Equibles

10-Q

Where Food Comes From, Inc. (WFCF)

10-Q 2021-11-04 For: 2021-09-30
View Original
Added on April 08, 2026

UNITED

STATES

SECURITIES AND EXCHANGE COMMISSION

Washington,

D.C. 20549

FORM

10-Q

☒ QUARTERLY<br> REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For<br> the Quarterly period ended September 30, 2021
☐ TRANSITION<br> REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For<br> the transition period from ____________ to _____________

Commission

File No. 001-40314

WHERE

FOOD COMES FROM, INC.

(exact name of registrant as specified in its charter)

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

202 6th Street, Suite 400

Castle Rock, CO 80104

(Address of principal executive offices, including zip code)

Registrant’s

telephone number, including area code:

(303)

895-3002

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

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

Large<br> accelerated filer: ☐ Accelerated<br> filer: ☐
Non-accelerated<br> filer: ☐ Smaller<br> reporting company: ☒
Emerging<br> growth company ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

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

Title<br> of each class Trading<br> Symbol(s) Name<br> of each exchange on which registered
Common<br> Stock, $0.001 par value WFCF The<br> NASDAQ Stock Market LLC

The

number of shares of the registrant’s common stock, $0.001 par value per share, outstanding as of October 29, 2021, was 6,109,844 .

Where

Food Comes From, Inc.

Table

of Contents

September

30, 2021

Part 1 - Financial Information
Item<br> 1. Financial Statements 3
Item<br> 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 20
Item<br> 4. Controls and Procedures 26
Part II - Other Information
Item<br> 1. Legal Proceedings 27
Item<br> 1A. Risk Factors 27
Item<br> 2. Unregistered Sales of Equity Securities and Use of Proceeds 27
Item<br> 6. Exhibits 27 
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Where

Food Comes From, Inc.

Consolidated

Balance Sheets

December 31,
(Amounts in thousands, except per share amounts) 2020
Assets (Unaudited)
Current assets:
Cash and cash equivalents 5,642 $ 4,374
Accounts receivable, net of allowance 2,328 2,508
Inventory 870 -
Prepaid expenses and other current assets 284 592
Total current assets 9,124 7,474
Property and equipment, net 1,484 1,616
Operating lease right-of-use assets, net 2,844 3,030
Investment in Progressive Beef 991 991
Intangible and other assets, net 2,675 2,948
Goodwill 2,946 2,946
Deferred tax assets, net 451 443
Total assets 20,515 $ 19,448
Liabilities and Equity
Current liabilities:
Accounts payable 896 $ 649
Accrued expenses and other current liabilities 1,346 599
Deferred revenue 1,564 1,132
Current portion of long term debt - 463
Current portion of finance lease obligations 12 13
Current portion of operating lease obligations 302 268
Total current liabilities 4,120 3,124
Long term debt, net of current portion - 572
Finance lease obligations, net of current portion 22 31
Operating lease obligation, net of current portion 3,050 3,257
Total liabilities 7,192 6,984
Commitments and contingencies - -
Equity:
Preferred stock, 0.001 par value; 5,000 shares authorized; none issued or outstanding - -
Common stock, 0.001 par value; 95,000 shares authorized; 6,485 (2021) and 6,456 (2020) shares issued, and 6,097 (2021) and 6,118 (2020) shares outstanding 6 6
Additional paid-in-capital 11,879 11,612
Treasury stock of 389 (2021) and 338 (2020) shares (3,415 ) (2,702 )
Retained earnings 4,853 3,548
Total equity 13,323 12,464
Total liabilities and stockholders’ equity 20,515 $ 19,448

All values are in US Dollars.

The

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

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Where

Food Comes From, Inc.

Consolidated

Statements of Operations

(Unaudited)

Three months ended September 30,
(Amounts in thousands, except per share amounts) 2021 2020
Revenues:
Verification and certification service revenue $ 4,701 $ 4,307
Product sales 1,383 1,362
Software and related consulting revenue 461 528
Total revenues 6,545 6,197
Costs of revenues:
Costs of verification and certification services 2,438 2,233
Costs of products 864 866
Costs of software and related consulting 315 336
Total costs of revenues 3,617 3,435
Gross profit 2,928 2,762
Selling, general and administrative expenses 1,790 1,806
Income from operations 1,138 956
Other income/(expense):
Dividend income from Progressive Beef 30 30
Gain on sale of assets - 19
Other income, net - 2
Loan forgiveness from Paycheck Protection Program
Loss on foreign currency exchange (2 ) (2 )
Interest expense (1 ) (4 )
Income before income taxes 1,165 1,001
Income tax expense 298 271
Net income $ 867 $ 730
Per share - net income:
Basic $ 0.14 $ 0.12
Diluted $ 0.14 $ 0.12
Weighted average number of common shares outstanding:
Basic 6,094 6,187
Diluted 6,157 6,224

The

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

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Where

Food Comes From, Inc.

Consolidated

Statements of Operations

(Unaudited)

Nine months ended September 30,
(Amounts in thousands, except per share amounts) 2021 2020
Revenues:
Verification and certification service revenue $ 11,659 $ 10,218
Product sales 3,071 2,883
Software and related consulting revenue 1,396 1,424
Total revenues 16,126 14,525
Costs of revenues:
Costs of verification and certification services 6,363 5,283
Costs of products 1,969 1,869
Costs of software and related consulting 995 901
Total costs of revenues 9,327 8,053
Gross profit 6,799 6,472
Selling, general and administrative expenses 5,290 5,401
Income from operations 1,509 1,071
Other income/(expense):
Dividend income from Progressive Beef 90 90
Other income, net 1 6
Loan forgiveness from Paycheck Protection Program 1,037 -
(Loss)/gain on foreign currency exchange (9 ) (1 )
Gain on sale of assets 9 19
Interest expense (5 ) (9 )
Income before income taxes 2,632 1,176
Income tax expense 413 336
Net income $ 2,219 $ 840
Per share - net income:
Basic $ 0.36 $ 0.14
Diluted $ 0.36 $ 0.13
Weighted average number of common shares outstanding:
Basic 6,146 6,215
Diluted 6,207 6,254

The

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

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Where

Food Comes From, Inc.

Consolidated

Statements of Cash Flows

(Unaudited)

1
Nine months ended September 30,
(Amounts in thousands) 2021 2020
Operating activities:
Net income $ 2,219 $ 840
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 601 736
Gain on sale of assets (9 ) (19 )
Stock-based compensation expense 222 80
Deferred tax expense (8 ) 28
Bad debt expense 45 49
Forgiveness of note payable from Paycheck Protection Program (1,037 ) -
Changes in operating assets and liabilities, net of effect from acquisitions:
Accounts receivable 135 (57 )
Short-term investments - (4 )
Inventory (870 ) -
Prepaid expenses and other assets 308 (267 )
Accounts payable 247 (70 )
Accrued expenses and other current liabilities 747 505
Deferred revenue 429 351
Right of use assets and liabilities, net 4 4
Net cash provided by operating activities 3,033 2,176
Investing activities:
Acquisition of Postelsia Holdings, Ltd. - (300 )
Proceeds from sale of assets - 34
Purchases of property, equipment and software development costs (176 ) (416 )
Net cash used in investing activities (176 ) (682 )
Financing activities:
Proceeds from long term debt - 1,030
Repayments of finance lease obligations (7 ) (6 )
Proceeds from stock option exercise 45 3
Dividends paid to shareholders (914 ) -
Stock repurchase under Stock Buyback Plan (713 ) (534 )
Net cash (used in) / provided by financing activities (1,589 ) 493
Net change in cash 1,268 1,987
Cash at beginning of period 4,374 2,638
Cash at end of period $ 5,642 $ 4,625

The

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

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Where

Food Comes From, Inc.

