10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

x ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 2013

o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to _____________

Commission File No. 333-133624

WHERE FOOD COMES FROM, INC.
(Exact name of Registrant as specified in its charter)
Colorado	43-1802805
(State of incorporation or organization)	(I.R.S. Employer Identification No.)

221 Wilcox, Suite A

Castle Rock, CO 80104

(Address of principal executive offices, including zip code)

Registrant’s telephone number, including area code:

(303) 895-3002

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $0.001 par value

(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes o    No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes o No x

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes ☐  No ☒

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Check if disclosure of delinquent filers in response to Item 405 of Regulation S-K is not contained in this form, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.

Large accelerated filer:	o	Accelerated filer:	o
Non-accelerated filer:	o	Smaller reporting company:	x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x
 

The number of shares of the registrant’s common stock, $.001 par value per share, outstanding as of February 24, 2014, was 22,693,452. The aggregate market value of the voting stock held by non-affiliates of the registrant on June 30, 2013, the last business day of our most recently completed second fiscal quarter was $19,283,382.

DOCUMENTS INCORPORATED BY REFERENCE: None

TABLE OF CONTENTS
	PART I
		PAGE
ITEM 1.	BUSINESS	3
ITEM 1A.	RISK FACTORS	12
ITEM 1B.	UNRESOLVED STAFF COMMENTS	14
ITEM 2.	PROPERTIES	14
ITEM 3.	LEGAL PROCEEDINGS	15
ITEM 4.	MINE SAFETY DISCLOSURES	15
	PART II
ITEM 5.	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	16
ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	18
ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	29
ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	59
ITEM 9A.	CONTROLS AND PROCEDURES	59
ITEM 9B.	OTHER INFORMATION	59
	PART III
ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE	60
ITEM 11.	EXECUTIVE COMPENSATION	62
ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	64
ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE	65
ITEM 14.	PRINCIPAL ACCOUNTANT FEES AND SERVICES	66
ITEM 15.	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES	67
	SIGNATURES	68

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PART I

ITEM 1. BUSINESS

GENERAL

Where Food Comes From, Inc. and its subsidiaries (“WFCF,” the “Company,” “our,” “we,” or “us,”) provide verification and certification solutions for the agriculture, livestock and food industry. We provide our owned and operated online products and services which specialize in identification and traceability, process/production-practice/supply verification, document control for United States Department of Agriculture (“USDA”) and other verification programs and third party auditing services. Our services ensure compliance with governmental and private standards by providing transparency and value in food products for both producers and consumers world-wide.

We were incorporated in 1998 as a Missouri corporation. In March, 2005, we reincorporated in Delaware, and in March 2006, we changed our domicile from Delaware to Colorado. Until December 31, 2004 we were structured as a Subchapter S corporation and on January 1, 2005, we converted to a Subchapter C corporation.

In late 2012, we changed our corporate name from Integrated Management Information, Inc. (“IMI”) to Where Food Comes From, Inc. to better reflect our brand strategy and to raise awareness in the investor community. We are listed on the over-the-counter electronic bulletin board (“OTC:BB”) under the stock ticker symbol “WFCF.”

Business Acquisitions

As part of our business strategy, we regularly evaluate acquisition opportunities as a means of accelerating our growth and achieving our long-term strategic objectives.

Acquisition of Validus Verficiation Services LLC

On September 16, 2013, we entered into an Asset Purchase and Contribution Agreement (the “Asset Purchase Agreement”), by and among the Company, Validus Verification Services LLC (the “Buyer” or “Validus”), and Praedium Ventures, LLC, formerly known as Validus Ventures LLC (the “Seller”).

Pursuant to the Purchase Agreement, WFCF caused Validus to be organized to purchase and acquire certain audit, assessment and verification business assets of the Seller. The Company acquired a 60% interest in Validus in exchange for aggregate consideration of approximately $1.5 million, which included $565,000 in cash and 708,681 shares (the “Shares”) of common stock of WFCF valued at approximately $940,000 based upon the closing price of our stock on September 16, 2013, of $1.32 per share. The Company has the first right of refusal on the remaining 40% of the outstanding stock.

We believe that Validus is the leading dairy, pork and poultry certifiers in the United States and represents an opportunity to extend the range of our existing programs and establish our capabilities in other major food groups. As a result of this acquisition, we believe we are now positioned to offer our customers new solutions across the verification and certification spectrum. We also believe it provides diversification for our company, enables us to better serve our customers, and provides another avenue for our WFCF program.

ICS Acquisition

On February 29, 2012, we entered into a Purchase and Exchange Agreement (the “Purchase Agreement”), by and among IMI and International Certification Services, Inc. (“ICS”), and other shareholders as individually named in the Agreement (collectively the “Sellers”).

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Pursuant to the Purchase Agreement, on February 29, 2012 (the “Closing”) the Company acquired 60% of the issued and outstanding common stock of ICS in exchange for aggregate consideration of approximately $427,800, which included $350,000 in cash and 172,840 shares of common stock of IMI valued at approximately $77,800, based upon the closing price of our stock on February 29, 2012, of $0.45 per share. The Purchase Agreement includes non-dilution provisions, and we have right of first refusal on the remaining 40% of the outstanding stock.

ICS is a premier provider of organic accreditation services and has a strong reputation in the organic market segment. They have a large and growing customer base that includes food retailers as well as producers and processors of fruits, vegetables, dairy, livestock and honey. Their flagship certification program is Farm Verified Organic® – an ISO Guide 65 and IFOAM accredited program that meets the requirements of the USDA National Organic Program – that is designed for organic producers selling to the US and international markets. ICS also offers USDA National Organic Program, Canadian Organic Regime (COR) and Food Alliance sustainability certification as well as facilitation and compliancy of European Union (EU), Japan and Bio Suisse standards. It is estimated that the total organic market segment in the US and EU is more than $50 billion annually.

ICS represents an opportunity to extend the range of our existing programs and establish our capabilities in other major food groups, including poultry, grain, fruits and vegetables and dairy when sold as fresh, processed or packaged goods. We believe this acquisition has tremendous synergies for both IMI and ICS. As industry leaders in our respective product and service offerings, we are now positioned to offer our customers new solutions across the verification and certification spectrum. We also believe it provides diversification for our company in the produce, grain and dairy industries.

INDUSTRY BACKGROUND

The value-added food industry has been growing rapidly for the past several years in response to increased consumer education about food production. Organic is a labeling term that indicates that the food or other agricultural product has been produced through approved methods that integrate cultural, biological, and mechanical practices that foster cycling of resources, promote ecological balance, and conserve biodiversity. Organic food is produced without the use of synthetic pesticides and fertilizers, sewage sludge, bioengineering (GMOs), or ionizing radiation. Organic meat, poultry, eggs, and dairy products come from animals that are given no antibiotics or growth hormones.

Organic sales are only part of the story. Consumers are becoming more educated about food choices. Factors such as the carbon footprint that a particular food represents are playing an increasing role in consumers’ decision making. Food safety and animal welfare also play a significant role in consumer preferences. In recent years, demand increased for livestock identification due to concerns regarding bovine spongiform encephalopathy (mad cow disease). With all of the food recalls, fraudulent food labeling and other food scares (spinach, jalapenos, tomatoes, hamburger, peanuts, horsemeat), consumers are spending their dollars more diligently.

As the agriculture, livestock and food industry continues to mature and expand internationally, there is an increasing need to record, manage, report and audit information regarding the source, age, genetic background, animal treatment, nutrition, and other credence attributes for the benefit of producers, processors, distributors, retailers, consumers, and regulators. New governmental and industry regulations are changing rapidly. Technology, including radio frequency ID tags for livestock, and web-based systems facilitate the need for real-time data entry, reporting, and auditing.

Many of the world’s largest agriculture, beef and other livestock exporting countries, including Brazil, Argentina, and Australia, have established mandatory traceability and verification standards. Other countries have issued voluntary traceability and verification standards. Historically, the United States government had not established mandatory traceability standards until January 2011 when the Food

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Safety Modernization Act (FSMA) was signed into law by President Obama. FSMA represents the most sweeping reform of our food safety laws in more than 70 years. FSMA aims to ensure the U.S. food supply is safe by shifting the focus from responding to contamination of the food supply to preventing it. The law applies to human food as well as to food for animals, including pets. In connection with FSMA, new requirements for animal identification and traceability became effective on March 11, 2013. Animal disease traceability, or knowing where diseased and at-risk animals are, where they’ve been, and when, is very important to ensure a rapid response when animal disease events take place. An efficient and accurate animal disease traceability system helps reduce the number of animals involved in an investigation, reduces the time needed to respond, and decreases the cost to producers and the government.

Trade arrangements under the United States Department of Agriculture

The United States has trade arrangements with several nations to facilitate the exchange of agriculture, livestock and food products. USDA programs provide guidelines and structure to enable suppliers of agricultural products and services to assure customers of their ability to provide consistent quality products or services by having their processes audited by independent, third-party auditors using USDA approved methodologies and programs.

The USDA’s programs are applicable to a company’s entire program or certain portions of its programs where specified producer or product requirements are supported by a documented quality management system and the documented delivery processes are verified through an independent, third party audit. To operate an approved program, suppliers must submit a documented quality management system to the USDA and successfully pass a document review and an on-site audit.

Within the United States, these USDA programs are mostly voluntary. These programs are primarily useful in providing the industry with a process for demonstrating source, age, and other quality attributes as the product moves through the supply chain. In addition, compliance with the programs allows producers to verify claims such as “organic, non-hormone treated, gluten-free, or guaranteed tender.”

Export Markets/Programs

To market agriculture and livestock products outside of the United States, suppliers must comply with USDA trade arrangements and address the specified product requirements addressed in the USDA Export Verification (EV) Instructions specific to each country. Regardless of final export destination or specific Export Verification program requirements, US suppliers seeking to sell agriculture and livestock products must participate in a pre-approved program so as to have an approved means of verifying source, age, and other specific product requirements. Therefore, although the program is voluntary, it is mandatory to gain access to many export markets.

Mexico, Canada, South Korea, the Middle East, and Japan are the world’s largest export markets. To sell agriculture and livestock products in these markets; beef, for example, is required to be sourced from cattle that are of a certain maximum age at the time of slaughter. The USDA’s program is the standard mechanism for verifying source and age for these export markets and, therefore, is a mandatory requirement for producers, packers, and distributors to export to these key markets.

Current Marketplace Opportunities

We believe the following marketplace opportunities will drive our business forward effectively increasing consumer demand for third party verification services:

● U.S. beef has been largely absent from the EU for the past 20+ years due to an EU ban on hormone-treated meat and meat products. In late 2009, the EU announced an annual duty-free

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quota of 20,000 metric tons for high-quality beef from cattle not treated with growth hormones (“NHTC”). In March 2012, the EU expanded the annual duty-free quota from 20,000 metric tons to 48,200 metric tons. In October 2013, the U.S. signed a two-year extension to the existing trade agreement with the European Union regarding zero-tariffs for beef from non-hormone treated cattle, which means that demand for NHTC will continue. NHTC requires third party verification, but with duty-free access lowering the cost of doing business in Europe, we believe that it offers significantly more potential for third party NHTC verification services and our product line, High Quality Beef verification services.

● One-fourth of the world’s beef and nearly one-fifth of the world’s grain, milk and eggs are produced in the United States. With increased consumer consciousness, Americans are demanding to know where their food comes from and how they can support development of local and regional food systems. We believe that as consumers become better educated they will have more confidence in their food purchase decisions. As of early 2014, we have a major retailer, a very well-known restaurant, five major meat packers and a food service distributor utilizing the Where Food Comes From® label. Consumer demand continues to promote growth of our “Where Food Comes From®” labeling program.

● According to the Organic Monitor, the worldwide market for certified organic products was estimated at $59.4 billion in 2010. The U.S. market was estimated at $28.5 billion in 2010 and is expected to reach $42.5 billion by 2015. Increasing consumer demand for healthy, better-for-you products produced with sustainable agricultural practices is driving growth in the organic market. Additionally, specialty food-store chains, conventional grocery store chains and big box retailers are allocating more shelf space to organic products in order to meet the growing demand. Our acquisition of ICS in February 2012 created a strategic transaction offering major participants in the food and agriculture industries a comprehensive range of verification services for the major food groups through a single platform.

