Where Food es From(WFCF) - 2020 Q3 - Quarterly Report

Part 1 - Financial Information This section provides a comprehensive overview of the company's financial performance and position for the period ended September 30, 2020 Financial Statements The financial statements for the period ended September 30, 2020, indicate growth in total assets and equity, alongside improved net income and positive operating cash flow Consolidated Balance Sheets As of September 30, 2020, the balance sheet shows an increase in total assets and equity, primarily driven by higher cash and long-term debt Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2020 (Unaudited) | Dec 31, 2019 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $4,625 | $2,638 | | Total current assets | $8,127 | $5,861 | | Total assets | $20,261 | $18,237 | | Liabilities & Equity | | | | Total current liabilities | $4,190 | $2,741 | | Long term debt, net | $391 | $ - | | Total liabilities | $7,923 | $6,288 | | Total equity | $12,338 | $11,949 | Consolidated Statements of Operations The statements of operations for Q3 and nine months ended September 30, 2020, reflect increased income from operations and net income despite slight revenue declines Q3 2020 vs Q3 2019 Performance (in thousands, except per share) | Metric | Q3 2020 | Q3 2019 | | :--- | :--- | :--- | | Total revenues | $6,197 | $6,232 | | Gross profit | $2,762 | $2,587 | | Income from operations | $956 | $614 | | Net income attributable to WFCF | $730 | $541 | | Diluted EPS | $0.03 | $0.02 | Nine Months 2020 vs 2019 Performance (in thousands, except per share) | Metric | Nine Months 2020 | Nine Months 2019 | | :--- | :--- | :--- | | Total revenues | $14,525 | $15,075 | | Gross profit | $6,472 | $6,341 | | Income from operations | $1,071 | $717 | | Net income attributable to WFCF | $840 | $759 | | Diluted EPS | $0.03 | $0.03 | Consolidated Statements of Cash Flows For the nine months ended September 30, 2020, cash flows show positive operating activities, significant investing outflows for acquisitions, and financing inflows from debt partially offset by stock repurchases Cash Flow Summary (Nine months ended Sep 30, in thousands) | Activity | 2020 | 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $2,176 | $2,335 | | Net cash used in investing activities | $(682) | $(14) | | Net cash provided by (used in) financing activities | $493 | $(383) | | Net change in cash | $1,987 | $1,938 | | Cash at end of period | $4,625 | $3,420 | Consolidated Statement of Equity Total equity increased as of September 30, 2020, primarily due to net income, partially offset by stock repurchases - Total equity increased by approximately $389,000 in the first nine months of 2020, reaching $12.338 million[21] - Key changes to equity included net income of $730,000 and stock repurchases of $265,000 in Q3 2020[21] Notes to the Consolidated Financial Statements The notes provide details on the company's SaaS-based food verification business, significant events like the Postelsia acquisition and PPP loan, and its seasonal revenue patterns - The company is an independent, third-party food verification company that also provides sustainability programs and management solutions through a SaaS model[24][25] - On February 21, 2020, the company acquired Postelsia Holdings, Ltd., a leader in sustainability programs for the seafood industry, for $300,000 in cash[36][37] - The company received a $1.0 million loan under the Paycheck Protection Program (PPP) on April 17, 2020, with a 1.00% interest rate; payment start date was modified to May 1, 2021[50][85] - The business is seasonal, with a significant portion of verification and certification revenue realized from late May through early October[31] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the COVID-19 impact on operations, highlighting strong liquidity, segment-specific revenue trends, and overall net income improvement due to margin and expense management - The COVID-19 pandemic has led to some customers postponing onsite audits, but the company has maintained operations as an essential business, with many employees working remotely[93][94][95] - As of September 30, 2020, the company had approximately $4.9 million in cash, cash equivalents, and certificates of deposit, with working capital of $3.9 million[98] - The company received a $1.0 million PPP loan and repurchased $0.5 million of common stock in the first nine months of 2020[101][106] Q3 2020 vs Q3 2019 Net Income (in thousands) | Metric | Q3 2020 | Q3 2019 | | :--- | :--- | :--- | | Net income attributable to WFCF | $730 | $541 | Results of Operations by Segment Q3 2020 segment performance shows a revenue decrease in Verification and Certification due to COVID-19, offset by improved gross margin, while Software Sales saw mixed revenue trends and a gross margin decline - Verification and Certification Segment: - Q3 2020 service revenue decreased 9.5% YoY due to COVID-19 audit delays[111] - Q3 2020 product (ear tag) sales increased 25.4% YoY[112] - Gross margin for this segment increased to 45.3% in Q3 2020 from 41.3% in Q3 2019, partly due to a shift to desk audits[113] - Software Sales and Related Consulting Segment: - Q3 2020 software license revenue decreased 14.6% YoY due to customer budget delays[115] - Q3 2020 software consulting revenue increased 43.7% YoY due to fluctuations in customer demand[116] - Gross margin for this segment declined to 36.4% in Q3 2020 from 43.2% in Q3 2019[117] Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective, with no material changes to internal control over financial reporting during the quarter - The principal executive and financial officers concluded that the company's disclosure controls and procedures were effective as of September 30, 2020[124] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[126] Part II - Other Information This section covers legal matters, risk factors, equity transactions, and required certifications Legal Proceedings The company is not currently aware of any significant legal actions, though it may be involved in ordinary course business litigation - The company is not aware of any significant legal actions at this time[129] Risk Factors The company's business is subject to risks outlined in its 2019 Form 10-K, with the coronavirus pandemic's full financial impact currently unestimable - The company recognizes the coronavirus pandemic as a risk factor but cannot estimate the potential financial impact[130] Unregistered Sales of Equity Securities and Use of Proceeds During Q3 2020, the company repurchased common stock from the open market under its approved buyback plan Q3 2020 Stock Repurchases | Month | Number of Shares | Cost of Shares | Average Cost per Share | | :--- | :--- | :--- | :--- | | July 2020 | 55,665 | $85,778 | $1.54 | | August 2020 | 74,742 | $119,840 | $1.60 | | September 2020 | 31,112 | $59,699 | $1.92 | | Total | 161,519 | $265,317 | $1.64 | Exhibits The report includes required CEO and CFO certifications under the Sarbanes-Oxley Act - Exhibits filed include CEO and CFO certifications pursuant to Sarbanes-Oxley Act Sections 302 and 906[132]