Consolidated

Statement of Equity

(Unaudited)

Additional
Common Stock Paid-in Treasury Retained
(Amounts in thousands) Shares Amount Capital Stock Earnings Total
Balance at December 31, 2020 6,118 $ 6 $ 11,612 $ (2,702 ) $ 3,548 $ 12,464
Stock-based compensation expense - - 25 - - 25
Stock-based compensation expense, shares
Stock options exercised 18 - 40 - - 40
Repurchase of common shares under Stock Buyback Plan (29 ) - - (411 ) - (411 )
Dividends paid
Net income - - - - 1,150 1,150
Balance at March 31, 2021 6,107 $ 6 $ 11,677 $ (3,113 ) $ 4,698 $ 13,268
Stock-based compensation expense - - 29 - - 29
Stock options exercised 1 - 4 - - 4
Repurchase of common shares under Stock Buyback Plan (13 ) - - (195 ) - (195 )
Net income - - - - 202 202
Balance at June 30, 2021 6,095 $ 6 $ 11,710 $ (3,308 ) $ 4,900 $ 13,308
Stock-based compensation expense 10 - 168 - - 168
Stock options exercised - - 1 - - 1
Repurchase of common shares under Stock Buyback Plan (8 ) - - (107 ) - (107 )
Dividends paid - - - - (914 ) (914 )
Net income - - - - 867 867
Balance at September 30, 2021 6,097 $ 6 $ 11,879 $ (3,415 ) $ 4,853 $ 13,323

The

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

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Where

Food Comes From, Inc.

Consolidated

Statement of Equity

(Unaudited)

Additional
Common Stock Paid-in Treasury Retained
(Amounts in thousands) Shares Amount Capital Stock Earnings Total
Balance at December 31, 2019 (1) 6,245 $ 6 $ 11,445 $ (1,665 ) $ 2,163 $ 11,949
Stock-based compensation expense - - 31 - - 31
Repurchase of common shares under Stock Buyback Plan (21 ) - - (158 ) - (158 )
Net loss - - - - (241 ) (241 )
Balance at March 31, 2020 6,224 $ 6 $ 11,476 $ (1,823 ) $ 1,922 $ 11,581
Stock-based compensation expense - - 24 - - 24
Stock options exercised 3 - 3 - - 3
Repurchase of common shares under Stock Buyback Plan (16 ) - - (111 ) - (111 )
Net income - - - - 351 351
Balance at June 30, 2020 6,211 $ 6 $ 11,503 $ (1,934 ) $ 2,273 $ 11,848
Stock-based compensation expense - - 25 - - 25
Repurchase of common shares under Stock Buyback Plan (41 ) - - (265 ) - (265 )
Net income attributable to Where Food Comes From, Inc. - - - - 730 730
Net income (loss) - - - - 730 730
Balance at September 30, 2020 6,170 $ 6 $ 11,528 $ (2,199 ) $ 3,003 $ 12,338
(1) The<br> balance at December 31, 2019 has been updated to reflect the impact of the 1-for-4 reverse stock split effective December 1, 2020.
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The

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

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Where

Food Comes From, Inc.

Notes

to the Consolidated Financial Statements

(Unaudited)

Note1 - The Company and Basis of Presentation

BusinessOverview

Where Food Comes From, Inc. is a Colorado corporation based in Castle Rock, Colorado (“WFCF”, the “Company,” “our,” “we,” or “us”). We are an independent, third-party food verification company conducting both on-site and desk audits to verify that claims being made about livestock, food, other high-value specialty crops and agricultural products are accurate. We care about food and other agricultural products, how it is grown and raised, the quality of what we eat, what farmers and ranchers do, and authentically telling that story to the consumer. Our team visits farms and ranches and looks at their plants, animals, and records, and compares the information we collect to specific standards or claims that farms and ranches want to make about how they are producing food. We strive to ensure that everyone involved in the food business - from growers and farmers to retailers and shoppers – can count on WFCF to provide authentic and transparent information about the food we eat and how, where, and by whom it is produced.

We also provide sustainability programs, compliance management and farming information management solutions to drive sustainable value creation. We employ a software-as-a-service (“SaaS”) revenue model that bundles annual software licenses with ongoing software enhancements and upgrades and a wide range of professional services that support our verification business and generate incremental revenue specific to the food and agricultural industry. Finally, the Company’s Where Food Comes From Source Verified® retail and restaurant labeling program utilizes the verification of product attributes to connect consumers directly to the source of the food they purchase through product labeling and web-based information sharing and education.

Most of our customers are located throughout the United States.

Basisof Presentation

Our unaudited consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and include the results of operations, financial position and cash flows of Where Food Comes From, Inc. and its subsidiaries, Where Food Comes From Organic, Inc. (“WFCFO”), Validus Verifications Services, LLC (“Validus”), Sterling Solutions (“Sterling”), SureHarvest Services, Inc. (“SureHarvest”), A Bee Organic, Sow Organic, JVF Consulting and Postelsia Holdings, Ltd. (“Postelsia”) (collectively referred to as “we,” “us,” and “our” throughout this Form 10-Q). The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues, costs and expenses during the reporting period. All significant intercompany transactions and amounts have been eliminated. The results of businesses acquired are included in the consolidated financial statements from the date of the acquisition. Actual results could differ from the estimates.

The consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and should be read in conjunction with our audited financial statements and footnotes thereto for the year ended December 31, 2020, included in our Form 10-K filed on February 18, 2021. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to such rules and regulations. However, we believe that the disclosures are adequate to make the information presented not misleading. Certain prior year amounts have been reclassified to conform to current year presentation. Net income and shareholders’ equity were not affected by these reclassifications. The financial statements reflect all adjustments (consisting primarily of normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation of our financial position and results of operations. The consolidated operating results for the three and nine months ended September 30, 2021 are not necessarily indicative of the results to be expected for any other interim period of any future year.

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Where

Food Comes From, Inc.

Notes

to the Consolidated Financial Statements

(Unaudited)

Except as specifically indicated, all information in this Quarterly Report on Form 10-Q has been retroactively adjusted to give effect to a 1-for-4 reverse stock split that was effective on December 1, 2020.

Seasonality

Our business is subject to seasonal fluctuations. Significant portions of our verification and certification service revenue are typically realized during late May through early October when the calf marketings and the growing seasons are at their peak. Because of the seasonality of the business and our industry, results for any quarter are not necessarily indicative of the results that may be achieved for any other quarter or for the full fiscal year.

RecentAccounting Pronouncements

The Financial Accounting Standards Board (FASB) Accounting Standards Codification is the sole source of authoritative GAAP other than SEC issued rules and regulations that apply only to SEC registrants. The FASB issues an Accounting Standards Update (ASU) to communicate changes to the codification. The Company considers the applicability and impact of all ASU’s. ASU’s were assessed and determined to be either not applicable or are not expected to have a material impact on the consolidated financial statements.

Note2 – Basic and Diluted Net Income / (Loss) per Share

Basic net income / (loss) per share was computed by dividing income available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted net income per share is based on the assumption that all dilutive convertible shares and stock options were converted or exercised. Dilution is computed by applying the treasury stock method. Under this method, options and restricted stock awards are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period.