● In January 2013, FSMA issued two major proposed rules regarding preventive controls in human food and produce safety. The most anticipated element of FSMA was the requirement that all FDA regulated food companies develop and implement written food safety plans. The proposed rule on preventive controls for human food (i.e., requiring written food safety plans) would apply to all facilities that manufacture, process, pack or hold human food. The rules for animal food controls call on the industry to enact many of the practices that are required of producers and processers of human food. Most notably is the requirement for conducting a Hazard Analysis, establishing controls for identified hazards and enacting monitoring, verification and record keeping protocols. To many, this brings to mind a Hazard Analysis and Critical Control Point or HACCP Plan. As a result of our acquisition of Validus auditing business in September 2013, we believe we are now positioned to offer our customers new solutions across the verification and certification spectrum, especially in the realm of animal food and HACCP Plans.

● In March 2013, the USDA mandated the Animal Disease Traceability Rule primarily covering cattle 18 months of age or less. This ruling solidified the need for beef producers to participate in a national animal identification program. In December 2013, the USDA announced a final rule establishing general regulations for improving the traceability of U.S. livestock moving interstate. Under the final rule, unless specifically exempted, livestock moved interstate would have to be officially identified and accompanied by an interstate certificate of veterinary inspection or other documentation, such as owner-shipper statements or brand certificates. This ruling solidifies the need for beef producers to participate in a national animal identification program. This presents a significant opportunity for our business. As a result, we have been participating in an industry-led coalition to offer private industry solutions for this ruling.

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● In July 2013, the Food and Drug Administration (FDA) issued rules on importer foreign supplier verification and accreditation of third-party auditors. The first rule establishes the Foreign Supplier Verification Program (FSVP), which requires importers of food to analyze any hazards related to the imported food. If hazards exist, the importer must verify that the hazards are controlled through a third party audit. The second rule establishes an accreditation program for third party certification bodies to conduct food safety audits of foreign facilities. The accredited third parties will verify the safety of imports with FDA oversight. These new rules will help to ensure that imported foods meet the same safety standards that domestic foods do. Food safety is extremely important to all of us. It seems that the timing of our acquisition of the Validus auditing business in September 2013 couldn’t be better. Validus is in the final stages of receiving the ISO 65 accreditation to provide Safe Quality Food certifications to specific segments of the food industry.

● In October 2013, the Food and Drug Administration (FDA) released its proposed rules for preventative controls for animal food. The rules take animal feed and pet food regulation a step closer to human food regulations. Over the past few years food related illness were not unique to humans with listeria or salmonella outbreaks. At the same time, there were issues with arsenic in dog food, and most recently death from jerky treats. It has made the FSMA proposed rules much more recognizably important. We believe that in connection with the acquisition of the Validus auditing business in September 2013, we are in a dominant market position. Validus provides audits and assessments to producers in order to verify responsible animal welfare, environmental, on-farm security, and worker care production practices. Additionally, Validus owns the Facility Certification Institute and their extensive work and wide range of experience in the animal feed and pet food arena is well recognized.

Current Business Impact upon Source and Age Verified Product

In January 2013, the Japanese government announced a change to its import requirements onUS beef. Cattle must be 30 months of age or less at time of harvest, which is an increase from 21 months previously. This change allowed for age to be determined using a method called dentition, which can be done in the processing facility and doesn’t require actual records for the age to be verified.

Because the change enabled a significant increase in the amount of product qualifying for export to Japan, it negatively impacted the premiums typically seen in the marketplace for source and age verified cattle. As a result, it negatively impacted our source and age verification business by approximately 68% year over year. However, due to the diversification of our product offerings and our strategy of managing to profitability, we were able to quickly minimize the impact of these adverse changes. We also believe our acquisition of the Validus auditing business further enhanced our diversification by expanding our services to dairy and poultry products.

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Many Japanese retail and food service companies have expressed their desire to maintain a verified-only product line to ensure a known source and a high quality eating experience. This alone will continue to drive added value for source and age-verified product.

We continue to see growth in our NHTC and Verified Natural Beef (“VNB”) programs as domestic customers shift from source and age verification to NHTC and VNB. Additionally, we are seeing an increase in the number of “source verifications” requested in international markets. Although we cannot forecast the long-term impact of the change in “age verifications,” we also cannot assume that Japan will change its requirement for source verification from US beef producers, especially considering that Japan has domestic traceability laws.

In summary, we know the inherent value of source and age verifications and the resulting peace of mind that is provided at the consumer level. We believe that the demand for verification, whether at the base level (source and age verification) or at a level that incorporates multiple credence factors (source and age with NHTC and VNB), will continue to grow as more consumers demand to know where their food comes from.

WHAT WE DO

We apply information technology to the agriculture, livestock and food industry by addressing the growing importance of marketing claims such as:

● source of origin information

● genetic background

● animal treatment, animal health history, animal age, animal movements and nutrition

● carbon credits

● organic and other sustainable practices

● other credence attributes

Our solutions ensure compliance with governmental and private standards related to food production. We provide assurance regarding those claims made that cannot be confirmed by visual inspection once the product reaches the retail food case and is marketed to the consumer. We have developed a range of proprietary web-based applications, consulting methodologies, auditing processes, and other services to allow the agriculture, livestock and food industry to record, manage, report, and audit this information. Our solutions help our customers establish their own systems, meet government regulations, create their own premium brand identity, gain cost efficiencies and command a higher price for their product.

SALES

Our revenues are generated from sales of our identification, verification and certification solutions, consulting services, web-based development and hardware sales. We sell our products and services directly to customers at various levels in the agriculture, food and livestock supply chain. Our customers include some of the largest U.S. beef and pork packers, organic producers and processors, and specialty retail chains. No single customer generated more than 10% of total net revenue in 2013 or 2012.

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Third Party Verification Services

Most of our service offerings can be bundled to provide a “one-stop shop” for customers that have multiple levels of verification and certification needs, such as source verification and food safety certification.

We also offer consulting, program development and web-based development services on a customized basis to meet special customer requirements. For the years ended December 31, 2013 and 2012, our third party verification programs provided 84.6% and 82.3% of our total revenue, respectively.

Hardware Sales

In support of our third party verification service offerings, we offer hardware products (primarily identification cattle ear tags) to our customers. While these hardware products have lower profit margins than our proprietary offerings, they allow us to offer our customers a comprehensive solution. Approximately 13.1% and 15.4% of our total revenue was provided by the sale of hardware during the years ended December 31, 2013 and 2012, respectively.

Other Revenue – WhereFoodComesFrom®

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In March 2010, in response to consumers’ demand for increased transparency regarding the origins and safety of their food, we introduced our “WhereFoodComesFrom®” consumer labeling program. This program is a rigorous qualification protocol under which only those farmers, ranchers and processors who meet strict third-party verification requirements may display our distinctive brand. It is the first of its kind that directly connects the consumer with the food supply chain in a way that fosters confidence at the point of purchase. We believe that as consumers become better educated, they will have more confidence in their food purchase decisions.

All of our verification products that are source-verified qualify for our WhereFoodComesFrom® verification seal of approval. As a third-party verification service provider, we must review each individual producer’s or food company’s claim and system to ensure that 100 percent of the supply is managed through a third party verification program recognized by the USDA, ISO and/or another internationally recognized standards. In addition to building consumer confidence, our WhereFoodComesFrom® label gives producers and processors a way to enhance, differentiate and even protect their valuable brands.

This revenue stream primarily represents the licensing fees earned from our labeling program. The revenue source is still in its infancy, and we anticipate exponential growth in the future as more and more food producers continue to show interest in this product offering.

MARKETING

Our marketing strategy includes direct marketing, advertising, event sponsorship, and trade show participation. From a public relations perspective, our staff is frequently quoted in industry trade journals and requested as speakers at various industry events as subject matter experts on the topics of animal identification, traceability, branding, and the USDA QSA, EV and PVP programs. We maintain strong affiliations with breed associations, US Meat Export Federation, The National Meat Association, The National Cattlemen’s Beef Association, and Livestock Marketing Association.

In order to reach additional customers, we continually develop strategic marketing partnerships with leading companies in the industry with complementary abilities and products. We do not currently rely on any third party contracts with distributors, licenses or manufacturers in conducting our business.

We also use social media sites such as Facebook and Twitter to help promote our business, market our product offerings, and connect consumers with current topics in the agriculture, livestock and food industry.

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COMPETITION

Of the approximately 775,000 independent suppliers of cattle in the United States, we estimate that only approximately 40,000 use some form of verification program. We currently provide tracking information for approximately 10,000 of the most significant independent suppliers which we believe supply greater than 50% of the beef and other livestock products available for export markets. Our key competitors for our SupplyVerified Program are: Sterling Solutions. We believe we differentiate ourselves from our competitors by providing better, more flexible solutions to all segments of the supply chain. We are also the market leader in the area of diversifying to the Non-Hormone Treated Cattle Verification Program and the USDA’s Never Ever 3 Verification Program.

In the organic market, we believe our key competitors are: Quality Assurance International, California Certified Organic Farmers, Oregon Tilth and Organic Crop Improvement Association. We believe we differentiate ourselves in the market place by offering a cost effective bundled service package of valuable and unique solutions, such as Food Alliance and Gluten Free certification.

SEASONALITY

Our business is subject to seasonal fluctuations. Significant portions of our revenues are typically realized during the second and third quarters of the fiscal year when the calf marketings are at their peak. Because of the seasonality of the business and 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.

INTELLECTUAL PROPERTY

We create, own and maintain a variety of intellectual property assets that we believe are among our most valuable assets. Our intellectual property assets include patents and patent applications related to our innovations, products and services, trademarks related to our brands, products and services, and other property rights. We also have licensing arrangements when features from our programs are desirable to incorporate into either a new or an existing technology we offer. We seek to protect our intellectual property right assets through patent, copyright, trade secret, trademark and other laws of the United States and other countries, and through contractual provisions. Additional information regarding certain risks related to our intellectual property is included in Part I, Item 1A “Risk Factors” of this Annual Report on Form 10-K.

EMPLOYEES

As of December 31, 2013, we had 47 employees, of which 23 are employed by our Colorado office, 15 are employed by our North Dakota office and 9 are employed by our Iowa office. Our future success is substantially dependent upon the performance of our key senior management personnel, as well as our ability to attract and retain highly qualified technical personnel. Additional information regarding certain risks related to our employees is included in Part I, Item 1A “Risk Factors” of this Annual Report on Form 10-K.

AVAILABLE INFORMATION

Our corporate website is located at www.imiglobal.com. We make available free of charge on our investor relations website under “SEC Filings” our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to those reports as soon as reasonably practicable after we electronically file or furnish such materials to the U.S. Securities and Exchange Commission (SEC). Further, a copy of this annual report on Form 10-K is located at the SEC’s Public Reference Room at 100 F Street, NE, Room 1580, Washington, D.C. 20549. Information on the operation of the Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330. The SEC

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maintains an Internet site that contains reports, proxy and information statements and other information regarding our filings at http://www.sec.gov.

ITEM 1A. RISK FACTORS

In addition to the other information included in this report and our other public filings and releases, the following factors should be considered when evaluating our business, financial condition, results of operations and prospects:

We operate in a highly competitive industry with a limited market characterized by changing technology, frequent introductions of new products, product enhancements, and evolving industry standards.

We compete with many other vendors of products and services designed to verify compliance with governmental and private standards related to food and production. Our competitors range from small start-up companies to multi-national firms. Our competitors may have significantly greater financial, technical and marketing resources. Competition is likely to intensify as current competitors expand their product offerings and as new companies enter the market. Increasing competition may result in reduced margins and the loss of market share. Our competitors may offer broader product lines or technologies that are more commercially attractive and gain greater market acceptance than our current or future products. Additionally, new technology may render our products obsolete.

The success of our business model depends on the broad acceptance of our technologies into markets that are continuing to develop as a result of the increasing focus on food safety and assurance.

We are currently benefiting from a slow but growing movement among U.S. and international commodity markets to source and age verify products. This emerging trend is fueled in part by consumers focus on food safety and assurance. However, we can offer no assurances that there will be market acceptance of our technologies. Furthermore, some of our primary target segments within the livestock and food industry are experiencing unpredictable economic conditions and are expected to continue to struggle with supply, trade and profitability issues in the near term. Although we believe that our products, if adopted on a wide-scale basis, would have a significant impact on improving the safety, quality and confidence in our nation’s food supply, our customers for these products historically have been very slow to change and reluctant to adopt new technologies and business practices.

Our business may be negatively impacted by international export market activities, including trade barriers to US beef and other livestock exports and customer acceptance of US beef and other livestock products.

