Where Food Comes From, Inc.

Previous wording

The following table shows information for reportable operating business segments:

Current wording

The following table shows information for the reportable operating business segment:

Previous wording

Verification and certification service revenues consist of fees charged for verification audits and other verification and certification related services that the Company performs for customers. Fees earned from our WFCF labeling program are also included in our verification and certification revenues as it represents a value-added extension of our source verification. Verification and certification service revenue for the year ended December 31, 2024 increased approximately $1.1 million, or 5.9% compared to 2023. Overall, the increase is due primarily to increased customer awareness and demand for our product offerings. 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. 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.

Current wording

Verification and certification service revenues consist of fees charged for verification audits and other verification and certification related services that the Company performs for customers. Fees earned from our WFCF labeling program are also included in our verification and certification revenues as it represents a value-added extension of our source verification. Verification and certification service revenue for the year ended December 31, 2025 decreased approximately $0.5 million, or 2.2% compared to 2024. We continue to experience new customer growth and bundling opportunities, but offsetting this growth are supply-side dynamics within the cattle industry. The beef side of our business has been impacted the most significantly resulting in total verification revenues declining about 6.5% in the fourth quarter of 2025 compared to 2024. We know the cattle industry is cyclical in nature and based on the data from the USDA, we appear to be at the bottom of a contraction phase within the cattle cycle, however, we are still seeing signs of further contraction in the cattle industry in early 2026. We are also facing rapidly changing trade and tariff uncertainties. Because of the tight cattle supply, ranchers are receiving the highest cattle prices per head in a decade without verification; and beef packers are reluctant to incur additional costs of verification to their supply chain because of the high costs of acquiring cattle for slaughter. To expand supply, herds must be rebuilt within the United States and via imports. But rebuilding of the herd takes time and is impacted by many factors including drought conditions in different regions, the price of inputs and interest rates. We are encouraged because premiums for verified cattle remain strong in the marketplace above commodity cattle prices in spite of significant pressure on beef packer margins. Verified product attributes like animal care, sustainability and natural continued to be demanded and our programs allow supply chains to meet this growing customer demand. We are also optimistic about the recent launch of our Raisewell Certified Standard, which was developed to meet growing consumer and retailer demand for responsibly raised proteins.

Previous wording

Our product sales are an ancillary part of our verification and certification services and represent sales of cattle identification ear tags. Product sales for the year ended December 31, 2024 decreased approximately $0.2 million or 5.0% compared to 2023. 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 statistics, overall beef cow inventories have declined from 28.9 million head on January 1, 2023 to 28.2 million head on January 1, 2024 and is now estimated at less than 28 million head. 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. Additionally, some customers are receiving free tags under the USDA’s program to jumpstart efforts to enable the fastest possible response to a foreign animal disease in connection with its definitive traceability regulation, mandating the use of electronic ID tags for specific interstate movements of cattle and bison.

Current wording

Our product sales are an ancillary part of our verification and certification services and represent sales of cattle identification ear tags. Product sales for the year ended December 31, 2025 decreased approximately $0.2 million or 4.9% compared to 2024. 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 statistics, overall beef cow inventories have declined from 28.9 million head on January 1, 2023 to 28.2 million head on January 1, 2024 and is now estimated at less than 28 million head. The tight cattle supply and weakened demand for verified cattle is negatively impacting our product sales. Additionally, some customers received free tags under the USDA’s program to jumpstart efforts to enable the fastest possible response to a foreign animal disease in connection with its definitive traceability regulation, mandating the use of electronic ID tags for specific interstate movements of cattle and bison.

Previous wording

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. Our consulting revenue stream is predominantly project based and not recurring in nature. For the year ended December 31, 2024, professional service revenue decreased approximately $0.3 million over 2023.

Current wording

Professional services revenue 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. Our consulting revenue stream is predominantly project based and not recurring in nature. For the year ended December 31, 2025, professional service revenue decreased approximately $0.2 million over 2024.

Previous wording

Costs of revenues (for services and product sales) for the verification and certification segment for the year ended December 31, 2024 were approximately $14.2 million compared to approximately $13.3 million in 2023. Gross margin for the year ended December 31, 2024 decreased slightly to 41.9% compared to 43.4% in 2023. Our margins are generally impacted by various costs such as cost of products, salaries and benefits, insurance and taxes. 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 the inflationary impacts on our margins, to some extent.