The following is a reconciliation of the share data used in the basic and diluted income / (loss) per share computations (amounts in thousands):

Schedule of Reconciliation of Basic and Diluted Income Per Share Computations

(in thousands) 2021 2020 2021 2020
Three months ended<br><br> September 30, Nine months ended<br><br> <br>September 30,
(in thousands) 2021 2020 2021 2020
Basic:
Weighted average shares outstanding 6,094 6,187 6,146 6,215
Diluted:
Weighted average shares outstanding 6,094 6,187 6,146 6,215
Weighted average effects of dilutive securities 63 37 61 39
Total 6,157 6,224 6,207 6,254
Antidilutive securities: 17 72 17 72

Note3 - Investment in Progressive Beef, LLC

For

the three months ended September 30, 2021 and 2020, the Company received dividend income from Progressive Beef of $30,000, respectively, representing a distribution of their earnings. For the nine months ended September 30, 2021 and 2020, the Company received dividend income totaling $90,000, respectively. The income is reflected within the “Other income/(expense)” section of the Company’s Consolidated Statement of Income for the three and nine months ended September 30, 2021 and 2020.

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Where

Food Comes From, Inc.

Notes

to the Consolidated Financial Statements

(Unaudited)

Note4 – Intangible and Other Assets

The following table summarizes our intangible and other assets (amounts in thousands, except useful life):

Schedule of Intangible and Other Assets

September 30, December 31, Estimated
2021 2020 Useful Life
Intangible assets subject to amortization:
Tradenames and trademarks $ 417 $ 417 2.5 - 8.0 years
Accreditations 75 85 5.0 years
Customer relationships 3,664 3,664 3.0 - 15.0 years
Patents 970 970 4.0 years
Non-compete agreements 121 121 5.0 years
Intangible and other assets, gross 5,247 5,257
Less accumulated amortization 3,062 2,795
Intangible and other assets, net 2,185 2,462
Tradenames/trademarks (not subject to amortization) 465 465
Intangible assets 2,650 2,927
Other assets 25 21
Intangible and other assets: $ 2,675 $ 2,948

Note5 – Accrued Expenses and Other Current Liabilities

The following table summarizes our accrued expenses and other current liabilities as of (amounts in thousands):

Schedule of Accrued Expenses and Other Current Liabilities

September 30, December 31,
2021 2020
Income and sales taxes payable $ 155 $ 168
Payroll related accruals 925 271
Customer deposits 101 31
Professional fees and other expenses 165 129
Accrued expenses and other current liabilities $ 1,346 $ 599

Note6 – Notes Payable

LongTerm Debt

Schedule of Long Term Debt

September 30, December 31,
2021 2020
(In thousands)
Paycheck Protection Program Loan $ - $ 1,035
Less current portion of notes payable and other long-term debt - (463 )
Notes payable and other long-term debt $ - $ 572 
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Where

Food Comes From, Inc.

Notes

to the Consolidated Financial Statements

(Unaudited)

The

Coronavirus Aid, Relief, and Economic Security (“CARES”) Act allocated $350 billion to help small businesses keep workers employed amid the pandemic and economic downturn. Known as the Paycheck Protection Program (“PPP”), the initiative provides federally guaranteed loans to small businesses. These loans may be forgiven if borrowers maintain their payrolls during the crisis or restore their payrolls afterward. The Company received notification the loan and accrued interest was forgiven on March 4, 2021.

UnisonRevolving Line of Credit

The Company has a revolving line of credit (“LOC”) agreement which matures April 12, 2022. The LOC provides for $75,080 in working capital. The interest rate is at the Wall Street Journal prime rate plus 1.50% and is adjusted daily. Principal and interest are payable upon demand, but if demand is not made, then annual payments of accrued interest only are due, with the principal balance due on maturity. As of September 30, 2021 and December 31, 2020, the effective interest rate for both periods was

4.75

%. The LOC is collateralized by all the business assets of ICS. As of September 30, 2021, and December 31, 2020, there were no amounts outstanding under this LOC.

Note7 – Stock-Based Compensation

In addition to cash compensation, the Company may compensate certain service providers, including employees, directors, consultants, and other advisors, with equity-based compensation in the form of stock options and restricted stock awards. The Company recognizes all equity-based compensation as stock-based compensation expense based on the fair value of the compensation measured at the grant date. For stock options, fair value is calculated at the date of grant using the Black-Scholes-Merton option pricing model. For restricted stock awards, fair value is the closing stock price for the Company’s common stock on the grant date. The expense is recognized over the vesting period of the grant. For the periods presented, all stock-based compensation expense was classified as a component within selling, general and administrative expense in the Company’s consolidated statements of operations.

The amount of stock-based compensation expense is as follows (amounts in thousands):

Schedule of Stock-based Compensation Expense

Three months ended September 30, Nine months ended September 30,
2021 2020 2021 2020
Stock options $ 42 $ 24 $ 96 $ 77
Stock awards 126 1 126 3
Total $ 168 $ 25 $ 222 $ 80

During

the three months ended September 30, 2021, no stock options were awarded. During the nine months ended September 30, 2021, the Company awarded stock options to purchase 17,000 shares of the Company’s common stock at an exercise price of $14.77 to employees of the Company.

During

the three months ended September 30, 2021, the Company awarded 10,000 shares of the Company’s common stock at a fair market value price of $12.62 per share to an employee of the Company. No additional shares were awarded during the nine months ended September 30, 2021.

During

the three months ended September 30, 2020, the Company awarded stock options to purchase 2,000

shares of the Company’s common stock at

an exercise price of $7.20

per share to the members of the Company’s

Board of Directors. During the nine months ended September 30, 2020, the Company awarded stock options to purchase 7,000

shares of the Company’s common stock

at an exercise price of $7.20 to $8.20 per share to employees of the Company (all share and dollar amounts have been adjusted to reflect the 1-for-4 reverse split that occurred in December 2020).

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Where

Food Comes From, Inc.

Notes

to the Consolidated Financial Statements

(Unaudited)

The Company estimated the fair value of stock options using the Black-Scholes-Merton option pricing model with the following assumptions (all share amounts have been adjusted to reflect the 1-for-4 reverse split that occurred in December 2020):

Schedule of Estimated Fair Value of Stock Options

Nine months ended September 30,
2021 2020
Number of options awarded to purchase common<br> shares 17,000 7,000
Risk-free interest rate 0.82 % 1.19 %
Expected volatility 70.06 % 94.7 %
Assumed dividend yield N/A N/A
Expected life of options from the date of grant 9.8<br> years 9.8<br> years

The estimated unrecognized compensation cost from unvested awards which will be recognized ratably over the remaining vesting phase is as follows (amounts in thousands):

Schedule of Unrecognized Compensation Cost from Unvested Awards

Years ended December 31st: Total unrecognized compensation expense
2021 (remaining three months) $ 37
2022 98
2023 40
2024 11
$ 186

EquityIncentive Plans

Our 2006 Equity Incentive Plan (the “2006 Plan”) and 2016 Equity Incentive Plan (the “2016 Plan,” and together with the 2006 Plan, the “Plans”) provide for the issuance of stock-based awards to employees, officers, directors and consultants. The Plans permit the granting of stock awards and stock options. The vesting of stock-based awards is generally subject to the passage of time and continued employment through the vesting period.

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Where

Food Comes From, Inc.