In prior years, the Japanese and Korean beef and other livestock markets were closed to the U.S. as a result of mad cow disease in at least one animal in the United States. Currently, the Japanese and Korean markets are the largest beef and other livestock export markets for U.S. producers. Both markets require verification, which is important to the sale of our products. Because the U.S. market does not mandate verification, there is limited incentive for beef and other livestock producers to purchase our products. Therefore, international trade barriers and limited consumer acceptance of U.S. beef and other livestock products can significantly impair our sales and profitability.

We face risks of rapidly changing regulations which may negatively impact our programs.

Regulations and standards are continually evolving and present a challenging risk. For example, In January 2013, the Japanese government announced a change to its import requirements on US beef.  Because the change enabled a significant increase in the amount of product qualifying for export to Japan, it negatively impacted the premiums typically seen in the marketplace for source and age verified cattle. As a result, it negatively impacted our source and age verification business by approximately 75% from 2012 to 2013. Due to the diversification of our product offerings and our strategy of managing to profitability, we were able to quickly minimize the impact of these adverse changes.

While we attempt to mitigate these risks by creating innovative programs that mitigate the risk of rapidly changing regulations, we can give no assurance that we will be successful in overcoming the potential negative impact to the results our operations. 

We face risks that highly contagious diseases or viral outbreaks may negatively impact the source of product we are able to verify.  

Today infectious disease and viral outbreaks appear to be emerging more quickly than ever. For example, we are currently assessing the risk of Porcine Epidemic Diarrhea Virus (PEDv) on the pork/sow industry. The total number of known positive PEDv laboratory swine accessions is growing rapidly each week and currently there are no vaccines against the virus. Furthermore, cold weather greatly enhances the spread of the virus. Positive identification of this virus creates increased bio-exclusion considerations in our business. At worse, the virus has the potential to significantly reduce the number of on-site verifications or at best, it would shift the timing of on-site verifications further impacting seasonality in our business.

While we attempt to mitigate these risks by creating innovative solutions that mitigate the risk of transferring disease, we can give no assurance that we will be successful in overcoming the potential negative impact to the results our operations.  

In the event that market demand for beef and other livestock products declines, our customers may not be able to generate sufficient revenues to justify purchase of our verification solutions and consulting services.

Public attitudes towards beef and other livestock products may be influenced by claims that these products are unsafe for consumption or pose unknown health risks. Decreased demand for beef and other livestock products could have a material adverse effect on the operating results and financial condition of

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our existing or prospective customers. If operating results of our customers are impaired, the resources that our customers can devote to building information systems for tracking cattle and other livestock and herd management would be reduced which in turn would limit purchases of our verification solutions and consulting services. Therefore, our ability to generate revenue is subject to the risks and uncertainties relating to the financial condition of our customers.

We look for opportunities to expand our presence in international markets in which we may have limited experience and inherently international operations are subject to increased risks which could harm our business, operating results and financial condition.

We continually seek to expand our product and service offerings in international markets. As we expand into new international markets, we will have only limited experience in marketing and operating our products and services in such markets. In other instances, we may rely on the efforts and abilities of foreign business partners in such markets. Certain international markets may develop more slowly than domestic markets and our operations in international markets may not develop at a rate that supports our level of investment.

In addition to uncertainty about our ability to expand into international markets, there are certain risks inherent in doing business internationally, including:

● trade barriers and changes in trade regulations;

● difficulties in developing, staffing and simultaneously managing a large number of varying foreign operations as a result of distance, language and cultural differences;

● stringent local labor laws and regulations;

● longer payment cycles;

● currency exchange rate fluctuations;

● political or social unrest or economic instability;

● import or export restrictions;

● seasonal volatility in business activity;

● risks related to government regulation or required compliance with local laws in certain jurisdictions, including those more fully described above; and

● potentially adverse tax consequences.

One or more of these factors could harm our future international operations and consequently, could harm our brand, business, operating results and financial condition.

We face risks associated with growth and acquisitions.

As part of our business strategy, we regularly evaluate acquisition opportunities as a means of accelerating our growth and achieving our long-term strategic objectives. The expansion of our operations, whether through acquisitions, development or internal growth, could divert management’s attention and could also cause us to incur substantial costs, including legal, professional and consulting fees. There can be no assurance that we will be able to identify, acquire, develop or profitably manage additional companies or operations or successfully integrate such companies or operations into our existing operations without substantial costs, delays or other problems.

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Our future success depends upon our ability to obtain and enforce patents; prevent others from infringing on our patents, trademarks and other intellectual property rights; and operate without infringing upon the patents and proprietary rights of others.

We will be able to protect our intellectual property from unauthorized use of third parties only to the extent that it is covered by valid and enforceable patents and trademarks. Patent protection generally involves complex legal and factual issues and, therefore, the enforceability of patent rights cannot be predicted with certainty. Moreover, the laws of some foreign countries do not protect proprietary rights to the same extent as the laws of the United States. In the event that patents owned by us do not provide adequate protection, we may not be able to prevent competitors from offering substantially similar products and services.

Failure to protect our proprietary rights could seriously impair our competitive position.

In the event that third parties claim that our current or future products or services infringe upon their intellectual property, we may face litigation and be prevented from selling the products and services at issue. Infringement or other claims could be asserted or prosecuted against us in the future, and it is possible that past or future assertion or prosecutions could harm our business. Litigation either in defense of our intellectual property rights or in response to infringement claims made by others may be, both expensive and time consuming, which in turn would adversely affect our business.

Our future success depends to a significant degree upon the continued service of key senior management personnel, in particular, John and Leann Saunders.

Both John and Leann Saunders’ reputation and prominence in the field provide us with a strong competitive advantage. While they are currently bound by employment agreements, we can offer no assurance that John and or Leann Saunders will be able to continue to work for us in the event of an unforeseen accident, severe injury or major disease, or on a long-term basis. The loss of key personnel could have a material adverse effect on our business and operating results.

Directors, executive officers, principal stockholders and affiliated entities beneficially own or control a significant amount of our outstanding common stock and together meaningfully influence our activities.

As of February 18, 2014, John Saunders, our Chairman and CEO, and Leann Saunders, our President, beneficially owned in the aggregate approximately 32.3% of our common stock. These officers, if they determine to vote in the same manner, would have a significant impact on the outcome of any matter requiring approval by our stockholders, including the election of directors and the approval of mergers or other business combination transactions or terms of any liquidation. This concentration of ownership may have the effect of delaying or preventing a change in control of our company that may be favored by other stockholders. This could prevent transactions in which stockholders might otherwise recover a premium for their shares over current market prices. 

Because we are not presently subject to the same corporate governance standards as companies listed on registered stock exchanges or NASDAQ, our officers and Directors may have interests adverse to those of the Shareholders.

Registered stock exchanges and NASDAQ have enhanced corporate governance requirements that apply to issuers that list their securities on those exchanges. For example, we are not required to have any independent directors or to adopt a code of ethics. In certain circumstances, management may not have the same interests as the shareholders and conflicts of interest may arise. We do not presently have a policy to resolve conflicts of interest. Notwithstanding the exercise of their fiduciary duties as directors and executive officers and any other duties that they may have to us or our shareholders in general, these persons may have interests different than yours which could adversely affect your investment.

Because our common stock is deemed a “penny stock,” an Investment in our common stock should be considered high risk and subject to marketability restrictions.

Since our common stock is a penny stock, as defined in Rule 3a51-1 under the Securities and Exchange Act, it will be more difficult for investors to liquidate their investment even if and when a market develops for the common stock. until the trading price of the common stock rises above $5.00 per share, if ever, trading in common stock is subject to the penny stock rules of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”) specified in Rule 15g-1 through 15g-10. Those rules require broker-dealers, before effecting transactions in any penny stock, to:

•  Deliver to the customer, and obtain a written receipt for, a disclosure document;

•  Disclose certain price information about the stock;

•  Disclose the amount of compensation received by the broker-dealer or any associated person of the broker-dealer;

•  Send monthly statements to customers with market and price information about the penny stock; and

•  In some circumstances, approve the purchaser’s account under certain standards and deliver written statements to the customer with information specified in the rules.

 

Consequently, the penny stock rules may restrict the ability or willingness of broker-dealers to sell the common stock and may affect the ability of holders to sell their common stock in the secondary markets and the price at which such holders can sell any such securities. These additional procedures could also limit our ability to raise additional capital in the future.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None

ITEM 2. PROPERTIES

We lease approximately 3,100 square feet of office space in a one story office facility in Castle Rock, Colorado which is used as our corporate headquarters. Our lease expires in June 2015. Our rent for the facility in Castle Rock, Colorado is approximately $6,000 per month, which includes common area maintenance (CAM) charges.

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We also own approximately ¾ acre on which a 2,300 square foot building leased by our ICS office is located in Medina, North Dakota. The North Dakota office is leased for a period of 5 years with an expiration date of March 1, 2018. One additional option to renew for a 5-year term exists and is deemed to automatically renew unless written notice is provided 60 days before the end of the term. This location pays a minimum monthly rental rate of approximately $150 plus all utilities, taxes and other expenses based on actual expenses to maintain the building.

In September 2013, as part of the Validus acquisition, Validus entered into a lease agreement for its office space with Praedium in which Validus is leasing office space. The lease is for a period of three years, expiring October 31, 2016, and requires rental payments of approximately $2,600 per month. There is no renewal feature. In addition to primary rent, the lease requires additional payments for operating costs and other common area maintenance costs.

ITEM 3. LEGAL PROCEEDINGS

From time to time, we may become involved in various legal actions, administrative proceedings and claims in the ordinary course of business. We generally record losses for claims in excess of the limits of purchased insurance in earnings at the time and to the extent they are probable and estimable.

ICS was involved in a claim that is pending in the District Court of Lancaster County, Nebraska. The plaintiff in this claim alleged that ICS conspired with another party (collectively, the “Defendants”) to deny the plaintiff organic certification. In October 2013, a summary judgment was reached in favor of the Defendants and the court awarded ICS fees to cover a portion of attorney and other costs incurred to defend this case. The plaintiff had until October 30, 2013, to file an appeal with the court; however, no appeal was filed and the judgment was executed.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable

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PART II

ITEM 5.                      MARKET FOR COMMON EQUITY RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information for Common Stock

Since the inception of the public trading of our securities in November 2006 until June 2012, our common stock has been listed on the over-the-counter electronic bulletin board (“OTC:BB”) under the symbol “INMG.” In June 2012, we changed our stock ticker symbol to “WFCF” to better reflect our brand strategy and to raise awareness in the investor community. The following table sets forth the range of high and low bid prices over the past two years. The quotations reflect inter-dealer prices without retail mark-up, mark-down or commission and may not represent actual transactions.

	2013				2012
	High		Low		High		Low
First quarter	$	1.40	$	0.98	$	0.60	$	0.31
Second quarter	$	1.40	$	0.82	$	0.98	$	0.40
Third quarter	$	2.02	$	1.16	$	1.53	$	0.03
Fourth quarter	$	2.25	$	1.73	$	1.65	$	1.00

Stockholders

As of February 24, 2014, we estimate that there were 110 beneficial and actual owners of our Common Stock.A significant number of the outstanding shares of common stock which are beneficially owned by individuals and entities are registered in the name of Cede & Co. A nominee of The Depository Trust Company, Cede & Co. is a securities depository for banks and brokerage firms.

Dividends

We have not declared or paid any cash dividends on our common stock. We presently do not have plans to pay any cash dividends in the future.

Recent Sales of Unregistered Securities

In connection with the Validus acquisition (see Note 3 to the accompanying consolidated financial statements), we issued 708,681 shares of common stock of Where Food Comes From, Inc. valued at approximately $935,500 based upon the closing price of our stock on September 16, 2013, of $1.32 per share.

For services rendered by our advisors in connection with the Validus acquisition (see Note 3 to the accompanying consolidated financial statements), we issued 56,818 shares of common stock of WFCF valued at approximately $75,000 based upon the closing price of our stock on September 16, 2013, of $1.32 per share.

In connection with the settlement of a $200,000 unsecured note with a related party, we issued 175,972 shares of common stock of WFCF valued at approximately $214,700 based upon the market price at the date of the agreement of $1.22 per share.

On February 29, 2012, in connection with our acquisition of 60% of the outstanding shares of ICS, we issued 172,840 shares of our common stock valued at $0.45 per share, or approximately $77,800 in total.

The issuance of these shares of our common stock described above was pursuant to the exemption from registration provided by Section 4(2) of the Securities Act of 1933, as amended and related state private

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offering exemptions. All of the investors were Accredited Investors as defined in the Securities Act who took their shares for investments purposes without a view to distribution and had access to information concerning the Company and its business prospects, as required by the Securities Act. In addition, there was no general solicitation or advertising for these shares. All certificates for these shares issued pursuant to Section 4(2) contain a restrictive legend. Finally, our stock transfer agent has been instructed not to transfer any of such shares, unless such shares are registered for resale or there is an exemption with respect to their transfer.

