Quarterly Report for Quarter Ending September 30, 2025 (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, 2024. 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 is 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, including IMI Global ("IMI"), Where Food Comes From Organic ("WFCFO"), and Validus Verification Services ("Validus"). 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 primarily provide a wide range of professional services that support our verification activities and generate incremental revenue specific to the food and agricultural industry.

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. With the use of Quick Response Code ("QR") technology, consumers can instantly access information about the producers behind their food.

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.

Environmental, Social and Governance ("ESG") and Human Capital Resources

ESG

We take environmental and social responsibility very seriously. It's the entire reason we spend day in and day out helping farmers, ranchers and brands around the world provide transparency to their consumers. Communicating authentic, sustainable, and traceable stories directly impacts our future.

We believe that sound corporate governance is critical to helping us achieve our goals, including with respect to ESG. We continue to evolve a governance framework that exercises appropriate oversight of responsibilities at all levels throughout the company and manages its affairs consistent with high principles of business ethics. Our internal ESG Council is made up of leaders from across our company, and regularly works with our Executive Team, which oversees our ESG impacts, initiatives, and priorities.

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, 2025, we had 101 total employees, of which 91 were full-time employees. Approximately 84% 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 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.

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, 2025, we had cash and cash equivalents of approximately $4.8 million compared to approximately $2.0 million at December 31, 2024. Our working capital at September 30, 2025 and December 31, 2024 was approximately $4.0 million and $2.4 million, respectively.

Net cash provided by operating activities for the nine months ended September 30, 2025 was approximately $2.3 million compared to $2.8 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. 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. The cash provided by operating activities for the period ending September 30, 2025 decreased compared to the same period in 2024 primarily due to absorption of increasing costs of services over a slight reduction in revenue.

Net cash provided by investing activities for the nine months ended September 30, 2025 was approximately $1.7 million compared to cash used in investing activities of $0.1 million in the 2024 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 financing activities for the nine months ended September 30, 2025 and 2024 was approximately $1.3 million and $2.5 million, respectively. Cash used for the period ending September 30, 2025, was primarily due to the repurchase of common shares under the Stock Buyback Plan. Cash used for the period ending September 30, 2024, was primarily due to the private purchase of stock and the repurchase of common shares under the Stock Buyback Plan.

Over the past several years, our growth has been funded primarily through cash flows from operations. We continually evaluate all funding options, including additional offerings of our securities to private, public and institutional investors and other credit facilities as they become available.

The primary driver of our operating cash flow is our third-party verification solutions, specifically the gross margin generated from services provided. Therefore, we focus on the elements of those operations, including revenue growth, gross margin and long-term projects that ensure a steady stream of operating profits to enable us to meet our cash obligations. On a weekly basis, we review the performance of each of our revenue streams focusing on third-party verification solutions compared with prior periods and our operating plan. We believe that our various sources of capital, including cash flow from operating activities, and our ability to obtain additional financing, are adequate to finance current operations. We are not aware of any other event or trend that would negatively affect our liquidity. In the event such a trend develops, we believe that there are sufficient financing avenues available to us and from our internal cash-generating capabilities to adequately manage our ongoing business.

The culmination of all our efforts has brought significant opportunities to us, including increased investor confidence and renewed interest in our company, as well as the potential 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.

Our plan for continued growth is primarily based on diversification and bundling opportunities in our product offerings within national and international markets, as well as, potential acquisitions. We believe that there are significant growth opportunities available to us because of growing consumer awareness and demand on a national level. Internationally, a quality verification program is often the only way to overcome import or export restrictions.

Debt Facility

The Company had 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 is not made, then annual payments of accrued interest only were due, with the principal balance due on 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"). 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.

Off-Balance Sheet Arrangements

As of September 30, 2025, we had no off-balance sheet arrangements of any type.

RESULTS OF OPERATIONS

Three and nine months ended September 30, 2025 compared to the same period in fiscal year 2024

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

		Three months ended September 30,								Nine months ended September 30,
		2025				2024				2025				2024
Assets:
Goodwill		$	2,946			$	2,946			$	2,946			$	2,946
All other assets, net			13,908				14,000				13,908				14,000
Total assets		$	16,854			$	16,946			$	16,854			$	16,946
Revenues:
Verification and certification service revenue		$	5,556			$	5,486			$	15,070			$	15,172
Product sales			1,202				1,329				2,868				2,881
Professional services			257				292				912				1,031
Total revenues		$	7,015			$	7,107			$	18,850			$	19,084
Costs of revenues:
Costs of verification and certification services			3,348				3,288				9,025				8,831
Costs of products			781				841				1,826				1,744
Costs of professional services			200				204				658				748
Total costs of revenues			4,329				4,333				11,509				11,323
Gross profit			2,686				2,774				7,341				7,761
Depreciation & amortization			149				156				481				467
Other operating expenses:
Salaries and benefits			942				914				2,774				2,688
Rent and lease expense			152				158				480				483
Software and technology			226				231				634				636
Legal and professional expenses			125				193				390				482
Tradeshows and marketing			169				195				401				605
Conferences and training			15				20				111				74
Investor relations			27				27				98				101
Other expenses			306				272				706				773
Total other operating expenses			1,962				2,010				5,594				5,842
Operating income/(loss)		$	575			$	608			$	1,266			$	1,452
Other items to reconcile operating income/(loss) to net income/(loss):
Other income/(loss)			1,051				65				1,201				173
Income tax benefit/(expense)			(480	)			(181	)			(728	)			(466	)
Net income/(loss)		$	1,146			$	492			$	1,739			$	1,159

