Where Food es From(WFCF) - 2025 Q1 - Quarterly Report

Part I - Financial Information Item 1. Financial Statements Presents unaudited consolidated financial statements for Q1 2025, including balance sheets, operations, cash flows, equity, and detailed notes Consolidated Balance Sheets Consolidated Balance Sheet Highlights (Amounts in thousands) | Metric | March 31, 2025 | December 31, 2024 | | :-------------------------------- | :------------- | :---------------- | | Total assets | $15,212 | $15,306 | | Total liabilities | $5,621 | $5,373 | | Total equity | $9,591 | $9,933 | | Cash and cash equivalents | $2,238 | $2,012 | | Total current assets | $5,727 | $5,545 | | Total current liabilities | $3,515 | $3,179 | - Total assets decreased slightly from $15,306 thousand at December 31, 2024, to $15,212 thousand at March 31, 2025[8] - Total equity decreased from $9,933 thousand at December 31, 2024, to $9,591 thousand at March 31, 2025[8] Consolidated Statements of Operations Consolidated Statements of Operations Highlights (Three months ended March 31, Amounts in thousands, except per share amounts) | Metric | 2025 | 2024 | | :---------------------------------- | :--- | :--- | | Total revenues | $5,273 | $5,582 | | Gross profit | $2,195 | $2,329 | | Income from operations | $142 | $261 | | Net income | $31 | $178 | | Basic net income per share | $0.01 | $0.03 | | Diluted net income per share | $0.01 | $0.03 | - Total revenues decreased by $309 thousand (5.5%) from $5,582 thousand in 2024 to $5,273 thousand in 2025[11] - Net income significantly decreased from $178 thousand in 2024 to $31 thousand in 2025, an 82.6% reduction[11] Consolidated Statements of Cash Flows Consolidated Statements of Cash Flows Highlights (Three months ended March 31, Amounts in thousands) | Metric | 2025 | 2024 | | :------------------------------------ | :--- | :--- | | Net cash provided by operating activities | $632 | $700 | | Net cash used in investing activities | $(29) | $(24) | | Net cash used in financing activities | $(377) | $(1,435) | | Net change in cash | $226 | $(759) | | Cash at end of period | $2,238 | $1,882 | - Net cash provided by operating activities decreased from $700 thousand in 2024 to $632 thousand in 2025[13] - Net cash used in financing activities significantly decreased from $1,435 thousand in 2024 to $377 thousand in 2025, primarily due to lower stock repurchases[13] Consolidated Statement of Equity Consolidated Statement of Equity Highlights (Amounts in thousands) | Metric | March 31, 2025 | December 31, 2024 | March 31, 2024 | | :-------------------------- | :------------- | :---------------- | :------------- | | Total Equity | $9,591 | $9,933 | $9,576 | | Treasury Stock | $(13,845) | $(13,462) | $(11,688) | | Retained Earnings | $12,038 | $12,007 | $9,919 | - Total equity decreased by $342 thousand from December 31, 2024, to March 31, 2025, primarily due to stock repurchases[16] - Treasury stock increased by $383 thousand from December 31, 2024, to March 31, 2025, reflecting common share repurchases[16] Notes to the Consolidated Financial Statements Note 1 - The Company and Basis of Presentation - Where Food Comes From, Inc. (WFCF) is an independent, third-party food verification company conducting on-site and desk audits to verify claims about livestock, food, and agricultural products[19] - The company also provides professional consulting services and utilizes its Source Verified® labeling program to connect consumers to food sources[20] - The business experiences annual seasonal fluctuations, with significant verification and certification service revenue typically realized from late May through early October, coinciding with peak calf marketings and growing seasons[25][79] - The cattle industry is in a contraction phase of its cycle, which began in 2014 and peaked in 2018-2019, impacting current and future supplies[26][80] Note 2 – Basic and Diluted Net Income per Share Weighted Average Common Shares Outstanding (Three months ended March 31, in thousands) | Metric | 2025 | 2024 | | :------------------------------ | :--- | :--- | | Basic weighted average shares | 5,212 | 5,480 | | Diluted weighted average shares | 5,230 | 5,500 | | Antidilutive securities | 17 | 17 | Note 3 – Equity Investments - The Company did not receive dividend income from Progressive Beef for the three months ended March 31, 2025, or 2024[34][100] Note 4 – Intangible and Other Assets Intangible and Other Assets (Amounts in thousands) | Asset Category | March 31, 2025 | December 31, 2024 | | :----------------------------- | :------------- | :---------------- | | Tradenames and