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Issuer Purchases of Equity Securities

On January 7, 2008, we announced our intention to buy back up to one million shares of our common stock from the open market. Repurchased shares under the Stock Buyback Plan by year are as follows:

					Average
	Number of		Cost of		Cost per
For the year ended December 31,	Shares		Shares		Share
2008		57,200	$	16,124	$	0.28
2009		22,325		4,020	$	0.18
2010		171,031		27,273	$	0.16
2011		247,691		61,597	$	0.25
2012		15,000		12,280	$	0.82
2013		33,450		29,555	$	0.88
Total		546,697	$	150,849	$	0.28

Our stock buyback plan has been and will be used to return capital to shareholders and to minimize the dilutive impact of stock options and other share-based awards. In the future, we may consider additional share repurchases under our plan based on several factors, including our cash position, share price, operational liquidity, and planned investment and financing needs.

ITEM 7.     MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

This annual report on Form 10-K contains forward-looking statements within the meaning of the federal securities laws. These forwarding-looking statements include without limitation statements regarding our expectations and beliefs about the market and industry, our goals, plans, and expectations regarding our operations and properties and results, our intentions and strategies regarding future operations, acquisitions and sales of properties, our intentions and strategies regarding the formation of strategic relationships, our beliefs regarding the future success of our operations, our expectations and beliefs regarding competition, competitors, the basis of competition and our ability to compete, our beliefs and expectations regarding our ability to hire and retain personnel, our beliefs regarding period to period results of operations, our expectations regarding revenues, our expectations regarding future growth and financial performance, our beliefs and expectations regarding the adequacy of our facilities, and our beliefs and expectations regarding our financial position, ability to finance operations and growth and the amount of financing necessary to support operations. These statements are subject to risks and uncertainties that could cause actual results and events to differ materially. We undertake no obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this annual report on Form 10-K.

As used in this annual report on Form 10-K, unless the context otherwise requires, the terms “we,” “us,” “the Company,” “WFCF” and “IMI” refer to Where Food Comes From, Inc. and its subsidiaries.

Business Overview

Where Food Comes From, Inc. is a leading provider of verification and communication solutions for the agriculture, livestock and food industry. We provide our owned and operated online products and services which specialize in identification and traceability, process/production-practice/supply verification, document control for United States Department of Agriculture (USDA) and other verification programs

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and third party auditing services. Our services ensure compliance with governmental and private standards by providing transparency and value in food products for both producers and consumers world-wide.

In late 2012, we changed our corporate name from Integrated Management Information, Inc. (“IMI”) to Where Food Comes From, Inc. to better reflect our brand strategy and to raise awareness in the investor community. We are listed on the over-the-counter electronic bulletin board (“OTC:BB”) under the stock ticker symbol “WFCF.”

Management’s Strategy

For several years, management focused its efforts on building a strong foundation to enhance profitability for the long term. Initially our efforts focused on our age and source verification services. Throughout 2009, we introduced a more robust offering of verification services. We also internally developed automated processes which improved our efficiency and reduced our employee headcount. As a direct result, total verification sales and hardware sales improved. We were able to provide more verification certifications (a multiple service offering) in a single audit. Interestingly enough, because our customers were seeing more profit per head from multiple verifications at a minimal increase in cost per verification service, they increased the number of cattle within each group audited.

In early 2009, we understood that all this work was necessary to build a solid foundation but we also recognized we needed to be on the cutting edge of this industry and that the most significant person to influence the food industry was the consumer. We were concerned about various food claims that the industry made without any third party verification. In response, we identified opportunities for horizontal and vertical integration and focused on developing a self-sustaining revenue stream with minimal management and labor costs, while simultaneously addressing food concerns near to our heart.

In early 2010, we began to see some of the fruits of our labor. We were able to connect food processors and packers to those suppliers that provided product verified for the specific credence attributes demanded, thereby generating a new revenue stream based upon coordination within the food supply chain. We also introduced the WhereFoodComesFrom® brand. Revenue generated from this program is based upon a similar supply chain sales model. Many long hours of research went into this project and currently we are working hard to market this program to the consumer. Research indicates that transparency in food production is becoming more and more important to consumers. We believe that the future growth of verification services will be achieved only through consumer awareness and demand. The WhereFoodComesFrom® brand is a labeling program that reconnects the consumer to the farmers and ranchers that produce the food. For the consumer, it is a seal of approval on a package or an individual product that provides assurance that those marketing claims are authentic and have been verified by an accredited, unbiased third party.

During 2010, we made the decision to invest heavily in marketing our services and our WhereFoodComesFrom® labeling program to build consumer awareness and demand. These efforts continue today through the use of videos, television exposure, word-of-mouth and the internet. We believe we are

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positioning ourselves to benefit significantly in 2014 and beyond, but, of course, no assurance can be given that this investment will generate future revenue nor can we determine for how long, if at all.

Beginning in 2011, we began evaluating objectives to grow revenue through acquisitions and strategic investments to gain entry into other commodity markets. The acquisition of ICS in February 2012 represented an opportunity to extend the range of our existing programs and establish our capabilities in other major food groups, including grain, fruits and vegetables, organic and gluten-free. Our acquisition of Validus in September 2013 further diversified our business and extended our reach into the pork, poultry and dairy industries.  We regularly evaluate acquisition and investment opportunities that complement our long-term strategic objectives.

Validus Acquisition

On September 16, 2013, we entered into an Asset Purchase and Contribution Agreement (the “Purchase Agreement”), by and among the Company, Validus Verification Services LLC (the “Buyer” or “Validus”), and Praedium Ventures, LLC (the “Seller”).

Pursuant to the Purchase Agreement, WFCF caused Validus to be organized to purchase and acquire certain audit, assessment and verification business assets of the Seller. Such assets acquired included, but were not limited to, verification tools used in the acquired business, including the processes, procedures, systems and documents, intellectual property, a database, contracts and licenses and accounts receivable. Validus acquired such assets in exchange for aggregate consideration of approximately $1.5 million, which included $565,000 in cash and 708,681 shares (the “Shares”) of common stock of WFCF valued at approximately $940,000, based upon the closing price of our common stock on September 16, 2013, of $1.32 per share. In connection with this transaction, the Seller was also issued a 40% interest in Validus, with the Company holding a 60% interest. The Company has the first right of refusal on the remaining 40% of the outstanding stock.

At any time following the thirty-month anniversary of the effective date of the Purchase Agreement, the Company shall have the option, but not the obligation, to purchase all the units (the 40% interest) of Validus held by Praedium, and Praedium shall have the option, but not the obligation, to require the Company to purchase all the units of Validus held by Praedium. The purchase price for the units shall be equal to the amount the selling holders of the units would be entitled to receive upon a liquidation of the Validus assuming all of the assets of Validus are sold for a purchase price equal to the product of eight and half times trailing twelve-month earnings before income taxes, depreciation and amortization, as defined.

Because Praedium, at its option, can require the Company to purchase its 40% interest in Validus, the Validus noncontrolling interest meets the definition of a contingently redeemable noncontrolling interest.

Redeemable noncontrolling interests are presented at the greater of their carrying amount or redemption value at the end of each reporting period and are shown as a separate caption between liabilities and equity (mezzanine section) in the accompanying balance sheet.

ICS Acquisition

As part of our business strategy, we regularly evaluate acquisition opportunities as a means of accelerating our growth and achieving our long-term strategic objectives. On February 29, 2012, we entered into a Purchase and Exchange Agreement (the “Purchase Agreement”), by and among IMI and International Certification Services, Inc. (“ICS”), and other shareholders as individually named in the Agreement (collectively the “Sellers”).

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Pursuant to the Purchase Agreement, on February 29, 2012 (the “Closing”) the Company acquired 60% of the issued and outstanding common stock of ICS in exchange for aggregate consideration of approximately $427,800, which included $350,000 in cash and 172,840 shares of common stock of IMI valued at approximately $77,800, based upon the closing price of our stock on February 29, 2012, of $0.45 per share. The Purchase Agreement also includes non-dilution provisions, and we have right of first refusal on the remaining 40% of the outstanding stock. The Company exercised its right and purchased the remaining 40% interest for cash of approximately $196,000 on March 1, 2014, pursuant to the Shareholders’ Agreement, dated February 29, 2012. The Company has 30 days after the exercise of the call option to make the cash payment.
 

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RESULTS OF OPERATIONS
 

Year Ended December 31, 2013 Compared to Year Ended December 31, 2012

Revenues
 

Total revenues for the year ended December 31, 2013 increased 5.17% over the year ended December 31, 2012. We still continue to experience sales growth from year over year, and we believe this is significant performance in light of the current economic conditions severely impacting the food industry as well as the changes made by the Japanese government which effectively relaxed the requirements on US beef imports.

Service revenues include sales of our USVerified solutions and related consulting, program development and web-based development services. Service revenues for the year ended December 31, 2013 increased 8.19% compared to the year ended December 31, 2012.

Changes regarding Japanese government imposed age restrictions on US beef imports negatively impacted our source and age verification business by approximately 68% for the year ended December 31, 2013 compared to the 2012 period. However, our business is experiencing approximately 18% growth in our NHTC, Verified Natural Beef (VNB), and other verification programs. We are seeing our domestic customers shift from source and age verification to NHTC and VNB. We are also seeing an increase in the number of “source verifications” requested in international markets. Although we cannot forecast the impact of the aforementioned change upon “age verifications,” we also cannot assume that Japan will change its requirement for source verification from US beef producers, especially considering that Japan has domestic traceability laws. Additionally, movement within the US for a regulatory program to address Animal Disease Traceability domestically may prove to be a significant opportunity for our business.

Product sales are primarily sales of cattle identification ear tags. Product sales for the year ended December 31, 2013 decreased 10.6% compared to the year ended December 31, 2012. The decrease was due to decreased volume in the quantity of tags sold in connection with our Source and Age verification programs.

Other revenue primarily represents the fees earned from our WhereFoodComesFrom® labeling program. Other revenue for the year ended December 31, 2013 increased 2.6% compared to the year ended December 31, 2012. This revenue source is still in its infancy, and we anticipate exponential growth in the future as more and more food producers continue to show interest in this product offering.

Cost of Sales and Gross Margin

Cost of sales for the year ended December 31, 2013 were approximately $2,827,100 compared to $2,431,400 for the year ended December 31, 2012. Gross margin for 2013 decreased to 48.9% of revenues compared to 53.8% for 2012.

Our gross margins for 2013 are slightly declining compared to 2012, partially due to increased costs, shifts in our sales mix and because Validus currently operates at a lower gross margin.

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Selling, General and Administrative Expenses

Selling, general and administrative expenses for the year ended December 31, 2013 were approximately $2,679,100, an increase of $337,400, or 14.4% over the year ended December 31, 2012.

There are several factors contributing to the overall increase. First, and primarily, the Validus acquisition, which was completed September 16, 2013, resulted in legal and advisory fees of approximately $219,000, which was significantly higher than acquisition costs related to ICS during the same periods last year. In addition, included in our 2013 selling, general and administrative expenses is approximately $218,700 attributable to Validus, which includes amortization expense associated with the intangible assets acquired. These increases were partially offset by our aggressive approach to minimize expenses in response to the impact of Japanese government imposed age restrictions on US beef imports to our operations. In addition, during 2012, we accrued $60,000 in contract settlement expenses associated with the termination of a joint venture agreement established in 2010.

Income Tax Benefit

During the years ended December 31, 2013 and 2012, utilization of NOL carry forwards reduced our effective tax rate. For the year ended December 31, 2013, we recorded an income tax benefit of approximately $1,800. The income tax benefit recorded in the prior year included the effect of reversing the remainder of our valuation allowance that existed as of December 31, 2011 after concluding that the likelihood for a full realization of the benefits of our deferred tax assets is more likely than not.

Net Income and Per Share Information

As a result of the foregoing, net loss attributable to WFCF shareholders for the year ended December 31, 2013 was approximately $33,560 or less than a penny per basic and diluted common share, compared to net income of $870,400 or $0.04 per basic and diluted common share for the year ended December 31, 2012. The benefit from income taxes that we recorded related to the reversal of a portion of our valuation allowance on our deferred tax assets had an impact of approximately $0.02 per share on a dilutive basis in 2012.

Liquidity and Capital Resources

At December 31, 2013, we had cash and cash equivalents of approximately $1,067,500 compared to approximately $1,403,500 of cash and cash equivalents at December 31, 2012. Our working capital at December 31, 2013 was $1,533,600 compared to approximately $1,715,100 at December 31, 2012.

