of approximately $0.1 and $0.5 million at December 31, 2022 and 2021, respectively, primarily due to the SaaS arrangements.
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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.
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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.
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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.

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