Current wording

Costs of verification and certification revenues (for services and product sales) for the year ended December 31, 2025 were approximately $14.5 million compared to approximately $14.2 million in 2024. Gross margin for the year ended December 31, 2025 decreased to 38.8% compared to 41.9% in 2024. Our margins are generally impacted by various costs such as cost of products, salaries and benefits, insurance and taxes. The decline in our margins is primarily due to inflationary price increases passed on to us by our cattle ear tag manufacturers, while simultaneously, dealing with market conditions that foster a competitive environment for selling cattle ear tags. Additionally, increases in salaries and benefits, insurance and taxes spread over a decline in our revenue compared to the prior year negatively impacted margins. New customer growth helps offset the inflationary impacts on our margins, to some extent.

Previous wording

Costs of revenues for our professional services segment for the years ended December 31, 2024 and 2023 were approximately $1.0 and $1.4 million, respectively. For the year ended December 31, 2024, gross margin improved to 26.5% from 21.3% in 2023. During 2024, because of a reduction in consulting projects, we reallocated staff to other internal departments, as needed. As 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.

Current wording

Costs of professional services revenues for the years ended December 31, 2025 and 2024 were approximately $0.9 and $1.0 million, respectively. For the year ended December 31, 2025, gross margin decreased to 26.0% from 26.5% in 2024. Increases in salaries and benefits, insurance and taxes spread over a decline in our revenue compared to the prior year negatively impacted our margins. As 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.

Previous wording

Selling, general and administrative expenses for the professional services segment for the year ended December 31, 2024 decreased approximately $112,000 compared to 2023.

Current wording

Selling, general and administrative expenses for the year ended December 31, 2025 decreased approximately $53,000 compared to 2024.

Previous wording

On August 9, 2018, the Company purchased a ten percent membership interest in Progressive Beef, LLC (“Progressive Beef”) for an aggregate purchase price of approximately $1.0 million. The Company received dividend income of $400,000 and $320,000 for the years ended December 31, 2024 and 2023, respectively, from Progressive Beef representing a distribution of their earnings.

Current wording

On August 9, 2018, the Company purchased a ten percent membership interest in Progressive Beef, LLC (“Progressive Beef”) for an aggregate purchase price of approximately $1.0 million. The Company received dividend income of $100,000 and $400,000 for the years ended December 31, 2025 and 2024, respectively, from Progressive Beef representing a distribution of their earnings.

Previous wording

For the years ended December 31, 2024 and 2023, we recorded income tax expense of approximately $0.9 million. The effective tax rate for the year ended December 31, 2024 and 2023 was 28.8% and 29.7%, respectively, compared to a federal corporate rate of 21.0%.

Current wording

For the years ended December 31, 2025 and 2024, we recorded income tax expense of approximately $0.7 million and $0.9 million, respectively. The effective tax rate for the year ended December 31, 2025 and 2024 was 31.1% and 28.8%, respectively, compared to a federal corporate rate of 21.0%.

Previous wording

As a result of the foregoing, net income for the year ended December 31, 2024 was approximately $2.1 million or $0.40 per basic and per diluted common share, compared to approximately $2.2 million or $0.39 per basic and diluted common share in 2023.

Current wording

As a result of the foregoing, net income for the year ended December 31, 2025 was approximately $1.5 million or $0.30 per basic and per diluted common share, compared to approximately $2.1 million or $0.40 per basic and diluted common share in 2024.

Previous wording

At December 31, 2024, we had cash and cash equivalents of approximately $2.0 million compared to approximately $2.6 million at December 31, 2023. Our working capital at December 31, 2024 was approximately $2.4 million compared to approximately $3.2 million at December 31, 2023.

Current wording

At December 31, 2025, we had cash and cash equivalents of approximately $3.2 million compared to approximately $2.0 million at December 31, 2024. Our working capital at December 31, 2025 was approximately $3.2 million compared to approximately $2.4 million at December 31, 2024.

Previous wording

Net cash provided by operating activities during 2024 was approximately $2.7 million compared to $2.8 million during the same period in 2023. Net cash provided by operating activities is driven by 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, fair market value gains / losses on digital assets, stock-based compensation expense, bad debt expense, and deferred taxes. The decline in cash provided by operating activities for 2024 was primarily due to a decline in the gross margins of our Verification and Certification Segment and increased spending for marketing related activities, offset by the timing of cash receipts and cash disbursements.