Net cash provided by operating activities during 2013 was approximately $216,900 compared to net cash provided of $334,700 during the same period in 2012. 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, stock based compensation expense, and a deferred tax benefit resulting from the reversal of the valuation allowance and recognition of our deferred tax assets. Fluctuations are primarily due to the timing of cash receipts and cash disbursements offset by operating performance.

Net cash used in investing activities during 2013 was approximately $599,600 compared to cash provided of $12,300 during 2012. Net cash used in 2013 was due to the cash paid of $565,000 in the Validus acquisition. Additionally, we spent approximately $34,600 towards property and equipment. Net cash provided during 2012 was due to proceeds of approximately $302,100 from the sale of marketable securities partially offset by the acquisition of 60% of the outstanding stock of ICS in which we paid $350,000 in cash less approximately $135,200 in cash acquired. Additionally, we spent approximately $73,900 towards property and equipment and $13,700 to renew our USDA Accreditation.

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Net cash provided by financing activities during 2013 was approximately $46,800 compared to $87,500 in the 2012 period. Net cash provided in 2013 was primarily due to proceeds of approximately $105,300 from stock option exercises offset by repayments towards notes payable and capital lease obligations of $28,900 and repurchases of our common stock under the Buyback Program of $29,600. Net cash provided in 2012 was primarily due to proceeds of approximately $145,900 from stock option exercises offset by net repayments towards notes payable and capital lease obligations of $46,200.

Historically, our growth has been funded through a combination of convertible debt from private investors and private placement offerings. 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 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, overall improvement in our performance, and our ability to obtain additional financing are adequate to finance current operations as well as the repayment of current debt obligations. 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, third-party interest in our expertise to develop and enhance websites, 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 upon acquisitions, as well as, intensifying our focus on international markets. We believe that there are significant growth opportunities available to us because often the only way to access various restrictions as imposed on international market imports/exports is via a quality verification program.

Debt Facility

On April 22, 2011, we entered into a U.S. Small Business Administration Note with Great Western Bank. The Note which matures on May 1, 2021 provides for $200,000 in additional working capital. The interest rate on the Note is at prime plus 2.5% and is adjusted quarterly. Principal and interest are payable monthly. The note can be prepaid without penalties and contains certain customary affirmative and negative covenants.

The loan agreement is secured by the accounts receivable, property and equipment, and intangible assets of the Company. The Note is further guaranteed by John and Leann Saunders, founders of the Company, with a security interest in 3,000,000 shares of the Company’s common stock, which are personally owned by the Saunders.

In September 2013, the Company issued 175,972 shares of the Company’s common stock in full settlement of the Lapaseotes note payable (as further discussed in Note 6 to the consolidated financial statements). Approximately $14,700 in non-cash interest expense was recognized and is reported in the Company’s net loss for year ended December 31, 2013.

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ICS has a revolving line of credit (LOC) agreement which matures on April 4, 2014, and provides for $70,050 in working capital. The interest rate is at the bank index rate less 0.5% and is adjusted daily. Interest is calculated using a 360 day year. Principal and interest are payable upon demand, but if demand is not made, then annual payments of accrued interest only is due, with the principal balance due on maturity. The LOC is collateralized by all the business assets of ICS.

Current Concerns in our Industry

We are currently assessing the risk of Porcine Epidemic Diarrhea Virus (PEDv) on the pork/sow industry. The total number of known positive PEDv laboratory swine accessions is growing rapidly each week and currently there are no vaccines against the virus. Furthermore, cold weather greatly enhances the spread of the virus. Positive identification of this virus creates increased bio-exclusion considerations in our business. At worse, the virus has the potential to significantly reduce the number of on-site verifications or at best, it would shift the timing of on-site verifications further impacting seasonality in our business.

In February 2014, in order to prevent the spread of PEDv, the USDA published a request that pig farmers submit accurate on farm inventory, birth, and death rates in an effort to minimize persons sent to farms to collect data. In light of this information, we believe this will significantly reduce, or possibly eliminate, the number of onsite pork verifications we complete in first and second quarter 2014. Additionally, at this time, we have no estimates as to how this information may continue to impact our 2014 revenue.  

While we attempt to mitigate these risks by creating innovative solutions that mitigate the risk of transferring disease, we can give no assurance that we will be successful in overcoming the potential negative impact to the results our operations.  

Off Balance Sheet Arrangements

As of December 31, 2013, we had no off-balance sheet arrangements of any type.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our discussion and analysis of our financial condition and results of operations is based upon our financial statements, which have been prepared in accordance with GAAP. The preparation of these consolidated financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosure of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Our significant accounting policies are discussed in Note 2 to our financial statements as set forth in Item 8 of this Form 10-K.

Revenue Recognition 

We offer a range of products and services to deploy and maintain identification, traceability, and verification systems and to facilitate customers’ participation in and compliance with USDA’s Quality System Assessment, Process Verification and Export Verification Programs. We generate revenue primarily from the sale of our verification solutions, consulting services and hardware sales. We sell our products and services directly to customers at various levels in the livestock supply chain.

Revenue is recognized when persuasive evidence of an agreement with the customer exists, delivery has occurred or services have been provided, the sales price is fixed or determinable, collectability is reasonably assured, and risk of loss and title have transferred to the customer.

No single customer generated more than 10% of total net revenue in 2013 or 2012.

Service revenues primarily consist of fees charged for verification audits and other verification services that the Company performs for customers. Revenue from verification audits is recognized upon completion of the audits. Contracts for these services are cancelable only for non-performance.

Deferred revenue represents payments received in advance from our customers for annual customer support services not yet performed as of December 31, and revenue is recognized as services are performed, generally over the one year contract term.

Customer deposits represent down-payments made in advance of a verification audit to be performed for a customer and deposits are applied to the customer’s accounts when invoiced.

Revenues under contracts for consulting services are recognized when completed (for short-term projects). On occasion, we may enter into long-term projects, for which we use the percentage of completion method. No such long-term projects occurred during 2013 and 2012.

Product sales are primarily generated from the sale of cattle identification ear tags. Revenue is recognized when goods are shipped and after title has transferred to the customer.

Other revenue primarily represents the fees earned from our “WhereFoodComesFrom®” labeling program. Revenue is recognized when our customer, who has been granted a right to use our WhereFoodComesFrom® label, places this label on their product and ships their product. Revenue is billed based on pounds of product shipped.

Stock-Based Compensation Expense

Calculating stock-based compensation expense requires the input of highly subjective assumptions, including the expected term of the stock-based awards, stock price volatility, and the pre-vesting option forfeiture rate. We utilize the Black-Scholes option-pricing model to estimate the fair value of stock options. Under this pricing model, which incorporates ranges of assumptions for inputs, our assumptions are as follows:

● Dividend yield is based on our historical and anticipated policy of not paying cash dividends.

● Expected volatility assumptions were derived from our actual volatilities.

● The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the date of grant with maturity dates approximately equal to the expected life at the grant date.

● The expected term of options represents the period of time that options granted are expected to be outstanding giving consideration to vesting schedules, based on historical exercise patterns, which we believe are representative of future behavior.

The assumptions used in calculating the fair value of stock-based awards represent our best estimates, but these estimates involve inherent uncertainties and the application of management judgment.

There is a risk that our estimates of the fair values of our share-based compensation awards on the grant dates may differ from the actual values realized upon the exercise, expiration, early termination or forfeiture of those share-based payments in the future. Certain share-based payments, such as employee stock options, may expire worthless or otherwise result in zero intrinsic value as compared to the fair values originally estimated on the grant date and reported in our financial statements. Alternatively, value may be realized from these instruments that are significantly in excess of the fair values originally estimated on the grant date and reported in our financial statements. Although the fair value of our share-based awards is determined in accordance with GAAP and the Securities and Exchange Commission’s Staff Accounting Bulletin No. 107 using an option-pricing model, the value calculated may not be indicative of the fair value observed in a willing buyer / willing seller market transaction.

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Estimates of share-based compensation expenses do have an impact on our financial statements, but these expenses are based on the aforementioned option valuation model and will never result in the payment of cash by us. For this reason, and because we do not view share-based compensation as being related to our operational performance, we exclude estimated share-based compensation expense when internally evaluating our performance.

Income Taxes and Realization of Deferred Tax Assets

We compute income taxes using the asset and liability method. Under this method, deferred income taxes are recognized for differences between the basis of assets and liabilities for financial statement and income statement purposes using the enacted statutory rate in effect for the year these differences are expected to be taxable or deductible. Deferred income tax expense or benefit is based on the changes in the net deferred tax asset or liability from period to period. A deferred tax asset or liability is recognized whenever there are future tax effects from existing temporary differences and operating loss and tax credit carryforwards. If we determine that a deferred tax asset could be realized in a greater or lesser amount than recorded, the asset’s recorded amount is adjusted and the income statement is either credited or charged, respectively, in the period during which the determination is made.

We reduce our deferred tax assets by a valuation allowance if we determine that it is more likely than not that some portion or all of these tax assets will not be realized. In making this determination, we consider various qualitative and quantitative factors, such as:

● The level of historical taxable income and projections for future taxable income over periods in which the deferred tax assets would be deductible,

● Accumulation of income (loss) before taxes utilizing a look-back period of three years.

● Events within the industry,

● The cyclical nature of our business,

● The health of the economy,

● Our future forecasts of taxable income, and

● Historical trending.

The recognition of our net deferred income tax assets requires significant management judgment regarding the interpretation of applicable statutes, the status of various income tax audits, and our particular facts and circumstances. In the fourth quarter of 2011, after assessing the existing qualitative and quantitative data, including the wide-spread consensus that the economic climate was beginning to improve, we reduced our valuation allowance to $419,020. By the second quarter of 2012, we reversed the remaining portion of our valuation allowance after concluding the likelihood for a full realization of the benefits of our deferred tax assets is more likely than not.

We recognize the tax benefit from an uncertain tax position when we determine that it is more-likely-than-not that the position would be sustained upon examination by taxing authorities. The amount recognized is measured as the largest amount of benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. If we derecognize an uncertain tax position, our policy is to record any applicable interest and penalties within the provision for income tax. Management believes there are no current uncertain tax positions that would result in an asset or liability being recognized in the accompanying financial statements. Interest and penalties on unrecognized tax benefits, if any, are recognized as a component of income tax expense.

Business Combinations

A component of our growth strategy has been to acquire businesses that complement our existing operations. We account for business combinations in accordance with the guidance for business combinations and related literature. Accordingly, we allocate the purchase price of acquired companies to

26

the tangible and intangible assets acquired and liabilities assumed based upon their estimated fair values at the date of purchase. The difference between the purchase price and the fair value of the net assets acquired is recorded as goodwill.

In determining the fair values of assets acquired and liabilities assumed in a business combination, we use various recognized valuation methods including present value modeling and referenced market values (where available). Further, we make assumptions within certain valuation techniques including discount rates and timing of future cash flows. Valuations are performed by management or independent valuation specialists under management’s supervision, where appropriate. We believe that the estimated fair values assigned to the assets acquired and liabilities assumed are based on reasonable assumptions that marketplace participants would use. However, such assumptions are inherently uncertain and actual results could differ from those estimates.

Intangible Assets

Our intangible assets consist of a customer list, accreditations, beneficial lease arrangement and trade name related to the acquisitions of ICS and Validus, recorded at estimated fair value. It also consists of our trademark rights and the related costs incurred to obtain the trademark rights recorded at cost. These assets are subject to amortization using the straight-line method over the estimated useful lives of the respective assets, which range from two to fifteen years. We review our intangible assets for impairment at least annually or whenever impairment indicators are determined to be present. If an impairment exists, the amount of impairment is measured as the excess of the carrying amount of the asset over its fair value as determined utilizing the estimated discounted future cash flows, or some other fair value measure, or the expected proceeds, net of costs to sell, upon sale of the asset. During 2013 we completed an impairment analysis, and based upon the work performed, we concluded that no impairment existed.