Notes

to the Consolidated Financial Statements

(Unaudited)

StockOption Activity

Stock option activity under our Equity Incentive Plans is summarized as follows (all share and dollar amounts have been adjusted to reflect the 1-for-4 reverse split that occurred in December 2020):

Schedule of Stock Option Activity

Weighted avg.
Weighted avg. Weighted avg. remaining
Number of exercise price grant date fair contractual life Aggregate
awards per share value per share (in years) intrinsic value
Outstanding, December 31, 2020 105,086 $ 6.25 $ 6.06 5.38 $ 814,090
Granted 17,000 $ 14.77 $ 10.90 10.00
Exercised (18,045 ) $ 2.54 $ 13.39 1.40
Expired/Forfeited (2,556 ) $ 7.18 $ 6.88 6.98
Outstanding, September 30, 2021 101,485 $ 8.31 $ 7.49 6.07 $ 547,544
Exercisable, September 30, 2021 73,513 $ 6.95 $ 6.81 4.95 $ 481,516
Unvested, September 30, 2021 27,972 $ 11.91 $ 9.29 9.00 $ 66,028

The aggregate intrinsic value represents the total pre-tax intrinsic value (the aggregate difference between the closing price of our common stock on September 30, 2021 and the exercise price for the in-the-money options) that would have been received by the option holders if all the in-the-money options had been exercised on September 30, 2021.

RestrictedStock Activity

Restricted stock activity under our Equity Incentive Plans is summarized as follows (all share and dollar amounts have been adjusted to reflect the 1-for-4 reverse split that occurred in December 2020):

Schedule of Restricted Stock Activity Under Equity Incentive Plan

Weighted avg.
Number of grant date
options fair value
Non-vested restricted shares, December 31, 2020 1,250 $ 10.20
Granted - $ -
Vested (1,250 ) $ 10.20
Forfeited - $ -
Non-vested restricted shares, September 30, 2021 - $ -

Note8 – Income Taxes

Deferred tax assets and liabilities have been determined based upon the differences between the financial statement amounts and the tax bases of assets and liabilities as measured by enacted tax rates expected to be in effect when these differences are expected to reverse. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized.

The

provision or benefit for income taxes is recorded at the end of each interim period based on the Company’s best estimate of its effective income tax rate expected to be applicable for the full fiscal year. For the three and nine months ended September 30, 2021 we recorded an income tax expense of approximately $298,000 and $413,000, respectively, compared to income tax expense of $271,000 and $336,000 for the same 2020 periods. The effective tax rate for the nine months ended September 30, 2021 is favorably impacted by the non-taxability of the PPP loan forgiveness income.

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Where

Food Comes From, Inc.

Notes

to the Consolidated Financial Statements

(Unaudited)

Note9 - Revenue Recognition

Disaggregationof Revenue

We have identified three material revenue categories in our business: (i) verification and certification service revenue, (ii) product sales, (iii) software and related consulting revenue.

Revenue attributable to each of our identified revenue categories is disaggregated in the table below (amounts in thousands).

Schedule of Revenues Disaggregated by Revenue

Three months ended September<br> 30, 2021 Three months ended September<br> 30, 2020
Verification and Certification<br> Segment Software and Related Consulting<br> Segment Eliminations and Other Consolidated Verification and Certification<br> Segment Software and Related Consulting<br> Segment Eliminations and Other Consolidated
Verification and certification service revenue $ 4,701 $ - $ - $ 4,701 $ 4,307 $ - $ - $ 4,307
Product sales 1,383 - - 1,383 1,362 - - 1,362
Software and related consulting revenue - 461 - 461 - 528 - 528
Total revenues $ 6,084 $ 461 $ - $ 6,545 $ 5,669 $ 528 $ - $ 6,197
Nine months ended September<br> 30, 2021 Nine months ended September<br> 30, 2020
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Verification and Certification<br> Segment Software and Related Consulting<br> Segment Eliminations and Other Consolidated Verification and Certification<br> Segment Software and Related Consulting<br> Segment Eliminations and Other Consolidated
Verification and certification service revenue $ 11,659 $ - $ - $ 11,659 $ 10,218 $ - $ - $ 10,218
Product sales 3,071 - - 3,071 2,883 - - 2,883
Software and related consulting revenue - 1,396 - 1,396 - 1,538 (114 ) 1,424
Total revenues $ 14,730 $ 1,396 $ - $ 16,126 $ 13,101 $ 1,538 $ (114 ) $ 14,525

ContractBalances

As

of September 30, 2021, and December 31, 2020, accounts receivable from contracts with customers, net of allowance for doubtful accounts, were approximately $2.3 and $2.5 million, respectively.

As

of September 30, 2021, and December 31, 2020, deferred revenue from contracts with customers was approximately $1.6 and $1.1 million, respectively. The balance of the contract liabilities at September 30, 2021 and December 31, 2020 are expected to be recognized as revenue within one year or less of the invoice date.

The following table reflects the changes in our contract liabilities during the nine month period ended September 30, 2021

Schedule of Changes in Contract Liabilities

(amounts in thousands):
Deferred revenue:
Unearned revenue January 1, 2021 $ 1,132
Unearned billings 3,320
Revenue recognized (2,888 )
Unearned revenue September 30, 2021 $ 1,564 
| 15 |

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Where

Food Comes From, Inc.

Notes

to the Consolidated Financial Statements

(Unaudited)

Note10 – Leases

The components of lease expense were as follows (amounts in thousands):

Schedule of Lease Expense

2021 2020 2021 2020
Three months ended September 30, Nine months ended September 30,
2021 2020 2021 2020
Operating lease cost $ 121 $ 116 $ 353 $ 348
Finance lease cost
Amortization of assets 2 2 7 6
Interest on finance lease obligations 1 1 3 4
Total net lease cost $ 124 $ 119 $ 363 $ 358

Included

in the table above, for the three and nine months ended September 30, 2021, is $0.1 and $0.3 million, respectively, of operating lease cost for our corporate headquarters.

This space is being

leased from The Move, LLC. Our CEO and President, each a related party to WFCF, have a 24.3% jointly-held ownership interest in The Move, LLC.

Supplemental balance sheet information related to leases was as follows (amounts in thousands):

Schedule of Supplemental Balance Sheet Information Related to Leases

September 30, 2021 December 31, 2020
Related Party Other Total Related Party Other Total
Operating leases:
Operating lease ROU assets $ 2,615 $ 201 $ 2,816 $ 2,755 $ 238 $ 2,993
Current operating lease liabilities $ 195 $ 107 $ 302 $ 179 $ 89 $ 268
Noncurrent operating lease liabilities 2,932 118 3,050 3,079 178 3,257
Total operating lease liabilities $ 3,127 $ 225 $ 3,352 $ 3,258 $ 267 $ 3,525
September 30, 2021 December 31, 2020
--- --- --- --- --- --- ---
Finance leases:
Property and equipment, at cost $ 51 $ 67
Accumulated amortization (23 ) (30 )
Property and equipment, net $ 28 $ 37
Current obligations of finance leases $ 12 $ 13
Finance leases, net of current obligations 22 31
Total finance lease liabilities $ 34 $ 44
Weighted average remaining lease term (in years):
Operating leases 9.4 10.0
Finance leases 3.3 3.7
Weighted average discount rate:
Operating leases 5.8 % 5.8 %
Finance leases 11.9 % 13.0 %

Supplemental cash flow and other information related to leases was as follows (amounts in thousands):

Schedule of Supplemental Cash Flow Information Related to Leases

2021 2020 2021 2020
Three months ended September 30, Nine months ended September 30,
2021 2020 2021 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases $ 120 $ 113 $ 350 $ 335
Operating cash flows from finance leases $ 1 $ 1 $ 3 $ 4
Financing cash flows from finance leases $ 2 $ 2 $ 7 $ 6
ROU assets obtained in exchange for lease liabilities:
Operating leases $ 3,057 $ 3,507 $ 3,057 $ 3,507 
| 16 |

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Where

Food Comes From, Inc.