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. We are recognized and utilized by numerous standard-setting bodies as an accredited verification or certification service provider. We enable food producers and brands to make certain claims on live animals or packaged food products by verifying that they are meeting the standards or guidelines associated with the claim(s) they are making. Verification and certification service revenue for the three months ended September 30, 2025 increased $0.1 million compared with the same period in 2024, while the nine month period decreased $0.1 million compared to the same period in 2024. We continue to experience new customer growth and bundling opportunities, while also seeing the negative impacts of revenue tied directly to price per head of cattle. We believe we are a low point of a contraction phase within the cattle cycle. However, rebuilding of the herd is impacted by many factors including drought conditions in different regions, the price of inputs and interest rates. The 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.

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, 2025 decreased 9.6% and 0.5%, respectively, compared to the same periods in 2024.

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, 2025 decreased $35,000 and $0.1 million, respectively, compared to the same periods in 2024.

Costs of Revenue

Costs of verification and certification services for the three and nine months ended September 30, 2025 were approximately $3.3 million and $9.0 million, respectively, compared to $3.3 million and $8.8 million, respectively, for the same periods in 2024. Gross margin for the three months ended September 30, 2025 and 2024 was 39.7% and 40.1%, respectively, while the gross margin for the nine months ended September 30, 2025 and 2024 was 40.1% and 41.8%, respectively. Our costs of verification and certification services have increased due to increases in salaries and benefits, insurance and taxes.

Costs of products for each of the three months ended September 30, 2025 and 2024 were approximately $0.8 million, respectively. Costs of products for the nine months ended September 30, 2025 and 2024 were approximately $1.8 million and $1.7 million, respectively. We continue to experience inflationary price increases passed on to us by our manufacturers, while simultaneously, dealing with market conditions that foster a competitive environment for selling cattle ear tags.

Costs of our professional services revenue for each the three months and nine months ended September 30, 2025 and 2024 were approximately $0.2 million and $0.7 million, respectively.

Selling, General and Administrative Expenses

Other operating expenses for each of the three months ended September 30, 2025 and 2024 were approximately $2.0 million, respectively. Other operating expenses for the nine months ended September 30, 2025 and 2024 were approximately $5.6 million and $5.8 million, respectively. Our most significant operating expense includes salaries and benefits. The decrease in the 2025 period is due to savings in marketing and tradeshow costs, offset by increases in salaries and benefits. Some of the savings are due to timing, while some are due to a very disciplined approach in our marketing process. Depreciation and amortization expense for the three and nine months ended September 30, 2025 and 2024 were approximately $0.1 million and $0.5 million, respectively.

Other Income / Expenses

For the three months ended September 30, 2025 and 2024, the Company received dividend income from Progressive Beef of $50,000, representing a distribution of their earnings. For the nine months ended September 30, 2025 and 2024, the Company received dividend income from Progressive Beef of $100,000 and $150,000, respectively, representing a distribution of their earnings.

On July 22, 2025, the Company entered into a Redemption and Purchase Agreement (the "Agreement") with Progressive Beef, LLC and BHS, LLC (the "Buyer"). Pursuant to the Agreement, the Buyer redeemed the 10% membership interests in Progressive Beef owned by the Company effective as of June 30, 2025, in exchange for approximately $1.8 million cash and the Buyer's surrender of 12,585 shares of the Company's common stock. The transaction resulted in approximately $0.9 million gain on the sale of our investment recorded in the Other Income/Expense section of the Consolidated Statement of Operations for the three months ended September 30, 2025.

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, 2025, the Company recorded an unrealized gain of approximately $48,000 and $144,000, respectively.

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 months ended September 30, 2025 and 2024 we recorded an income tax expense of approximately $0.5 million and $0.2 million, respectively. For the nine months ended September 30, 2025 and 2024 we recorded an income tax expense of approximately $0.7 million and $0.5 million, respectively.

Net Income and Per Share Information

As a result of the foregoing, net income attributable to WFCF shareholders for the three months ended September 30, 2025 was approximately $1.1 million and $0.22 per basic and diluted common share, compared to net income of approximately $0.5 million and $0.09 per basic and diluted common share for the same period in 2024. Net income attributable to WFCF shareholders for the nine months ended September 30, 2025 was approximately $1.7 million and $0.34 per basic and diluted common share, compared to net income of approximately $1.2 million and $0.22 per basic share and $0.21 per diluted common share for the same period in 2024.