Goodwill and Other Non-Amortizable Intangible Asset

Goodwill relates to the acquisition of ICS and Validus. Both ICS and Validus are reporting units one level below our Certification and Verification Services segment. The other non-amortizable intangible asset relates to the trademarks/trade name acquired in the Validus acquisition and was determined to have an indefinite life. We review goodwill and non-amortizable intangible assets for impairment annually in the fourth quarter, or more frequently if impairment indicators arise. Impairment indicators include (i) a significant decrease in the market value of an asset (ii) a significant change in the extent or manner in which an asset is used or a significant physical change in an asset, (iii) a significant adverse change in legal factors or in the business climate that could affect the value of an asset or an adverse action by a regulator, and (iv) a current period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with an asset used for the purpose of producing revenue. During 2013, we completed a goodwill impairment analysis, and based upon the work performed, we concluded that no impairment existed in our ICS reporting unit, and that goodwill was not at risk in failing step one of the goodwill impairment test. The Validus goodwill and non-amortizable intangible asset was valued at the time of acquisition and will be analyzed annually for impairment in the same manner as described above.

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RECENT ACCOUNTING PRONOUNCEMENTS

See Note 2 to our financial statements set forth in Item 8 of this Form 10-K for a detailed description of recent accounting pronouncements. We do not expect these recently issued accounting pronouncements to have a material impact on our results of operations, financial condition, or liquidity in future periods.

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ITEM 8.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to Financial Statements

	Page
Financial Statements:
Report of Independent Registered Public Accounting Firm	30
Consolidated Balance Sheets as of December 31, 2013 and 2012	31
Consolidated Statements of Income (Loss) for the years ended December 31, 2013 and December 31, 2012	32
Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2013 and December 31, 2012	33
Consolidated Statements of Cash Flows for the years ended December 31, 2013 and December 31, 2012	34
Consolidated Statements of Equity for the years ended December 31, 2013 and December 31, 2012	35
Notes to Financial Statements	36

29

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of Where Food Comes From, Inc.:

We have audited the accompanying consolidated balance sheets of Where Food Comes From, Inc. and its subsidiaries, (the “Company”) as of December 31, 2013 and 2012, and the related consolidated statements of income (loss), comprehensive income (loss), equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2013 and 2012, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 3 to the consolidated financial statements, in September 2013, the Company acquired a 60% interest in the Validus operating business.

/s/ GHP Horwath, P.C.

Denver, Colorado

March 4, 2014

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Where Food Comes From, Inc.

Consolidated Balance Sheets

	December 31,			December 31,
	2013			2012
Assets
Current assets:
Cash and cash equivalents	$	1,067,537		$	1,403,489
Accounts receivable, net		683,800			377,072
Prepaid expenses and other current assets		143,576			80,189
Deferred tax assets		190,184			242,944
Total current assets		2,085,097			2,103,694
Property and equipment, net		253,206			146,563
Intangible and other assets, net		1,716,115			303,810
Goodwill		1,279,762			532,997
Long-term deferred tax assets		480,294			277,177
Total assets	$	5,814,474		$	3,364,241
Liabilities and Equity
Current liabilities:
Accounts payable	$	277,633		$	134,913
Accrued expenses and other current liabilities		56,091			58,808
Customer deposits		39,134			27,478
Deferred revenue		149,660			139,022
Short-term debt and current portion of notes payable		24,782			22,873
Current portion of capital lease obligations		4,173			5,506
Total current liabilities		551,473			388,600
Capital lease obligations, net of current portion		10,808			14,981
Notes payable and other long-term debt, net of current portion		165,755			191,106
Notes payable, related party		—			200,000
Total liabilities		728,036			794,687
Commitments and contingencies
Contingently redeemable non-controlling interest		1,018,396			—
Equity:
Preferred stock, $0.001 par value; 5,000,000 shares authorized; none issued or outstanding		—			—
Common stock, $0.001 par value; 95,000,000 shares authorized; 23,233,483 (2013) and 21,837,046 (2012) shares issued, and 22,686,786 (2013) and 21,323,799 (2012) shares outstanding		23,233			21,837
Additional paid-in-capital		5,216,327			3,668,556
Treasury stock of 546,697 (2013) and 513,247 shares (2012)		(150,849	)		(121,294	)
Accumulated deficit		(1,321,100	)		(1,287,540	)
Total Where Food Comes From, Inc. equity		3,767,611			2,281,559
Non-controlling interest		300,431			287,995
Total equity		4,068,042			2,569,554
Total liabilities and equity	$	5,814,474		$	3,364,241

The accompanying notes are an integral part of these financial statements.

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Where Food Comes From, Inc.

Consolidated Statements of Income (Loss)

	Year ended December 31,
	2013			2012
Revenues:
Service revenues	$	4,682,738		$	4,328,277
Product sales		723,449			809,084
Other revenue		127,277			124,006
Total revenues		5,533,464			5,261,367
Costs of revenues:
Labor and other costs of services		2,307,846			1,844,655
Costs of products		519,221			586,767
Total costs of revenues		2,827,067			2,431,422
Gross profit		2,706,397			2,829,945
Selling, general and administrative expenses		2,679,089			2,341,665
Income from operations		27,308			488,280
Other expense (income):
Interest expense		33,588			25,929
Gain on sale of marketable securities		—			(11,892	)
Gain on disposal of property and equipment		—			(3,208	)
Other income, net		(1,469	)		(4,239	)
(Loss) income before income taxes		(4,811	)		481,690
Income tax benefit		(1,778	)		(391,478	)
Net (loss) income		(3,033	)		873,168
Net income attributable to non-controlling interest		(30,527	)		(2,810	)
Net (loss) income attributable to Where Food Comes From, Inc.	$	(33,560	)	$	870,358
Net (loss) income per share:
Basic	$		*	$	0.04
Diluted	$		*	$	0.04
Weighted average number of common shares outstanding:
Basic		21,893,794			20,943,966
Diluted		21,893,794			21,678,858
* less than a penny ($0.01) per share

The accompanying notes are an integral part of these financial statements.

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Where Food Comes From, Inc.

Consolidated Statements of Comprehensive Income (Loss)

	Year ended December 31,
	2013			2012
Net income	$	(3,033	)	$	873,168
Unrealized gain on marketable securities		—			6,693
Comprehensive (loss) income		(3,033	)		879,861
Comprehensive income attributable to non controlling interest		(30,527	)		(2,810	)
Comprehensive (loss) income attributable to Where Food Comes From, Inc.	$	(33,560	)	$	877,051

The accompanying notes are an integral part of these financial statements.

33

Where Food Comes From, Inc.

Consolidated Statements of Cash Flows

	Year ended December 31,
	2013			2012
Net (loss) income	$	(3,033	)	$	873,168
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Depreciation and amortization		119,696			94,111
Stock-based compensation expense		70,152			29,325
Common stock issued for services rendered		75,000			—
Common stock issued in connection with extinguishment of debt		14,686			—
Deferred tax benefit		(1,778	)		(391,638	)
Bad debt expense		3,000			8,886
Gain on sale of marketable securities		—			(11,892	)
Gain on disposal of property and equipment		—			(3,208	)
Changes in operating assets and liabilities, net of effect from acquisitions:
Accounts receivable		(159,729	)		(109,498	)
Prepaid expenses and other current assets		(63,387	)		(22,000	)
Accounts payable		142,720			(33,953	)
Accrued expenses and other current liabilities		8,939			1,379
Deferred revenue		10,638			(99,966	)
Net cash provided by operating activities		216,904			334,714
Investing activities:
Acquisition of International Certification Services, Inc., net of cash acquired		—			(214,774	)
Acquisition of Validus Verification Services		(565,000	)		—
Purchases of property and equipment		(34,645	)		(73,876	)
Proceeds from sale of marketable securities		—			302,096
Proceeds from sale of property and equipment		—			12,519
Purchase of other long-term assets		—			(13,664	)
Net cash (used in) provided by investing activities		(599,645	)		12,301
Financing activities:
Repayments of notes payable		(23,442	)		(75,271	)
Proceeds from notes payable		—			37,407
Repayments of capital lease obligations		(5,506	)		(8,300	)
Proceeds from stock option exercise		105,292			145,898
Stock repurchase under Buyback Program		(29,555	)		(12,280	)
Net cash provided by financing activities		46,789			87,454
Net change in cash and cash equivalents		(335,952	)		434,469
Cash and cash equivalents at beginning of period		1,403,489			969,020
Cash and cash equivalents at end of period	$	1,067,537		$	1,403,489

The accompanying notes are an integral part of these financial statements.

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Where Food Comes From, Inc.

Consolidated Statements of Equity

Years ended December 31, 2013 and 2012

	Where Food Comes From, Inc.
						Additional					Other
	Common Stock					Paid-in		Treasury			Comprehensive			Accumulated			Non-controlling
	Shares			Amount		Capital		Stock			(Loss) Gain			Deficit			Interest		Total
Balance at January 1, 2012		20,550,759		$	21,049	$	3,416,343	$	(109,014	)	$	(6,693	)	$	(2,157,898	)	$	—	$	1,163,787
Acquisition of International Certification Services, Inc.:
Shares issued		172,840			173		77,605		—			—			—			—		77,778
Non-controlling interest		—			—		—		—			—			—			285,185		285,185
Stock-based compensation expense		—			—		29,325		—			—			—			—		29,325
Stock repurchase on the open market		(15,000	)		—		—		(12,280	)		—			—			—		(12,280	)
Issuance of common shares upon exercise of options		615,200			615		145,283		—			—			—			—		145,898
Reclassification adjustment for loss included in net income		—			—		—		—			6,693			—			—		6,693
Net income		—			—		—		—			—			870,358			2,810		873,168
Balance at December 31, 2012		21,323,799			21,837		3,668,556		(121,294	)		—			(1,287,540	)		287,995		2,569,554
Stock-based compensation expense		—			—		70,152		—			—			—			—		70,152
Issuance of common shares upon exercise of options		454,966			454		104,838		—			—			—			—		105,292
Excess tax benefit from share based payments		—			—		148,579		—			—			—			—		148,579
Issuance of common shares in settlement of debt		175,972			176		214,509		—			—			—			—		214,685
Acquisition of Validus Verification Services:												—								—
Shares issued		708,681			709		934,750		—			—			—			—		935,459
Issuance of common shares for acquisition-related consulting fees		56,818			57		74,943		—			—			—			—		75,000
Stock repurchase on the open market		(33,450	)		—		—		(29,555	)		—			—			—		(29,555	)
Net (loss) income		—			—		—		—			—			(33,560	)		12,436		(21,124	)
Balance at December 31, 2013		22,686,786		$	23,233	$	5,216,327	$	(150,849	)	$	—		$	(1,321,100	)	$	300,431	$	4,068,042

The accompanying notes are an integral part of these financial statements.

35

Where Food Comes From, Inc.

Notes to the Consolidated Financial Statements

Note 1 - The Company and Basis of Presentation

Business Overview
 

Where Food Comes From, Inc. is a Colorado corporation based in Castle Rock, Colorado (the “Company,” “our,” “we,” or “us”). We provide verification and certification solutions for the agriculture, livestock and food industry. Most of our customers are located throughout the United States.

In December 2012, we changed our corporate name from Integrated Management Information, Inc. (“IMI”) to Where Food Comes From, Inc. to better reflect our brand strategy and to raise awareness in the investor community.

On February 29, 2012, we completed an acquisition of a 60% ownership investment in a North Dakota company, International Certification Services, Inc. (“ICS”) (Note 3). This acquisition has been accounted for using the acquisition method of accounting and, accordingly, its results are included in the Company’s consolidated financial statements from the date of acquisition.

On September 16, 2013, we acquired the auditing business of Praedium Ventures, LLC, (“Praedium”) previously known as Validus Ventures, LLC (Note 3). This acquisition has been accounted for using the acquisition method of accounting and, accordingly, its results are included in the Company’s consolidated financial statements from the date of acquisition.

We operate in one segment.

Basis of Presentation

Our consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues, costs and expenses during the reporting period. Actual results could differ from the estimates.

The accompanying consolidated financial statements include the results of operations, financial position and cash flows of the Company and its subsidiaries. All intercompany balances have been eliminated in consolidation.

Note 2 - Summary of Significant Accounting Policies
 

Cash and Cash Equivalents
 

All cash and short-term investments with original maturities of three months or less are considered cash and cash equivalents, since they are readily convertible to cash. We place our cash with high quality financial institutions. At times, cash balances may exceed the FDIC insurance limit, however; we have not experienced any losses related to balances that exceed such FDIC insurance limits, and we believe our credit risk is minimal.

36

 

Where Food Comes From, Inc.

Notes to the Consolidated Financial Statements

Revenue Recognition

We offer a range of products and services to deploy and maintain identification, traceability, and verification systems and to facilitate customers’ participation in and compliance with USDA’s Quality System Assessment, Process Verification and Export Verification Programs. We generate revenue primarily from the sale of our verification solutions, consulting services and hardware sales. We sell our products and services directly to customers at various levels in the livestock supply chain.