Current wording

Net cash provided by operating activities during 2025 was approximately $1.6 million compared to $2.7 million during the same period in 2024. Net cash provided by operating activities is driven by 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, fair market value gains / losses on digital assets, stock-based compensation expense, bad debt expense, and deferred taxes. Fluctuations are primarily due to operating performance offset by the timing of cash receipts and cash disbursements. The decline in cash provided by operating activities for 2025 was primarily due to absorption of increasing costs of services and products over a reduction in revenue.

Previous wording

Net cash used in financing activities during 2024 was approximately $3.2 million compared to net cash used of $3.9 million in the 2023 period. Net cash used in the 2023 period was primarily for the repurchase of common shares under the Stock Buyback Plan and a private purchase of common shares.

Current wording

Net cash used in financing activities during 2025 was approximately $2.1 million compared to $3.2 million in the 2024 period. Net cash used in the 2025 and 2024 periods was primarily for the repurchase of common shares under the Stock Buyback Plan and a private purchase of common shares in 2024.

Previous wording

The Company has a revolving line of credit (“LOC”) agreement which matures April 12, 2025. The LOC provides for $75,080 in working capital. The interest rate is at the Wall Street Journal prime rate plus 1.50% and is adjusted daily. Principal and interest are payable upon demand, but if demand is not made, then annual payments of accrued interest only are due, with the principal balance due upon maturity. As of December 31, 2024 and 2023, the effective interest rate was 9.0% and 10.0%, 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, 2024 and 2023, there were no amounts outstanding under this LOC.

Current wording

The Company has a revolving line of credit (“LOC”) agreement which matured on April 12, 2025. The LOC provided for $75,080 in working capital. The interest rate was at the Wall Street Journal prime rate plus 1.50% and was adjusted daily. Principal and interest were payable upon demand, but if demand was not made, then annual payments of accrued interest only were due, with the principal balance due upon maturity. As of December 31, 2024, the effective interest rate was 9.0%. The LOC was collateralized by all the business assets of Where Food Comes From Organic, Inc. (“WFCFO”), a subsidiary of WFCF. As of December 31, 2024, there were no amounts outstanding under this LOC. The Company decided not to renew the LOC at April 12, 2025.

Previous wording

We had deferred revenue of approximately $1.7 million and $1.4 million at December 31, 2024 and 2023, 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 2025.

Current wording

We had deferred revenue of approximately $1.5 million and $1.7 million at December 31, 2025 and 2024, 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 2026.

Previous wording

Our business is subject to seasonal fluctuations. Significant portions of our verification and certification service revenue is typically realized during late May through early October when the calf marketings and the growing seasons are at their peak. Although this seasonality does not impact our policies for revenue recognition, it does generally impact our results of operations by potentially causing an increase in our profit margins during May through October and decreased margins during November through April. 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. Similarly, times of herd expansion are typically a multi-year period. Historically, these cycles typically lasted approximately 10 years. The beginning of 2024 marks the tenth year of the current cycle that began in 2014. We are currently in the contraction phase of the cycle after peaking in 2018-2019. How long we will continue to contract will be directly impacted by drought and pasture conditions.

Current wording

Our business is subject to seasonal fluctuations. Significant portions of our verification and certification service revenue is typically realized during late May through early October when the calf marketings and the growing seasons are at their peak. Although this seasonality does not impact our policies for revenue recognition, it does generally impact our results of operations by potentially causing an increase in our profit margins during May through October and decreased margins during November through April. 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. Similarly, times of herd expansion are typically a multi-year period. Historically, these cycles typically lasted approximately 10 years. The beginning of 2025 marks the eleventh year of the current cycle that began in 2014. We are currently in the contraction phase of the cycle after peaking in 2018-2019. How long we will continue to contract will be directly impacted by drought and pasture conditions.

Previous wording

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

Current wording

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

Previous wording

During the fourth quarter of 2024 and 2023, 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.

Current wording

During the fourth quarter of 2025 and 2024, we performed a qualitative assessment on our unit(s) and concluded that the fair value of the reporting unit(s) exceeded their carrying value.