trademarks | $818 | $818 | | Customer relationships | $3,470 | $3,470 | | Less accumulated amortization | $(2,599) | $(2,497) | | Intangible and other assets, net | $1,713 | $1,810 | - Net intangible and other assets decreased from $1,810 thousand at December 31, 2024, to $1,713 thousand at March 31, 2025, primarily due to accumulated amortization[35] Note 5 – Digital Assets - Effective January 1, 2024, the Company early adopted ASU 2023-08, requiring digital assets to be measured at fair value with changes recognized in the Consolidated Statements of Income[36] Digital Asset Holdings (Amounts in thousands, except for quantity) | Asset | Quantity | Cost Basis | Fair Value (March 31, 2025) | Fair Value (December 31, 2024) | | :------ | :------- | :--------- | :-------------------------- | :----------------------------- | | Bitcoin | 7 | $178 | $578 | $654 | - The Company recorded an unrealized loss of approximately $76 thousand on digital assets for the three months ended March 31, 2025[36][101] Note 6 – Accrued Expenses and Other Current Liabilities Accrued Expenses and Other Current Liabilities (Amounts in thousands) | Category | March 31, 2025 | December 31, 2024 | | :------------------------------ | :------------- | :---------------- | | Payroll related accruals | $549 | $408 | | Customer deposits | $173 | $57 | | Professional fees and other expenses | $123 | $118 | | Total | $871 | $611 | - Total accrued expenses and other current liabilities increased from $611 thousand at December 31, 2024, to $871 thousand at March 31, 2025, driven by increases in payroll related accruals and customer deposits[38] Note 7 – Notes Payable - The Company had a revolving line of credit (LOC) agreement which matured on April 12, 2025, providing $75,080 thousand in working capital[39][90] - As of March 31, 2025, and December 31, 2024, there were no amounts outstanding under this LOC, and the effective interest rate was 9.0%[39][90] Note 8 – Equity and Stock-Based Compensation - Stock-based compensation expense recognized for the three months ended March 31, 2025, was $0, compared to $11 thousand for the same period in 2024[41] Stock Option Activity (March 31, 2025, amounts in thousands, except per share amounts) | Metric | Number of awards | Weighted avg. exercise price per share | | :---------------------- | :--------------- | :----------------------------- | | Outstanding, Dec 31, 2024 | 62,469 | $9.05 | | Exercised | (1,250) | $8.20 | | Outstanding, Mar 31, 2025 | 61,219 | $9.07 | | Exercisable, Mar 31, 2025 | 61,219 | $9.07 | - During March 2024, the Company purchased 80,201 shares of its common stock from one shareholder for approximately $1.0 million in a privately negotiated transaction[46] Note 9 – Income Taxes - Income tax expense for the three months ended March 31, 2025, was approximately $38 thousand, a decrease from $87 thousand for the same period in 2024[48][102] Note 10 - Revenue Recognition Disaggregation of Revenue (Three months ended March 31, Amounts in thousands) | Revenue Category | 2025 | 2024 | | :---------------------------------- | :--- | :--- | | Verification and certification service revenue | $4,182 | $4,434 | | Product sales | $702 | $733 | | Professional services | $389 | $415 | | Total revenues | $5,273 | $5,582 | - Accounts receivable from contracts with customers, net, was approximately $1.8 million as of March 31, 2025, and December 31, 2024[53] - Deferred revenue from contracts with customers was approximately $1.7 million as of March 31, 2025, and December 31, 2024[53] Note 11 – Leases Total Net Lease Cost (Three months ended March 31, Amounts in thousands) | Lease Type | 2025 | 2024 | | :------------------------ | :--- | :--- | | Operating lease cost | $111 | $116 | | Finance lease cost | $5 | $5 | | Total net lease cost | $116 | $121 | Weighted Average Lease Terms and Discount Rates (March 31, 2025) | Lease Type | Remaining Lease Term (years) | Discount Rate | | :------------- | :--------------------------- | :------------ | | Operating leases | 6.2 | 5.8% | | Finance leases | 2.6 | 8.6% | - Maturities of operating lease liabilities total $2,887 thousand, with $352 thousand due in the remaining nine months of 2025[59] Note 12 – Commitments and Contingencies - The Company may be involved in various legal actions in the ordinary course of business but is not aware of any significant legal actions at this time[60][108] Note 13 - Segments - Effective January 2025, the Company underwent internal restructuring and consolidation, resulting in a single reportable segment: Verification and Certification[61] - Professional consulting services, including