Where Food es From(WFCF) - 2021 Q4 - Annual Report

PART I Business Where Food Comes From, Inc is a leading third-party verifier of food production practices in North America - WFCF is a leading third-party food verification company in North America, supporting approximately 17,500 farmers, ranchers, and other food industry participants through services like on-site and desk audits[10] - The company's growth strategy includes expanding into new food groups, offering solutions for the entire food supply chain, continuing organic growth by leveraging its bundling capabilities, and pursuing mergers and acquisitions[22] Revenue by Segment (FY 2021 vs FY 2020) | Segment | Revenue Contribution (2021) | Revenue Contribution (2020) | | :--- | :--- | :--- | | Verification and Certification Services | 73.2% | 71.0% | | Product Sales (Cattle Tags) | 17.5% | 19.2% | | Software and Related Consulting | 9.3% | 9.8% | - The company's sales have grown from $1.1 million in 2006 to $21.9 million in 2021, representing a 15-year compounded annual growth rate (CAGR) of approximately 22%[20] - The business is subject to seasonal fluctuations, with significant revenue typically realized from late May through early October due to peak calf marketing and growing seasons[43] Risk Factors The company faces risks from the COVID-19 pandemic, supply chain disruptions, competition, and reliance on key personnel - The COVID-19 pandemic poses risks including inability to perform on-site audits, disruptions from tag suppliers due to material shortages, and potential delays in customer purchases or payments[53] - The company faces supply chain risk, as it purchases most of its Electronic Identification (EID) tags from one significant supplier who has indicated that materials are becoming scarcer, which could impact revenue, costs, and margins[57] - The business operates in a highly competitive industry and faces risks from competitors who may have more financial, technical, and marketing resources[59] - A significant data breach or IT system disruption could adversely affect business, financial results, and reputation[75][76] - The company's success is highly dependent on key senior management, with the Saunders family and the Board beneficially owning approximately 29% and 55% of common stock, respectively[81][82] Unresolved Staff Comments The company reports no unresolved staff comments - None[90] Properties The company leases all its office spaces, including its corporate headquarters from a related-party entity - The company leases its corporate headquarters of approximately 15,700 sq. ft. from an entity in which the CEO and President have a 24.3% jointly held ownership interest[91] - In December 2021, the company sold its 2,300-square foot building in Medina, North Dakota, and subsequently entered into a lease agreement for the same office space[95] Legal Proceedings The company reports no material pending legal proceedings - There are currently no material pending proceedings against the Company[98] Mine Safety Disclosures This section is not applicable to the company - Not applicable[99] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's stock trades on NASDAQ (WFCF), and it executed a special dividend and share buybacks in 2021 - The company's common stock is traded on the NASDAQ Stock Market LLC under the symbol "WFCF"[102] - A special cash dividend of $0.15 per share was declared for shareholders of record on July 27, 2021, paid on August 16, 2021[103] Share Repurchases for Q4 2021 | Period | Number of Shares | Cost of Shares (in thousands) | Average Cost per Share | | :--- | :--- | :--- | :--- | | October 2021 | 8,300 | $109 | $13.15 | | November 2021 | 15,700 | $196 | $12.49 | | December 2021 | 5,650 | $86 | $15.24 | | Total Q4 2021 | 29,650 | $391 | $13.20 | Management's Discussion and Analysis of Financial Condition and Results of Operations Total revenues grew 9.2% in FY2021, driven by the Verification segment, while net income more than doubled Results of Operations FY2021 revenue grew 9.2% to $21.9 million, and net income rose to $3.0 million, aided by PPP loan forgiveness Consolidated Financial Performance (FY 2021 vs FY 2020) | Metric | 2021 (in millions) | 2020 (in millions) | % Change | | :--- | :--- | :--- | :--- | | Total Revenues | $21.9 | $20.1 | 9.2% | | Gross Profit | $9.7 | $8.9 | 9.1% | | Income from Operations | $2.3 | $1.7 | 36.5% | | Net Income | $3.0 | $1.4 | 115.5% | | Basic EPS | $0.49 | $0.23 | 113.0% | | Diluted EPS | $0.48 | $0.22 | 118.2% | - The Verification and Certification segment revenue increased by $1.8 million (12.7%) in 2021 compared to 2020, driven by increased customer demand[113][114] - The Software and Related Consulting segment revenue increased by 4.1% in 2021, primarily due to the acquisition of Postelsia, though growth was offset by customer-related budget delays for software enhancements due to COVID-19[117] - Net income for 2021 was favorably impacted by the forgiveness of a $1.0 million Paycheck Protection Program (PPP) loan and $200,000 in dividend income from its investment in Progressive Beef, LLC[121][188] Liquidity and Capital Resources The company's financial position strengthened with cash at $5.4 million and operating cash flow at $3.0 million Key Liquidity Metrics (as of Dec 31) | Metric | 2021 (in