Revenue is recognized when persuasive evidence of an agreement with the customer exists, delivery has occurred or services have been provided, the sales price is fixed or determinable, collectability is reasonably assured, and risk of loss and title have transferred to the customer.

No single customer generated more than 10% of total net revenue in 2013 or 2012.

Service revenues primarily consist of fees charged for verification audits and other verification services that the Company performs for customers. Revenue from verification audits is recognized upon completion of the audits. Contracts for these services are cancelable only for non-performance.

Deferred revenue represents payments received in advance from our customers for annual customer support services not yet performed as of December 31, and revenue is recognized as services are performed, generally over the one year contract term.

Customer deposits represent down-payments made in advance of a verification audit to be performed for a customer and deposits are applied to the customer’s accounts when invoiced.

Revenues under contracts for consulting services are recognized when completed (for short-term projects). On occasion, we may enter into long-term projects, for which we use the percentage of completion method. No such long-term projects occurred during 2013 and 2012.

Product sales are primarily generated from the sale of cattle identification ear tags. Revenue is recognized when goods are shipped and after title has transferred to the customer.

Other revenue primarily represents the fees earned from our “WhereFoodComesFrom®” labeling program. Revenue is recognized when our customer, who has been granted a right to use our WhereFoodComesFrom® label, places this label on their product and ships their product. Revenue is billed based on pounds of product shipped.

Generally, we do not provide right of return or warranty on product sales or services performed.
 

Accounts Receivable and Allowance for Doubtful Accounts

The majority of our receivables are due from trade customers. Credit is extended based on our evaluation of the customer’s financial condition and generally, collateral is not required. Accounts receivable are due approximately 30 days from the invoice date and are stated at amounts due from customers, net of an allowance for doubtful accounts. Accounts receivable that are outstanding longer than the contractual payment terms are considered past due. We determine our allowance by considering a number of factors, including the length of time trade accounts receivable are past due, our previous loss and payment history, the customer’s current ability to pay its obligations to us and the condition of the general economy and the industry as a whole. We write off accounts receivable when they become uncollectible, and payments subsequently received on such receivables are credited to the allowance for doubtful accounts. The allowance for doubtful accounts was approximately $20,700 and $16,200, at December 31, 2013 and 2012, respectively.

37

Where Food Comes From, Inc.

Notes to the Consolidated Financial Statements

No single customer accounted for greater than 10% of our accounts receivable balances at December 31, 2013. One customer accounted for 10% of our outstanding accounts receivable balance at December 31, 2012.

Cost of Revenues
 

Cost of revenues includes the cost of products sold, which consists of livestock ear tags used in connection with the US Verified Source and Age Verification programs. Salaries and related fringe benefits directly associated with our verification services are allocated to cost of revenues.

Livestock identification ear tags sold in connection with our verification offerings are purchased primarily from one supplier. However, there are numerous other companies which manufacture and market such ear tags.

Fair Value Measurements

The carrying value of cash and cash equivalents, accounts receivable, and accounts payable approximate fair value due to their short maturities. The amounts shown for debt and notes payable also approximate fair value because current interest rates and terms offered to us for similar debt are substantially the same.

Fair value accounting guidance defines fair value, establishes a framework for measuring fair value under GAAP and expands disclosures about fair value measurements, for both financial and non-financial assets. It also establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The fair value hierarchy consists of three broad levels, which are described below:

● Level 1: Quoted prices in active markets for identical assets or liabilities that the entity has the ability to access.

● Level 2: Observable inputs other than prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated with observable market data.

● Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

Property and Equipment

Property and equipment are recorded at cost and are depreciated using the straight-line method over the estimated useful lives of the respective assets. Land is not depreciated. Buildings are depreciated over 20 years. All other property and equipment have depreciable lives which range from three to seven years.

Intangible Assets

Our intangible assets consist of a customer relationships, accreditations, a beneficial lease arrangement and tradename/trademarks related to the acquisitions of ICS and Validus, recorded at estimated fair value.

38

Where Food Comes From, Inc.

Notes to the Consolidated Financial Statements

Intangible assets also include certain trademark rights and the related costs incurred to obtain the trademark rights recorded at cost. Certain of these assets are subject to amortization using the straight-line method over the estimated useful lives of the respective assets (Note 5).

In connection with the Validus acquisition, the Company allocated a portion of the purchase price to tradenames/trademarks. These tradenames/trademarks were determined to have an indefinite useful life and are not currently amortized. Authoritative guidance requires that intangible assets not subject to amortization (indefinite-lived assets) be tested for impairment on an annual basis, or more frequently if events or changes in circumstances indicate that the asset might be impaired.

Impairment of Long-Lived Assets

We review all of our long-lived assets (including intangible assets) for impairment at least annually or whenever impairment indicators are determined to be present. If an impairment exists, the amount of impairment is measured as the excess of the carrying amount of the asset over its fair value as determined utilizing estimated discounted future cash flows, or some other fair value measure, or the expected proceeds, net of costs to sell, upon sale of the asset.

Significant judgments are required to estimate the fair value of intangible assets including estimating future cash flows, determining appropriate discount rates and other assumptions. Changes in these estimates and assumptions or the occurrence of one or more confirming events in future periods could cause the actual results or outcomes to materially differ from such estimates and could also affect the determination of fair value and/or impairment at future reporting dates. No impairment was identified on the Company’s intangible assets through December 31, 2013.

Goodwill

Goodwill relates to the acquisition of ICS and Validus. ICS and Validus are both reporting units one level below our Certification and Verification Services segment. The other non-amortizable intangible asset relates to the trademarks/trade name acquired in the Validus acquisition and was determined to have an indefinite life. We review goodwill and non-amortizable intangible assets for impairment annually in the fourth quarter, or more frequently if impairment indicators arise. Impairment indicators include (i) a significant decrease in the market value of an asset (ii) a significant change in the extent or manner in which an asset is used or a significant physical change in an asset, (iii) a significant adverse change in legal factors or in the business climate that could affect the value of an asset or an adverse action by a regulator, and (iv) a current period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with an asset used for the purpose of producing revenue. During 2013, we completed a goodwill impairment analysis, and based upon the work performed, we concluded that no impairment existed in our ICS reporting unit, and that goodwill was not at risk in failing step one of the goodwill impairment test. The Validus goodwill was valued at the time of acquisition and will be analyzed annually for impairment in the same manner as described above.

Research and Development, Software Development Costs, and Internal Use Software Development Costs

Research and development costs are charged to operations as incurred. We did not incur any research and development expense in 2013 and 2012.

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Notes to the Consolidated Financial Statements

Software development costs are capitalized once technological feasibility of a product is established and such costs are determined to be recoverable. For products where proven technology exists, this may occur very early in the development cycle. Factors we consider in determining when technological feasibility has been established include (i) whether a proven technology exists; (ii) the quality and experience levels of the individuals developing the software; (iii) whether the software is similar to previously developed software which has used the same or similar technology; and (iv) whether the software is being developed with a proven underlying engine. Technological feasibility is evaluated on a product-by-product basis. Capitalized costs for those products that are cancelled or abandoned are charged immediately to cost of sales. The recoverability of capitalized software development costs is evaluated on the expected performance of the specific products for which the costs relate.

Internal use software development costs represent the capitalization of certain external and internal computer software costs incurred during the application development stage. The application development stage is characterized by software design and configuration activities, coding, testing and installation. Training costs and maintenance are expensed as incurred, while upgrades and enhancements are capitalized if it is probable that such expenditures will result in additional functionality.

Website software development costs related to certain planning and training costs incurred in the development of website software are expensed as incurred, while application development stage costs are capitalized.

Prior to 2011, we capitalized certain external and internal use software and website development costs totaling $183,385. The estimated useful lives of these pre-2011 costs capitalized was evaluated for each specific project and ranges from one to three years. In 2013, we acquired certain assets of Validus, which included internally- developed software with an estimated fair value of $129,000. During 2013 and 2012, the amortization of capitalized costs totaled approximately $12,800 and $24,000, respectively. Capitalized costs are included in property and equipment.

Advertising Expenses
 

Advertising costs are expensed as incurred. Total advertising expense for the years ended December 31, 2013 and 2012, were approximately $59,700 and $70,200, respectively.
 

Income Taxes

We compute income taxes using the asset and liability method. Under this method, deferred income taxes are recognized for differences between the basis of assets and liabilities for financial statement and income statement purposes using the enacted statutory rate in effect for the year these differences are expected to be taxable or deductible. Deferred income tax expense or benefit is based on the changes in the net deferred tax asset or liability from period to period. A deferred tax asset or liability is recognized whenever there are future tax effects from existing temporary differences and operating loss and tax credit carryforwards. If we determine that a deferred tax asset could be realized in a greater or lesser amount than recorded, the asset’s recorded amount is adjusted and the income statement is either credited or charged, respectively, in the period during which the determination is made.

We reduce our deferred tax assets by a valuation allowance if we determine that it is more likely than not that some portion or all of these tax assets will not be realized. In making this determination, we consider various qualitative and quantitative factors, such as:

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Notes to the Consolidated Financial Statements

● The level of historical taxable income and projections for future taxable income over periods in which the deferred tax assets would be deductible,

● Accumulation of income (loss) before taxes utilizing a look-back period of three years.

● Events within the industry,

● The cyclical nature of our business,

● The health of the economy,

● Our future forecasts of taxable income, and

● Historical trending.

The recognition of our net deferred income tax assets requires significant management judgment regarding the interpretation of applicable statutes, the status of various income tax audits, and our particular facts and circumstances. In the first quarter of 2012, after assessing the existing qualitative and quantitative data, including the wide-spread consensus that the economic climate was beginning to improve, we reversed the remaining portion of our valuation allowance after concluding the likelihood for a full realization of the benefits of our deferred tax assets was more likely than not.

We recognize the tax benefit from an uncertain tax position when we determine that it is more-likely-than-not that the position would be sustained upon examination by taxing authorities. The amount recognized is measured as the largest amount of benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. If we derecognize an uncertain tax position, our policy is to record any applicable interest and penalties within the provision for income tax. Management believes there are no current uncertain tax positions that would result in an asset or liability being recognized in the accompanying financial statements. Interest and penalties on unrecognized tax benefits, if any, are recognized as a component of income tax expense.

We file income tax returns in the US federal jurisdiction and various state jurisdictions. We are no longer subject to US federal tax examination for years beginning before January 1, 2010 and the state tax returns that remain subject to examination range from December 31, 2009 through the years ended December 31, 2013.

Stock-Based Compensation

The fair value of stock options is estimated using the Black-Scholes option-pricing model, which incorporates ranges of assumptions for inputs. Our assumptions are as follows:

● Dividend yield is based on our historical and anticipated policy of not paying cash dividends.

● Expected volatility assumptions were derived from our actual volatilities.

● The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the date of grant with maturity dates approximately equal to the expected life at the grant date.

● The expected term of options represents the period of time that options granted are expected to be outstanding giving consideration to vesting schedules, based on historical exercise patterns, which we believe are representative of future behavior.

Our stock-based compensation cost for the years ended December 31, 2013 and 2012, was approximately $70,200 and $29,300, respectively, and has been included in income from operations.

The fair value of stock options granted during 2013 and 2012 (Note 9) was estimated using the following assumptions:

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Where Food Comes From, Inc.

Notes to the Consolidated Financial Statements

	Years ended December 31,
	2013	2012
Stock options granted	82,500 shares	100,000 shares
Expected life of options from date of grant	8 years	8 years
Risk free interest rate	0.71% - 1.52%	2.26%
Expected volatility	199% - 203%	212.5%
Assumed dividend yield	0%	0%

As of December 31, 2013, total unrecognized stock-based compensation cost related to non-vested awards granted under our option plans, and expected periods of recognition, are as follows:

Year ending
December 31,
2014	$	73,838
2015		58,482
2016		15,846
	$	148,166

Recently Issued Accounting Standards

In July 2013, the Financial Accounting Standards Board (“FASB”) issued guidance that codifies the classification of certain unrecognized tax benefits related to net operating loss carryforwards, similar tax losses and tax credit carryforwards. This guidance will be effective for our Company on January 1, 2014. The adoption of this guidance is not expected to have a material impact on our financial position, result of operations or cash flows.

In July 2012, the FASB issued guidance that simplifies how entities test indefinite lived intangible assets for impairment and permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. This guidance was effective for our Company on January 1, 2013. The adoption of this guidance did not have a material impact on our financial position, results of operations or cash flows.

We have considered all other recently issued accounting pronouncements and do not believe the adoption of such pronouncements will have a material impact on our consolidated financial statements.