Notes

to the Consolidated Financial Statements

(Unaudited)

Maturities of lease liabilities were as follows (amounts in thousands):

Schedule of Maturities of Operating Lease and Finance Lease Liabilities

Years Ending<br> December 31st, Operating Leases Finance Leases
2021 (three remaining months) $ 121 $ 4
2022 481 15
2023 468 10
2024 407 5
2025 405 5
Thereafter 2,496 -
Total lease payments 4,378 39
Less amount representing<br> interest (1,026 ) (5 )
Total lease obligations 3,352 34
Less current portion (302 ) (12 )
Long-term<br> lease obligations $ 3,050 $ 22

Note11 – Commitments and Contingencies

Legalproceedings

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

Note12 - Segments

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

The Company also determined that it has a software and related consulting reportable segment. SureHarvest, which includes Postelsia, is the sole operating segment under the software and related consulting reportable segment. This segment includes software license, maintenance, support and software-related consulting service revenues.

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

| 17 |

| --- |

Where

                                        Food Comes From, Inc.

Notes

to the Consolidated Financial Statements

(Unaudited)

The Company eliminates intercompany transfers between segments for management reporting purposes. The following table shows information for reportable operating segments (amounts in thousands):

Schedule of Operating Segments

Three<br> months ended September 30, 2021 Three<br> months ended September 30, 2020
Verification<br> and Certification Segment Software<br> and Related Consulting Segment Eliminations<br> and Other Consolidated<br> Totals Verification<br> and Certification Segment Software<br> and Related Consulting Segment Eliminations<br> and Other Consolidated<br> Totals
Assets:
Goodwill $ 1,947 $ 999 $ - $ 2,946 $ 2,946 $ - $ - $ 2,946
All<br> other assets, net 17,036 3,311 (2,778 ) 17,569 16,548 5,379 (4,612 ) 17,315
Total<br> assets $ 18,983 $ 4,310 $ (2,778 ) $ 20,515 $ 19,494 $ 5,379 $ (4,612 ) $ 20,261
Revenues:
Verification<br> and certification service revenue $ 4,701 $ - $ - $ 4,701 $ 4,307 $ - $ - $ 4,307
Product<br> sales 1,383 - - 1,383 1,362 - - 1,362
Software<br> and related consulting revenue - 461 - 461 - 528 - 528
Total<br> revenues $ 6,084 $ 461 $ - $ 6,545 $ 5,669 $ 528 $ - $ 6,197
Costs of revenues:
Costs of<br> verification and certification services 2,438 - - 2,438 2,233 - - 2,233
Costs of products 864 - - 864 866 - - 866
Costs<br> of software and related consulting - 315 - 315 - 336 - 336
Total<br> costs of revenues 3,302 315 - 3,617 3,099 336 - 3,435
Gross profit 2,782 146 - 2,928 2,570 192 - 2,762
Depreciation & amortization 149 51 - 200 112 145 - 257
Other<br> operating expenses 1,542 48 - 1,590 1,404 145 - 1,549
Segment<br> operating income/(loss) $ 1,091 $ 47 $ - $ 1,138 $ 1,054 $ (98 ) $ - $ 956
Other items to reconcile segment<br> operating income/(loss) to net income/(loss):
Other<br> income/(expense) 29 (2 ) - 27 47 (2 ) - 45
Income<br> tax expense - - (298 ) (298 ) - (8 ) (263 ) (271 )
Net<br> income/(loss) $ 1,120 $ 45 $ (298 ) $ 867 $ 1,101 $ (108 ) $ (263 ) $ 730
Nine<br> months ended September 30, 2021 Nine<br> months ended September 30, 2020
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Verification<br> and Certification Segment Software<br> and Related Consulting Segment Eliminations<br> and Other Consolidated<br> Totals Verification<br> and Certification Segment Software<br> and Related Consulting Segment Eliminations<br> and Other Consolidated<br> Totals
Assets:
Goodwill $ 1,947 $ 999 $ - $ 2,946 $ 2,946 $ - $ - $ 2,946
All<br> other assets, net 17,036 3,311 (2,778 ) 17,569 16,548 5,379 (4,612 ) 17,315
Total<br> assets 18,983 4,310 (2,778 ) 20,515 19,494 5,379 (4,612 ) 20,261
Revenues:
Verification<br> and certification service revenue $ 11,659 $ - $ - $ 11,659 $ 10,218 $ - $ - $ 10,218
Product<br> sales 3,071 - - 3,071 2,883 - - 2,883
Software<br> and related consulting revenue - 1,396 - 1,396 - 1,538 (114 ) 1,424
Total<br> revenues $ 14,730 $ 1,396 $ - $ 16,126 $ 13,101 $ 1,538 $ (114 ) $ 14,525
Costs of revenues:
Costs of<br> verification and certification services 6,363 - - 6,363 5,373 - (90 ) 5,283
Costs of products 1,969 - - 1,969 1,869 - - 1,869
Costs<br> of software and related consulting - 995 - 995 - 901 - 901
Total<br> costs of revenues 8,332 995 - 9,327 7,242 901 (90 ) 8,053
Gross profit 6,398 401 - 6,799 5,859 637 (24 ) 6,472
Depreciation & amortization 448 153 - 601 313 423 - 736
Other<br> operating expenses 4,463 226 - 4,689 4,206 483 (24 ) 4,665
Segment<br> operating income/(loss) $ 1,487 $ 22 $ - $ 1,509 $ 1,340 $ (269 ) $ - $ 1,071
Other items to reconcile segment<br> operating income/(loss) to net income/(loss):
Other<br> income/(expense) 95 (9 ) 1,037 1,123 107 (2 ) - 105
Income<br> tax expense - (5 ) (408 ) (413 ) - (8 ) (328 ) (336 )
Net<br> income/(loss) $ 1,582 $ 8 $ 629 $ 2,219 $ 1,447 $ (279 ) $ (328 ) $ 840 
| 18 |

| --- |

Where

                                        Food Comes From, Inc.

Notes

to the Consolidated Financial Statements

(Unaudited)

Note13 – Supplemental Cash Flow Information

Schedule of Supplemental Cash Flow Information

(Amounts in thousands) 2021 2020
Nine<br> months ended September 30,
(Amounts in thousands) 2021 2020
Cash paid during the year:
Interest expense $ 5 $ 5
Income taxes $ 595 $ 362

Note14 – Subsequent Events

The Company has had no material, significant or unusual transactions or events from the financial statement date through the issuance of the financial statements.

| 19 |

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ITEM

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

General

This information should be read in conjunction with the consolidated financial statements and the notes included in Item 1 of Part I of this Quarterly Report and the audited consolidated financial statements and notes, and Management’s Discussion and Analysis of Financial Condition and Results of Operations, contained in the Form 10−K for the fiscal year ended December 31, 2020. The following discussion and analysis includes historical and certain forward−looking information that should be read together with the accompanying consolidated financial statements, related footnotes and the discussion below of certain risks and uncertainties that could cause future operating results to differ materially from historical results or from the expected results indicated by forward−looking statements.

