Quarterly Report for Quarter Ending September 30, 2026 (Form 10-Q)

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, 2025. 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.

Business Overview

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 estimates that it supports more than approximately 17,500 farmers, ranchers, vineyards, wineries, processors, retailers, distributors, trade associations, consumer brands, chefs and restaurants with a wide variety of value-added services provided through its family of verifiers. 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, aquaculture, crops and other food products are accurate.

We also provide a wide range of professional consulting services that generate incremental revenue specific to the food and agricultural industry and drive sustainable value creation. 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.

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 ("NASDAQ"), 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 professional 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.

Human Capital Resources

Our greatest asset is our people, and we continue to attract the best and brightest with our competitive pay and benefits package. As of September 30, 2026, we had 90 total employees, of which 83 were full-time employees. Approximately 82% of our workforce is comprised of female and other minority employees.

We are committed to providing a workplace where our employees feel respected and appreciated. Our Human Resource department ("HR") conducts a new hire orientation, so employees know whom to contact with questions or concerns. HR has an open door policy and is actively involved in driving culture and engagement alongside business leaders.

Our policies are designed to promote fairness and respect for everyone. We hire, evaluate, and promote employees based on their skills and performance. Everyone is expected to be trustworthy, demonstrate excellence in their performance, and collaborate with others. With this in mind, we will not tolerate certain behaviors. These include harassment, retaliation, violence, intimidation, and discrimination of any kind on the basis of race, color, religion, national origin, gender, sexual orientation, gender identity, gender expression, age, disability or veteran status.

To continue innovating, we must ensure we have a talented and engaged workforce with ample opportunity to contribute to our mission and grow professionally. We are focused on intentionally creating pathways to career opportunities across WFCF through strategic initiatives such as internships and leadership training.

At WFCF, our employees show up passionate about making a difference in the world and for each other. With a majority-minority workforce, empowering our employee resource groups to take charge in driving initiatives that attract, develop, and retain our passionate workforce is vital to our continued success.

Seasonality

Our business is subject to seasonal fluctuations annually. 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.

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 2026 marked the twelfth 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 continue to contract will be directly impacted by drought and pasture conditions.

Because of the seasonality of the business and cyclical nature of 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.

Liquidity and Capital Resources

At September 30, 2026, we had cash and cash equivalents of approximately $4.4 million compared to approximately $3.2 million at December 31, 2025. Our working capital at September 30, 2026 and December 31, 2025 was approximately $3.5 million and $3.2 million, respectively.

Net cash provided by operating activities for the nine months ended September 30, 2026 was approximately $2.8 million compared to $2.3 million during the same period in 2025. 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, fair market value gains and losses on digital assets, stock-based compensation expense, and deferred taxes. Fluctuations are primarily due to operating performance offset by the timing of cash receipts and cash disbursements.

Net cash used in investing activities for the nine months ended September 30, 2026 was approximately $185,000 compared to net cash provided by investing activities of $1.7 million in the 2025 period. Net cash provided in the period ending September 30, 2025 was primarily from sale of the Company's equity investment in Progressive Beef. Net cash used in the period ending September 30, 2026 was for purchases of equipment and increased expenditures towards capitalized software development costs.

Net cash used in financing activities for the nine months ended September 30, 2026 and 2025 was approximately $1.4 million and $1.3 million, respectively. Cash used for the periods ending September 30, 2026 and 2025, was primarily due to the repurchase of common shares under the Stock Buyback Plan.

Based on our current level of operations, we believe that our current cash and cash equivalents, coupled with cash generated from operations will be adequate to meet our capital expenditure and working capital needs for at least the next twelve months. We also have multiple opportunities 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.

Off-Balance Sheet Arrangements

As of September 30, 2026, we had no off-balance sheet arrangements of any type.

RESULTS OF OPERATIONS

Three and nine months ended September 30, 2026 compared to the same period in fiscal year 2025

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

Revenue

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, 2026 increased, $0.3 million and $0.6 million, compared with the same periods in 2025. We continue to experience new customer growth and bundling opportunities, but offsetting some of this growth are supply-side dynamics within the cattle industry. The beef side of our business has been impacted the most significantly. 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.

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, 2026 changed minimally compared to the same periods in 2025. 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 27.6 million head on January 1, 2026.

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 professional services revenue stream is predominantly project based and not recurring in nature. Professional services revenue for the three and nine months ended September 30, 2026 decreased by $39,000 and $0.2 million, compared to the same periods in 2025.

Costs of Revenue

Costs of verification and certification services for the three and nine months ended September 30, 2026 were approximately $3.4 million and $9.3 million, respectively, compared to $3.3 million and $9.0 million, respectively, for the same periods in 2025. Gross margin for the three months ended September 30, 2026 and 2025 was 42.3% and 39.7%, respectively, while the gross margin for the nine months ended September 30, 2026 and 2025 was 40.7% and 40.1%, respectively. Our costs of verification and certification services are generally impacted by various costs such as salaries and benefits, insurance and taxes. The improvement in gross margins of our costs of verification and certification services is primarily due to new customer growth.

Costs of products for the three and nine months ended September 30, 2026 were approximately $0.7 million and $1.7 million, respectively, compared to $0.8 million and $1.8 million, respectively, for the same periods in 2025. Gross margin for the three months ended September 30, 2026 and 2025 was 43.8% and 35.0%, respectively, while the gross margin for the nine months ended September 30, 2026 and 2025 was 41.2% and 36.3%, respectively. We are seeing improvement in gross margins because market dynamics are giving us more pricing leverage with suppliers.

Costs of our professional services revenue for the three and nine months ended September 30, 2026 was approximately $0.2 million and $0.5 million, respectively, compared to $0.2 million and $0.7 million, respectively, for the same periods in 2025.

Selling, General and Administrative Expenses

Other operating expenses for the three and nine months ended September 30, 2026 were approximately $1.9 million and $5.4 million, respectively, compared to $2.0 million compared to $5.6 million, respectively, for the same periods in 2025. Our most significant operating expense includes salaries and benefits. The decrease in the 2026 period is primarily due to a decision by the executive management team to return the bonus amounts paid in late December 2025 which were based on previous internal projections that indicated strong fourth quarter revenue. These projections were made prior to the unexpected announcement that a large midwestern packing plant would cease operations, resulting in a negative impact to the Company's fourth quarter 2025 revenue. Depreciation and amortization expense for the three and nine months ended September 30, 2026 were approximately $0.2 million and $0.5 million, respectively, compared to $0.1 million and $0.5 million, respectively, for the same periods in 2025.

Other Income / Expenses

The Company measures the digital assets at fair value with changes recognized in the Consolidated Statements of Income for each reporting period. For the three and nine months ended September 30, 2026, the Company recorded an unrealized gain of approximately $0.2 million and unrealized loss of $28,000, respectively, compared to an unrealized gain of approximately $48,000 and $0.1 million, respectively, for the same periods in 2025.

Income Tax 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, 2026, we recorded income tax expense of approximately $0.3 million and $0.6 million, respectively, compared to income tax expense of $0.5 million and $0.7 million, respectively, for the same periods in 2025.

Net Income 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, 2026 was approximately $0.8 million and $1.3 million, respectively, and $0.17 and $0.27 per basic and diluted common share, respectively, compared to net income of approximately $1.1 million and $1.7 million, respectively, and $0.22 and $0.34 per basic and diluted common share for the same periods in 2025.