data analysis and other reporting metrics, now report under the Verification and Certification Segment[61] - The Chief Operating Decision Maker (CEO) assesses performance based on net sales, gross profit, SG&A, and operating income for this single segment[62] Note 14 – Supplemental Cash Flow Information Cash Paid During the Year (Three months ended March 31, Amounts in thousands) | Expense | 2025 | 2024 | | :------------ | :--- | :--- | | Interest expense | $0 | $0 | | Income taxes | $17 | $0 | Note 15 – Subsequent Events - In April 2025, the Company canceled 1,237,700 shares of outstanding common stock held as treasury shares, resulting in approximately $13.8 million being transferred from Treasury stock to Additional paid-in capital and Retained earnings[66] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2025 financial condition and results, covering business overview, ESG, seasonality, liquidity, and revenue/cost analysis General Business Overview - Where Food Comes From, Inc. is a leading third-party verification resource for food production practices in North America, supporting over 17,500 farmers, ranchers, and other food industry participants[68] - The company's principal business involves conducting on-site and desk audits to verify claims about livestock, aquaculture, crops, and other food products[68] - WFCF has expanded its portfolio to include verification and professional services for most food groups and over 50 programs, achieving growth organically and through acquisitions[71] Environmental, Social and Governance ("ESG") and Human Capital Resources - The company emphasizes environmental and social responsibility, with an internal ESG Council that regularly reports to the Executive Team[72][73] - As of March 31, 2025, WFCF had 101 total employees, with 90 full-time, and approximately 85% of the workforce comprised of female and other minority employees[74] - WFCF is committed to a respectful workplace, promoting fairness, and providing career development opportunities through initiatives like internships and leadership training[75][77] Seasonality and Industry Cycles - Significant portions of verification and certification service revenue are typically realized from late May through early October, aligning with peak calf marketings and growing seasons[79] - The cattle industry is cyclical, and the company is currently in a contraction phase of the cycle, which began in 2014 and peaked in 2018-2019[80] - Quarterly results are not necessarily indicative of full fiscal year results due to business seasonality and industry cyclicality[81] Liquidity and Capital Resources Liquidity Snapshot (Amounts in thousands) | Metric | March 31, 2025 | December 31, 2024 | | :------------- | :------------- | :---------------- | | Cash and cash equivalents | $2,238 | $2,012 | | Working capital | $2,212 | $2,366 | Net Cash Flow Activities (Three months ended March 31, Amounts in thousands) | Activity | 2025 | 2024 | | :---------------------- | :--- | :--- | | Operating activities | $632 | $700 | | Investing activities | $(29) | $(24) | | Financing activities | $(377) | $(1,435) | - The company's growth has primarily been funded through cash flows from operations, and it continuously evaluates additional funding options[86] - The primary driver of operating cash flow is gross margin from third-party verification solutions, with a focus on revenue growth and long-term projects[87] Results of Operations (Three months ended March 31, 2025 compared to the same period in fiscal year 2024) Revenue Analysis Revenue Breakdown (Three months ended March 31, Amounts in thousands) | Revenue Category | 2025 | 2024 | Change ($) | Change (%) | | :---------------------------------- | :--- | :--- | :--------- | :--------- | | Verification and certification service revenue | $4,182 | $4,434 | $(252) | -5.7% | | Product sales | $702 | $733 | $(31) | -4.2% | | Professional services | $389 | $415 | $(26) | -6.3% | | Total revenues | $5,273 | $5,582 | $(309) | -5.5% | - Verification and certification service revenue decreased by $0.3 million, negatively impacted by revenue tied to price per head of cattle and delayed poultry audits due to Avian Influenza[93] - Product sales, primarily cattle identification ear tags, slightly decreased by $31 thousand[94] - Professional services revenue, which is predominantly project-based, decreased by less than $26 thousand[95] Costs of Revenue Analysis Costs of Revenue (Three months ended March 31, Amounts in thousands) | Cost Category | 2025 | % of Revenue (2025) | 2024 | % of Revenue (2024) | | :---------------------------------- | :--- | :------------------ | :--- | :------------------ | | Costs of verification and certification services | $2,395 | 57.3% | $2,515 | 56.7% | | Costs of products | $428 | 61.0% | $434 | 59.2% | | Costs of professional services | $255 | 65.5% | $304 | 73.3% | | Total costs of revenues | $3,078 | 58.4% | $3,253 | 58.3% | - Costs of verification and certification services increased as a percentage of revenue (57.3% in 2025 vs. 56.7% in 2024) primarily due to increases in compensation-related costs from a tight labor market[96] - Costs of products increased as a percentage of revenue (61.0% in 2025 vs. 59.2% in 2024) mainly due to inflationary increases in product costs[97] Selling, General and Administrative Expenses Other Operating Expenses (Three months ended March 31, Amounts in thousands) | Expense Category | 2025 | 2024 | | :-------------------------- | :--- | :--- | | Salaries and benefits | $903 | $846 | | Rent and lease expense | $161 | $167 | | Software and technology | $207 | $206 | | Legal and professional expenses | $165 | $196 | | Tradeshows and marketing | $127 | $202 | | Conferences and training | $66 | $24 | | Investor relations | $37 | $41 | | Other expenses | $214 | $231 | | Total Other operating expenses | $1,880 | $1,913 | - Total other operating expenses remained relatively stable at approximately $1.9 million for both periods[99] - An increase in salaries and benefits due to a tight labor market was offset by savings in marketing and tradeshow costs[99] Other Income / Expenses - The Company recorded an unrealized loss of approximately $76 thousand on digital assets for the quarter ended March 31, 2025[101] Income Tax Expense - Income tax expense for the three months ended March 31, 2025, was approximately $38 thousand, down from $87 thousand in the prior year[102] Net Income and Per Share Information Net Income and EPS (Three months ended March 31, Amounts in thousands, except per share amounts) | Metric | 2025 | 2024 | | :-------------------------- | :--- | :--- | | Net income | $31 | $178 | | Basic common share | $0.01 | $0.03 | | Diluted common share | $0.01 | $0.03 | - Net income attributable to WFCF shareholders decreased significantly to $31 thousand ($0.01 per basic and diluted common share) for the three months ended March 31, 2025, compared to $0.2 million ($0.03 per share) in 2024[103] Item 4. Controls and Procedures Management evaluates disclosure controls and internal control over financial reporting, concluding on effectiveness with no material changes Evaluation of Disclosure Controls and Procedures - Management, including principal executive and financial officers, concluded that the company's disclosure controls and procedures were effective as of March 31, 2025[104] Internal Control Over Financial Reporting - There have been no material changes in the Company's internal control over financial reporting during the most recent fiscal quarter[106] Part II - Other Information Item 1. Legal Proceedings The company addresses its involvement in legal actions, confirming no significant legal proceedings are currently known - The Company is not aware of any significant legal actions, administrative proceedings, or claims at this time[108] Item 1A. Risk Factors References detailed risk factors from the 2024 Form 10-K and highlights ongoing economic impacts from external factors - The Company's business is subject to risks identified in Item 1A of its 2024 Annual Report on Form 10-K[109] - As of March 31, 2025, ongoing economic impacts from tariffs, pandemics, the inflationary environment, and weather-related risks may continue to affect the Company, though the long-term financial impact is not estimable[109] Item 2. Issuer Purchases of Equity Securities Details the company's common stock repurchase activities under its Stock Buyback Plan for the first quarter of 2025 - The Board of Directors approved a plan on September 30, 2019, to buy back up to 2.5 million additional shares of common stock[110] Issuer Purchases of Equity Securities (Three months ended March 31, 2025, Amounts in thousands) | Month | Number of Shares Purchased | Cost of Shares | Average Cost per Share | | :------------------ | :------------------------- | :------------- | :--------------------- | | January 2025 | 9,590 | $123 | $12.86 | | February 2025 | 12,101 | $150 | $12.36 | | March 2025 | 9,654 | $110 | $11.42 | | Total | 31,345 | $383 | - | Item 6. Exhibits Lists all exhibits filed as part of the Form 10-Q, including certifications and XBRL documents - Exhibits include CEO and CFO certifications (Sections 302 and 906 of Sarbanes-Oxley Act) and Inline XBRL documents[111]