BusinessOverview

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

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

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

WFCF was founded in 1996 and incorporated in the state of Colorado as a subchapter C corporation in 2006. The Company’s shares of common stock trade on the NASDAQ Capital Market under the stock ticker symbol, “WFCF.”

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

CoronavirusPandemic (COVID-19)

In March 2020, the World Health Organization declared the outbreak of novel coronavirus disease (“COVID-19”) as a pandemic. This could result in a variety of risks to our business including the inability to perform audits at our customers locations due to social distancing, supplier disruptions as a result of business closures, food systems that are in disarray resulting in global food shortages, euthanasia of animals and dumping of dairy products because farmers have no distribution channel, all of which could negatively influence our revenue and costs. The government may introduce healthcare reform measures for which we cannot predict the financial implication of on our business. A weak or declining economy could cause our customers to delay purchases or payments for our services and products. Additionally, COVID-19 may introduce additional challenges including our ability to produce sufficient cash flows from operations or to raise capital when needed at acceptable terms, if at all.

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

The Company generally performs onsite audits in connection with its verification and certification activity. We continue to work with standard setting bodies and identify innovative solutions to offer our customers. We believe that our transformative approach will help further differentiate us from competitors. Additionally, we believe third party verification is an essential component to the food and agricultural supply chain and ensures our future as a high quality provider of assurance services, thereby increasing the value of products in the food supply chain.

We will continue to monitor the situation closely and react accordingly to any future restrictions or limitations, while keeping the interest of our customers and business in mind. Due to the uncertainty in the severity and duration of the pandemic, the impact on our revenues, profitability and statement of financial position is uncertain at this time.

Seasonality

Our business is subject to seasonal fluctuations. Significant portions of our verification and certification service revenue are typically realized during late May through early October when the calf marketings and the growing seasons are at their peak. Because of the seasonality of the business and our industry, results for any quarter are not necessarily indicative of the results that may be achieved for any other quarter or for the full fiscal year.

Liquidityand Capital Resources

At September 30, 2021, we had cash, cash equivalents of approximately $5.6 million compared to approximately $4.4 million at December 31, 2020. Our working capital at September 30, 2021 was approximately $5.0 million compared to $4.4 million at December 31, 2020.

Net cash provided by operating activities for the nine months ended September 30, 2021 was approximately $3.0 million compared to $2.2 million during the same period in 2020. Net cash provided by operating activities is driven by our net income and adjusted by non-cash items. Non-cash adjustments primarily include depreciation, amortization of intangible assets, stock-based compensation expense, forgiveness of Paycheck Protection Program loan, and deferred taxes. Fluctuations are primarily due to operating performance offset by the timing of cash receipts and cash disbursements. The increase in cash provided by operating activities for the periods ending September 30, 2021 and 2020 was primarily driven by a change in accrued expenses and deferred revenue, offset by cash used for inventory.

Net cash used in investing activities for the nine months ended September 30, 2021, was approximately $0.2 million compared to $0.7 million in the 2020 period. Net cash used in the period ending September 30, 2021 was primarily for the purchase of a vehicle and equipment. Net cash used in the September 30, 2020 period was attributable to the acquisition of Postelsia Holdings, Ltd for $0.3 million and investment in software of $0.4 million.

Net cash used in financing activities for the nine months ended September 30, 2021 was approximately $1.6 million compared to net cash provided by financing activities of $0.5 million in the 2020 period. Cash used for the period ending September 30, 2021, was primarily due to the repurchase of common shares under the Stock Buyback Plan and dividends paid to shareholders. Cash provided for the period ending September 30, 2020, was primarily from proceeds from the PPP loan of $1.0 million, offset by $0.5 million for the repurchase of common shares under the Stock Buyback Plan.

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| --- |

The primary driver of our operating cash flow is our third-party verification solutions, specifically the gross margin generated from services provided. Therefore, we focus on the elements of those operations, including revenue growth and long-term projects that ensure a steady stream of operating profits to enable us to meet our cash obligations. On a weekly basis, we review the performance of each of our revenue streams focusing on third-party verification solutions compared with prior periods and our operating plan. We believe that our various sources of capital, including cash flow from operating activities, overall improvement in our performance, and our ability to obtain additional financing, are adequate to finance current operations as well as the repayment of current debt obligations. We are not aware of any other event or trend that would negatively affect our liquidity. In the event such a trend develops, we believe that there are sufficient financing avenues available to us and from our internal cash-generating capabilities to adequately manage our ongoing business.

The culmination of all our efforts has brought significant opportunities to us, including increased investor confidence and renewed interest in our company, as well as the potential to develop business relationships with long-term strategic partners. In keeping with our core business, we will continue to review our business model with a focus on profitability, long-term capital solutions and the potential impact of acquisitions or divestitures, if such an opportunity arises.

Our plan for continued growth is primarily based on diversification in our product offerings within national and international markets, as well as, potential acquisitions. We believe that there are significant growth opportunities available to us because of growing consumer awareness and demand on a national level. Internationally, a quality verification program is often the only way to overcome import or export restrictions.

DebtFacility

The Company has a revolving line of credit (“LOC”) agreement which matures April 12, 2022. The LOC provides for $75,080 in working capital. The interest rate is at the Wall Street Journal prime rate plus 1.50% and is adjusted daily. Principal and interest are payable upon demand, but if demand is not made, then annual payments of accrued interest only are due, with the principal balance due upon maturity. As of September 30, 2021, and December 31, 2020, the effective interest rate was 4.75%, respectively. The LOC is collateralized by all the business assets of Where Food Comes From Organic, Inc. (“WFCFO”). As of September 30, 2021, and December 31, 2020, there were no amounts outstanding under this LOC.

On April 17, 2020, the Company received a $1.0 million loan under the PPP with a maturity date of April 17, 2022 and an annual interest rate of 1.00%. The Company received notification the loan and accrued interest amount was forgiven on March 4, 2021.

Off-BalanceSheet Arrangements

As of September 30, 2021, we had no off-balance sheet arrangements of any type.

| 22 |

| --- |

RESULTS

OF OPERATIONS

Three and nine months ended September 30, 2021 compared to the same periods in fiscal year 2020

The following table shows information for reportable operating segments (amounts in thousands):