millions) | 2020 (in millions) | | :--- | :--- | :--- | | Cash and cash equivalents | $5.4 | $4.4 | | Working capital | $5.7 | $4.4 | Cash Flow Summary (FY 2021 vs FY 2020) | Activity | 2021 (in millions) | 2020 (in millions) | | :--- | :--- | :--- | | Net cash provided by operating activities | $3.0 | $2.5 | | Net cash used in investing activities | ($0.003) | ($0.7) | | Net cash used in / provided by financing activities | ($2.0) | $0.014 | - In 2021, the company used $1.1 million for share repurchases and paid $0.9 million in dividends to shareholders[128] - The company's $1.0 million Paycheck Protection Program (PPP) loan received in April 2020 was fully forgiven on March 4, 2021[134] Critical Accounting Policies and Estimates Key accounting policies involve significant judgment in revenue recognition, stock-based compensation, and goodwill impairment - Revenue for verification and certification services is recognized over time using an input method based on the number of audit days performed[138] - Software-as-a-Service (SaaS) revenue is recognized on a straight-line basis over the annual subscription period[144] - Goodwill impairment is tested annually, or more frequently if indicators exist; in Q4 2021, a qualitative assessment concluded that the fair value of reporting units exceeded their carrying value, so no impairment was recorded[156][161] - Stock-based compensation expense is calculated using the Black-Scholes-Merton option-pricing model, which requires subjective assumptions about stock price volatility, expected term, and forfeiture rates[148][150] Quantitative and Qualitative Disclosures About Market Risk This section is not applicable to the company - Not applicable[174] Financial Statements and Supplementary Data This section contains the company's audited consolidated financial statements for fiscal years 2021 and 2020 Consolidated Balance Sheet Highlights (as of Dec 31) | Account | 2021 (in thousands) | 2020 (in thousands) | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $5,414 | $4,374 | | Total current assets | $8,684 | $7,474 | | Goodwill, net | $2,946 | $2,946 | | Total assets | $19,784 | $19,448 | | Liabilities & Equity | | | | Total current liabilities | $2,996 | $3,124 | | Total liabilities | $6,035 | $6,984 | | Total equity | $13,749 | $12,464 | Consolidated Statement of Income Highlights (Year ended Dec 31) | Account | 2021 (in thousands) | 2020 (in thousands) | | :--- | :--- | :--- | | Total revenues | $21,932 | $20,076 | | Gross profit | $9,737 | $8,928 | | Income from operations | $2,303 | $1,687 | | Loan forgiveness from PPP | $1,037 | $0 | | Net income | $2,961 | $1,385 | - The independent auditor, Causey Demgen & Moore, P.C, issued an opinion that the financial statements are presented fairly; Revenue Recognition was identified as a Critical Audit Matter due to the significant judgment required[177][181][183] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants - None[392] Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of year-end - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[393] - Based on an assessment using the COSO framework, management concluded that the company's internal control over financial reporting was effective as of December 31, 2021[397] Other Information The company reports no other information - None[398] Disclosure Regarding Foreign Jurisdictions That Prevent Inspections This section is not applicable to the company - Not applicable[399] PART III Directors, Executive Officers and Corporate Governance Required information is incorporated by reference from the company's 2022 definitive proxy statement - Information for this item will be included in the definitive proxy statement for the 2022 Annual Meeting of Shareholders and is incorporated by reference[402] Executive Compensation Information regarding executive compensation is incorporated by reference from the 2022 proxy statement - Information for this item will be included in the definitive proxy statement and is incorporated by reference[404] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding security ownership is incorporated by reference from the 2022 proxy statement - Information for this item will be included in the definitive proxy statement and is incorporated by reference[405] Certain Relationships and Related Transactions, and Director Independence Information on related transactions is incorporated by reference from the 2022 proxy statement - Information for this item will be included in the definitive proxy statement and is incorporated by reference[406] Principal Accounting Fees and Services Information on accounting fees is incorporated by reference from the 2022 proxy statement - Information for this item will be included in the definitive proxy statement and is incorporated by reference[407] Exhibits, Financial Statement Schedules Exhibits and Schedules This section lists all exhibits filed with the Form 10-K, including agreements and required certifications - Lists exhibits filed with the 10-K, including asset purchase agreements, corporate governance documents, and executive employment agreements[409] - Includes certifications from the CEO and CFO pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[411] Form 10-K Summary 10-K Summary The company reports no Form 10-K summary - None[412]