Three<br> months ended September 30, 2021 Three<br> months ended September 30, 2020
Verification<br> and Certification Segment Software<br> and Related Consulting Segment Eliminations<br> and Other Consolidated<br> Totals Verification<br> and Certification Segment Software<br> and Related Consulting Segment Eliminations<br> and Other Consolidated<br> Totals
Assets:
Goodwill $ 1,947 $ 999 $ - $ 2,946 $ 2,946 $ - $ - $ 2,946
All<br> other assets, net 17,036 3,311 (2,778 ) 17,569 16,548 5,379 (4,612 ) 17,315
Total<br> assets $ 18,983 $ 4,310 $ (2,778 ) $ 20,515 $ 19,494 $ 5,379 $ (4,612 ) $ 20,261
Revenues:
Verification<br> and certification service revenue $ 4,701 $ - $ - $ 4,701 $ 4,307 $ - $ - $ 4,307
Product<br> sales 1,383 - - 1,383 1,362 - - 1,362
Software<br> and related consulting revenue - 461 - 461 - 528 - 528
Total<br> revenues $ 6,084 $ 461 $ - $ 6,545 $ 5,669 $ 528 $ - $ 6,197
Costs of revenues:
Costs of<br> verification and certification services 2,438 - - 2,438 2,233 - - 2,233
Costs of products 864 - - 864 866 - - 866
Costs<br> of software and related consulting - 315 - 315 - 336 - 336
Total<br> costs of revenues 3,302 315 - 3,617 3,099 336 - 3,435
Gross profit 2,782 146 - 2,928 2,570 192 - 2,762
Depreciation & amortization 149 51 - 200 112 145 - 257
Other<br> operating expenses 1,542 48 - 1,590 1,404 145 - 1,549
Segment<br> operating income/(loss) $ 1,091 $ 47 $ - $ 1,138 $ 1,054 $ (98 ) $ - $ 956
Other items to reconcile segment<br> operating income/(loss) to net income/(loss):
Other<br> income/(expense) 29 (2 ) - 27 47 (2 ) - 45
Income<br> tax expense - - (298 ) (298 ) - (8 ) (263 ) (271 )
Net<br> income/(loss) $ 1,120 $ 45 $ (298 ) $ 867 $ 1,101 $ (108 ) $ (263 ) $ 730
Nine<br> months ended September 30, 2021 Nine<br> months ended September 30, 2020
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Verification<br> and Certification Segment Software<br> and Related Consulting Segment Eliminations<br> and Other Consolidated<br> Totals Verification<br> and Certification Segment Software<br> and Related Consulting Segment Eliminations<br> and Other Consolidated<br> Totals
Assets:
Goodwill $ 1,947 $ 999 $ - $ 2,946 $ 2,946 $ - $ - $ 2,946
All<br> other assets, net 17,036 3,311 (2,778 ) 17,569 16,548 5,379 (4,612 ) 17,315
Total<br> assets 18,983 4,310 (2,778 ) 20,515 19,494 5,379 (4,612 ) 20,261
Revenues:
Verification<br> and certification service revenue $ 11,659 $ - $ - $ 11,659 $ 10,218 $ - $ - $ 10,218
Product<br> sales 3,071 - - 3,071 2,883 - - 2,883
Software<br> and related consulting revenue - 1,396 - 1,396 - 1,538 (114 ) 1,424
Total<br> revenues $ 14,730 $ 1,396 $ - $ 16,126 $ 13,101 $ 1,538 $ (114 ) $ 14,525
Costs of revenues:
Costs of<br> verification and certification services 6,363 - - 6,363 5,373 - (90 ) 5,283
Costs of products 1,969 - - 1,969 1,869 - - 1,869
Costs<br> of software and related consulting - 995 - 995 - 901 - 901
Total<br> costs of revenues 8,332 995 - 9,327 7,242 901 (90 ) 8,053
Gross profit 6,398 401 - 6,799 5,859 637 (24 ) 6,472
Depreciation & amortization 448 153 - 601 313 423 - 736
Other<br> operating expenses 4,463 226 - 4,689 4,206 483 (24 ) 4,665
Segment<br> operating income/(loss) $ 1,487 $ 22 $ - $ 1,509 $ 1,340 $ (269 ) $ - $ 1,071
Other items to reconcile segment<br> operating income/(loss) to net income/(loss):
Other<br> income/(expense) 95 (9 ) 1,037 1,123 107 (2 ) - 105
Income<br> tax expense - (5 ) (408 ) (413 ) - (8 ) (328 ) (336 )
Net<br> income/(loss) $ 1,582 $ 8 $ 629 $ 2,219 $ 1,447 $ (279 ) $ (328 ) $ 840 
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Verificationand Certification Segment

Verification and certification service revenues consist of fees charged for verification audits and other verification and certification related services that the Company performs for customers. Fees earned from our WFCF labeling program are also included in our verification and certification revenues as it represents a value-added extension of our source verification. Verification and certification service revenue for the three and nine months ended September 30, 2021 increased 9.2% and 14.1%, respectively, compared to 2020, primarily due to increased customer demand for our product offerings.

Our product sales are an ancillary part of our verification and certification services and represent sales of cattle identification ear tags. Product sales for the three and nine months ended September 30, 2021 increased 1.5% and 6.5%, respectively. Overall, our product sales have increased primarily in response to the requirement for source and age verification using an identification tag at birth for cattle.

Costs of revenues for our verification and certification segment for the three and nine months ended September 30, 2021 were approximately $2.4 million and $6.4 million, respectively, compared to approximately $2.2 million and $5.3 million (including eliminations), respectively, for the same periods in 2020. Gross margin for the three months ended September 30, 2021 increased to 45.7% compared to 45.3% (including eliminations) for the same period ended September 30, 2020. Gross margin for the nine months ended September 30, 2021 decreased to 43.4% compared to 44.0% (including eliminations) for the same period ended September 30, 2020. The changes are primarily due to a change in product mix of our offerings which included new customers, new offerings. Our margins are generally impacted by various costs such as cost of products, salaries and benefits, insurance, and taxes.

Other operating expenses for the three and nine months ended September 30, 2021 increased by approximately 9.8% and 6.6%, respectively, compared to the same three and nine month periods in 2020 due to increased discretionary compensation expense and public listing costs not incurred during the same periods in 2020. Depreciation and amortization for the three and nine months ended September 30, 2021 increased 33.0% and 43.1%, respectively, compared to the same three and nine month periods in 2020. The increase in depreciation and amortization is predominately from shifting certain assets and personnel from SureHarvest to WFCF in 2020 to better support the entire Company.

Softwareand Related Consulting Segment

Software and related consulting revenue is a revenue stream specific to our acquisitions of SureHarvest and Postelsia. We employ a SaaS revenue model that bundles annual software licenses with ongoing software enhancements and upgrades and a wide range of professional services, such as professional appearances, customer education and training, that support our verification business and generate incremental revenue specific to the food and agricultural industry. For the three months ended September 30, 2021, software and related consulting revenue was decreased $0.1 million compared to 2020 (including eliminations). For the nine months ended September 30, 2021, software and related consulting revenue was relatively flat compared to 2020 (including eliminations).

Costs of revenues for our software and related consulting segment for the three months ended September 30, 2021 and September 30, 2020 was approximately $0.3 million. The cost of revenues for the nine months ended September 30, 2021 and September 30, 2020 was $1.0 million and $0.9 million, respectively. Gross margin for the three and nine months ended September 30, 2021 decreased to 31.7% and 28.7%, respectively, compared to 36.4% and 44.7% (including eliminations) for the same period in 2020. The three and nine month decrease in gross margin is due primarily to increased cost of labor to support our enhancements to our customer’s technology.

Other operating expenses for the three and nine months ended September 30, 2021 decreased approximately 66.9% and 53.2%, respectively, compared to the same period in 2020 (including eliminations). Depreciation and amortization for the three and nine months ended September 30, 2021 decreased 64.8% and 63.8%, respectively, compared to the same three and nine month periods in 2020. The decrease is predominately due to the decrease in depreciation, amortization and personnel costs from shifting certain assets and personnel from SureHarvest to WFCF in 2020 to better support the entire Company.

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As with all of our acquisitions, we continue to identify synergies and implement best practices. We focus our efforts to create value in various ways such as improving the performance of our acquired businesses, removing excess capacity, creating market access for products, acquiring skills and technologies more quickly or at a lower cost than we can build in-house, exploiting our industry-specific scalability and bundling opportunities, and picking winners early and helping them develop their businesses. Achieving any or all of these strategies take time to implement. With our more recent acquisition in the software and related consulting segment, we now believe it is far more beneficial to the long term growth of the company to maintain our own proprietary software. We are less focused on licensing the software to others and are able to use our knowledge and expertise, based on the data we own, to make us more competitive in the verification market. Accordingly, we believe that our software and related consulting segment should viewed as an ancillary activity to our overall business.

DividendIncome from Progressive Beef

For the three and nine months ended September 30, 2021 and 2020, the Company received dividend income of $30,000 and $90,000, respectively, from Progressive Beef representing a distribution of their earnings.

IncomeTax Expense

The provision for income taxes is recorded at the end of each interim period based on the Company’s best estimate of its effective income tax rate expected to be applicable for the full fiscal year. For the three and nine months ended September 30, 2021, we recorded income tax expense of approximately $298,000 and $413,000, respectively, compared to income tax expense of $271,000 and $336,000, respectively, for the same periods in 2020. The effective tax rate for the nine months ended September 30, 2021 is favorably impacted by the non-taxability of the PPP loan forgiveness income.

NetIncome and Per Share Information

As a result of the foregoing, net income attributable to WFCF shareholders for the three and nine months ended September 30, 2021 was approximately $0.9 million and $2.2 million, respectively, and $0.14 and $0.36, respectively, per basic and diluted common share, respectively, compared to net income of approximately $0.7 million and $0.8 million, respectively, or $0.12 per basic and diluted common shares for the three months ended September 30, 2020 and $0.14 and $0.13 per basic and diluted common share for the nine months ended September 30, 2020.

On August 16, 2021, the Company paid a one-time special cash dividend totaling $0.15 per common share to shareholders of record as of July 27, 2021.

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ITEM

  1. CONTROLS AND PROCEDURES

Evaluationof Disclosure Controls and Procedures

Our management, including our principal executive and financial officers, have conducted an evaluation of the effectiveness of the design and operation of our “disclosure controls and procedures,” as such term is defined under Rules 13a-15(e) and 15d-15(e) of the Exchange Act, to ensure that information we are required to disclose in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and include controls and procedures designed to ensure that information we are required to disclose in such reports is accumulated and communicated to management, including our principal executive and financial officers, as appropriate, to allow timely decisions regarding required disclosure. Based on that evaluation, our principal executive and financial officers concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report. We believe that the financial statements included in this report fairly present in all material respects our financial condition, results of operations and cash flows for the periods presented.

InternalControl Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) of the Exchange Act. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements and can only provide reasonable assurance with respect to financial statement preparation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

There have not been any other changes in the Company’s internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART

II – OTHER INFORMATION

ITEM

  1. LEGAL PROCEEDINGS

From time to time, we may become involved in various legal actions, administrative proceedings and claims in the ordinary course of business. We generally record losses for claims in excess of the limits of purchased insurance in earnings at the time and to the extent they are probable and estimable. We are not aware of any significant legal actions at this time.

ITEM

1A. RISK FACTORS

Our business is subject to a number of risks, including those identified in Item 1A. — “Risk Factors” of our 2020 Annual Report on Form 10−K, that could have a material effect on our business, results of operations, financial condition and/or liquidity and that could cause our operating results to vary significantly from period to period. As of September 30, 2021, the Company recognizes the coronavirus pandemic may have an economic impact on the Company, but management does not know and cannot estimate what the financial impact may be. We may also disclose changes to such factors or disclose additional factors from time to time in our future filings with the SEC.

ITEM

  1. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

IssuerPurchases of Equity Securities

On September 30, 2019, our Board of Directors approved a new plan to buyback up to ten million additional shares of our common stock from the open market (“Stock Buyback Plan”). Activity for the three months ended September 30, 2021 is as follows:

Number<br> of Shares (in thousands) Cost<br> of Shares (in thousands) Average<br> Cost per Share
Shares purchased - July 2021 1 $ 16 $ 15.59
Shares purchased - August 2021 - - $ -
Shares purchased - September 2021 7 91 $ 12.60
Total 8 $ 107 $ 12.96

ITEM

  1. EXHIBITS

**(a)**Exhibits

Number Description
31.1 Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification of CEO pursuant to 18 U.S.C. Section 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002
32.2 Certification of CFO pursuant to 18 U.S.C. Section 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002 
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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date:<br> November 4, 2021 Where<br> Food Comes From, Inc.
By: /s/ John K. Saunders
Chief<br> Executive Officer
By: /s/ Dannette Henning
Chief<br> Financial Officer 
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EXHIBIT31.1

I, John Saunders, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Where Food Comes From, Inc.

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the consolidated financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed<br> such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,<br> to ensure that material information relating to the registrant, including its consolidated subsidiary, is made known to us by others<br> within those entities, particularly during the period in which this report is being prepared;
(b) Designed<br> such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our<br> supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements<br> for external purposes in accordance with generally accepted accounting principles;
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(c) Evaluated<br> the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about<br> the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;<br> and
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(d) Disclosed<br> in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s<br> most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected,<br> or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
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5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All<br> significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are<br> reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information;<br> and
(b) Any<br> fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s<br> internal control over financial reporting.
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Date: November 4, 2021
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/s/ John Saunders
John Saunders,
Chief Executive Officer

EXHIBIT31.2

I, Dannette Henning, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Where Food Comes From, Inc.

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the consolidated financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed<br> such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,<br> to ensure that material information relating to the registrant, including its consolidated subsidiary, is made known to us by others<br> within those entities, particularly during the period in which this report is being prepared;
(b) Designed<br> such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our<br> supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements<br> for external purposes in accordance with generally accepted accounting principles;
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(c) Evaluated<br> the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about<br> the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;<br> and
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(d) Disclosed<br> in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s<br> most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected,<br> or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
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5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All<br> significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are<br> reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information;<br> and
(b) Any<br> fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s<br> internal control over financial reporting.
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Date: November 4, 2021
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/s/ Dannette Henning
Dannette Henning,
Chief Financial Officer

EXHIBIT32.1

Certificationof Periodic Financial Report

Pursuantto 18 U.S.C. Section 1350

For purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned, John Saunders the Chief Executive Officer of Where Food Comes From, Inc. (the “Company”), hereby certifies that, to his knowledge:

(i) the<br> Quarterly Report on Form 10-Q of the Company for the quarterly period ended September 30, 2021, as filed with the Securities and<br> Exchange Commission on the date hereof (the “Report”) fully complies with the requirements of Section 13(a) or 15(d)<br> of the Securities Exchange Act of 1934; and
(ii) the<br> information contained in the Report fairly presents, in all material respects, the financial condition and results of operations<br> of the Company.
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Date: November 4, 2021
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/s/ John Saunders
John Saunders,
Chief Executive Officer

EXHIBIT32.2

Certificationof Periodic Financial Report

Pursuantto 18 U.S.C. Section 1350

For purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned, Dannette Henning, the Chief Financial Officer of Where Food Comes From, Inc. (the “Company”), hereby certifies that, to her knowledge:

(i) the<br> Quarterly Report on Form 10-Q of the Company for the quarterly period ended September 30, 2021, as filed with the Securities and<br> Exchange Commission on the date hereof (the “Report”) fully complies with the requirements of Section 13(a) or 15(d)<br> of the Securities Exchange Act of 1934; and
(ii) the<br> information contained in the Report fairly presents, in all material respects, the financial condition and results of operations<br> of the Company.
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Date: November 4, 2021
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/s/ Dannette Henning
Dannette Henning,
Chief Financial Officer

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