Note 3 – Business Acquisitions

Validus Acquisition

On September 16, 2013, we entered into an Asset Purchase and Contribution Agreement (the “Purchase Agreement”), by and among the Company, Validus Verification Services LLC (the “Buyer” or “Validus”), and Praedium Ventures, LLC (the “Seller”).

Pursuant to the Purchase Agreement, WFCF caused Validus to be organized to purchase and acquire certain audit, assessment and verification business assets of the Seller. Such assets acquired included, but were not limited to, verification tools used in the acquired business, including the processes, procedures,

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Notes to the Consolidated Financial Statements

systems and documents, intellectual property, a database, contracts and licenses and accounts receivable. Validus acquired such assets in exchange for aggregate consideration of approximately $1.5 million, which included $565,000 in cash and 708,681 shares (the “Shares”) of common stock of WFCF valued at approximately $940,000, based upon the closing price of our common stock on September 16, 2013, of $1.32 per share. In connection with this transaction, the Seller was also issued a 40% interest in Validus, with the Company holding a 60% interest. The Company has the first right of refusal on the remaining 40% of the outstanding stock.

At any time following the thirty-month anniversary of the effective date of the Purchase Agreement, the Company shall have the option, but not the obligation, to purchase all the units (the 40% interest) of Validus held by Praedium, and Praedium shall have the option, but not the obligation, to require the Company to purchase all the units of Validus held by Praedium. The purchase price for the units shall be equal to the amount the selling holders of the units would be entitled to receive upon a liquidation of the Validus assuming all of the assets of Validus are sold for a purchase price equal to the product of eight and half times trailing twelve-month earnings before income taxes, depreciation and amortization, as defined.

Because Praedium, at its option, can require the Company to purchase its 40% interest in Validus, the Validus noncontrolling interest meets the definition of a contingently redeemable noncontrolling interest.

Redeemable noncontrolling interests are presented at the greater of their carrying amount or redemption value at the end of each reporting period and are shown as a separate caption between liabilities and equity (mezzanine section) in the accompanying balance sheet.

We believe that Validus is the leading dairy, pork and poultry certifiers in the United States and represents an opportunity to extend the range of our existing programs and establish our capabilities in other major food groups. As a result of this acquisition, we believe we are now positioned to offer our customers new solutions across the verification and certification spectrum. We also believe it provides diversification for our company, enables us to better serve our customers, and provides another avenue for our WFCF program.
 

The following table summarizes the provisional estimated fair values assigned to the assets and liabilities acquired in addition to the excess of the purchase price over the net assets acquired at the Validus acquisition date. Measurement period adjustments were completed in 2013 and reflect new information obtained about facts and circumstances that existed as of the Acquisition Date. Accordingly, the carrying amounts were retrospectively adjusted as of September 16, 2013. The impact of the retrospective adjustments was not material to the Company’s results of operations or cash flows for the period from the Acquisition Date through December 31, 2013.

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Notes to the Consolidated Financial Statements

	Sept 16, 2013						Sept 16, 2013
	(As reported)			Adjustments			(As adjusted)
Accounts receivable	$	150,000					$	150,000
Internally developed software		—			129,000			129,000
Excess attributable to intangible assets		2,350,765			(129,000	)		2,221,765
Total fair value		2,500,765						2,500,765
Fair value of non-controlling interest		(1,000,306	)					(1,000,306	)
Total consideration	$	1,500,459					$	1,500,459

The fair value of the non-controlling interest was based upon the gross consideration that would have been paid assuming 100% of the outstanding stock had been acquired. Excess attributable to intangible assets reflects the excess over the identifiable assets acquired to intangible assets based on the allocation of the purchase price. At December 31, 2013, the weighted average remaining lives of the identified intangible assets is 7.79 years. The fair value amounts of the components of intangible assets are as follows:

Customer relationships	$	935,000
Trademarks/trade names		465,000
Accreditations		75,000
Identifiable intangible assets		1,475,000
Goodwill		746,765
Total intangible assets	$	2,221,765

The following unaudited pro forma information presents the results of operations for the years ended December 31, 2013 and 2012, as if the acquisition of Validus had occurred on January 1, 2013 and 2012.

	Unaudited
	2013			2012
Total revenue	$	6,912,276		$	6,544,589
Net (loss) income	$	(20,685	)	$	461,606
Basic and diluted earnings (loss) per share	$	(0.00	)	$	0.02

Through December 31, 2013, we incurred a total of approximately $269,000 in advisory and legal fees related to the acquisition of Validus, of which, approximately $219,000 and $50,000 are reported in selling, general and administrative expenses in the accompanying consolidated statements of income (loss) for the years ended December 31, 2013 and 2012, respectively.

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Notes to the Consolidated Financial Statements

ICS Acquisition

On February 29, 2012, we entered into a Purchase and Exchange Agreement (the “Purchase Agreement”), by and among the Company and ICS, and other shareholders as individually named in the Agreement (collectively the “Sellers”).

Pursuant to the Purchase Agreement, on February 29, 2012 (the “Acquisition Date”), the Company acquired 60% of the issued and outstanding common stock of ICS in exchange for aggregate consideration of approximately $427,800, which included $350,000 in cash and 172,840 shares of common stock of the Company valued at approximately $77,800, based upon the closing price of our common stock on February 29, 2012, of $0.45 per share. The Purchase Agreement also includes non-dilution provisions, and we have right of first refusal on the remaining 40% of the outstanding stock. The transaction was accounted for using the acquisition method of accounting.

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Notes to the Consolidated Financial Statements

The following table summarizes the estimated provisional fair values of the assets acquired and liabilities assumed based on information that was available at the Acquisition Date. Measurement period adjustments were completed in 2012 and reflect new information obtained about facts and circumstances that existed as of the Acquisition Date. Accordingly, the carrying amounts were retrospectively adjusted as of February 29, 2012. The impact of the retrospective adjustments was not material to the Company’s results of operations or cash flows for the period from the Acquisition Date through December 31, 2012.

	Feb 29, 2012						Feb 29, 2012
	(As reported)			Adjustments			(As adjusted)
Cash	$	135,200					$	135,200
Accounts receivable		49,700						49,700
Prepaid expenses and other current assets		21,000						21,000
Deferred tax assets		21,400						21,400
Property and equipment		60,600						60,600
Other assets		400						400
Accounts payable		(20,500	)					(20,500	)
Accrued expenses		(12,500	)					(12,500	)
Customer deposits		(29,400	)					(29,400	)
Deferred revenue		(239,000	)					(239,000	)
Capital lease obligation		(6,500	)					(6,500	)
Deferred tax liability		—			(117,197	)		(117,197	)
Identifiable intangible assets:		355,000			(355,000	)		—
Customer lists		—			150,300			150,300
Beneficial lease arrangement		—			120,200			120,200
Tradename		—			46,300			46,300
Goodwill		377,600			155,397			532,997
Total fair value		713,000						713,000
Fair value of non-controlling interest		(285,200	)					(285,200	)
Total consideration	$	427,800					$	427,800

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Notes to the Consolidated Financial Statements

On the acquisition date, the fair value of the non-controlling interest was estimated to be $285,200. This amount was based upon the gross consideration that would have been paid assuming 100% of the outstanding stock had been acquired.

From the Acquisition Date through December 31, 2012, ICS revenues and net income were approximately $978,100 and $7,025, respectively. The following unaudited pro forma information presents the results of operations for the year ended December 31, 2012, as if the acquisition of ICS had occurred on January 1, 2012.

	Unaudited
	2012
Total revenue	$	5,433,900
Net income	$	847,800
Basic and diluted earnings per share	$	0.04

Included in the pro forma information for the year ended December 31, 2012, is approximately $50,500 in accounting, advisory and legal fees incurred related to the acquisition of ICS.

The Company’s right of refusal on the remaining 40% of the outstanding stock of ICS expires on February 28, 2014. On March 1, 2014, the Company exercised its call option to purchase the remaining 40% interest of the stock of ICS in exchange for cash consideration of approximately $196,000, pursuant to the Shareholders’ Agreement, dated February 29, 2012. The Company has 30 days after exercise of the call option to make the cash payment.

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Notes to the Consolidated Financial Statements

Note 4 - Property and Equipment

The major categories of property and equipment are as follows as of December 31:

	2013		2012
Automobiles	$	47,397	$	47,397
Furniture and office equipment		150,528		158,491
Software and tools		350,944		205,218
Website development and other enhancements		183,385		183,385
Building and leasehold improvements		48,747		48,747
Land		2,436		2,436
		783,437		645,674
Less accumulated depreciation		530,231		499,111
Property and equipment, net	$	253,206	$	146,563

Depreciation expense for the years ended December 31, 2013 and 2012 was approximately $57,000 and $58,300, respectively.

Note 5 – Intangible Assets

The following table summarizes our intangible assets as of December 31:

					Estimated
	2013		2012		useful life
Intangible assets subject to amortization:
Tradenames/ Trademarks	$	64,307	$	64,307	2.5  - 8.0 years
Accreditations		88,663		13,663	5.0 years
Customer relationships		1,085,300		150,300	8.0 - 15.0 years
Beneficial lease arrangement		120,200		120,200	11.0 years
		1,358,470		348,470
Less accumulated amortization		107,355		44,660
		1,251,115		303,810
Tradenames/ trademarks (not subject to amortization)		465,000		—	indefinite
	$	1,716,115	$	303,810

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Notes to the Consolidated Financial Statements

Amortization expense for the years ended December 31, 2013 and 2012 was approximately $62,700 and $35,900, respectively. Future scheduled amortization of intangible assets is as follows:

Fiscal year ending December 31:
2014	$	117,470
2015		116,519
2016		115,568
2017		113,747
2018		108,461
Thereafter		679,350
	$	1,251,115

Note 6 - Notes Payable
 

Notes payable consist of the following:

	December 31,
	2013		2012
Equipment Note Payable	$	30,729	$	37,407
Lapaesotes Note Payable - Related Party		—		200,000
Great Western Bank SBA Loan		159,808		176,572
		190,537		413,979
Less current portion of notes payable and other long-term debt		24,782		22,873
Notes payable and other long-term debt	$	165,755	$	391,106

Equipment Note Payable

In 2009, we issued a note payable in the amount of $35,963 for the purchase of a vehicle. Interest and principal payments were due in equal monthly installments of $870 over four years beginning March 17, 2009. This note bears an interest rate of 7.4% per annum and is collateralized by the vehicle. In December 2012, we paid the outstanding balance in full and traded in the vehicle towards the purchase of another vehicle. Additionally, we entered into a new note payable for $37,407 with interest and principal payments due in equal monthly installments of $715 over five years beginning January 2013. This note bears an interest rate of 5.5% per annum and is collateralized by the vehicle.

Lapaseotes Notes Payable – Related Party

In September 2007, we obtained $300,000 in unsecured debt financing. The notes were held by a major shareholder who is related to Mr. Lapaseotes, a member of our Board of Directors. Principal was due in full upon the maturity date; interest was payable quarterly. In April 2012, we paid an additional $50,000 towards the principal.

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Notes to the Consolidated Financial Statements

In September 2013, the Board and Mr. Lapaseotes agreed to settle the note and accrued interest with the issuance of the Company’s common stock, at a 6% premium of the outstanding balance based on the stock price of $1.22 on the date of the agreement. As a result, 175,972 shares of the Company’s common stock were issued in settlement of the debt. We recorded a $14,686 non-cash loss on extinguishment, presented within interest expense, related to the premium associated with the settlement of this debt.

Great Western Bank SBA Loan

On April 22, 2011, we entered into a U.S. Small Business Administration (“SBA”) Note with Great Western Bank. This note, which matures on May 1, 2021, provides for $200,000 in additional working capital. The interest rate is at prime plus 2.5% and is adjusted quarterly. Principal and interest are payable monthly. As of December 31, 2013, the effective interest rate is 5.750%. The note can be prepaid without penalties and contains certain customary affirmative and negative covenants.

The loan agreement is collateralized by the accounts receivable, property and equipment, and intangible assets of the Company. The note is further guaranteed by John and Leann Saunders, significant shareholders, officers and members of the Company’s Board of Directors, with a security interest in 3,000,000 shares of the Company’s common stock, which are personally owned by the Saunders.

ICS Revolving Line of Credit

ICS has a revolving line of credit (“LOC”) agreement which matures on April 4, 2014, and provides for $70,050 in working capital. The interest rate is at the bank index rate less 0.5% and is adjusted daily. Interest is calculated using a 360 day year. Principal and interest are payable upon demand, but if demand is not made, then annual payments of accrued interest only is due, with the principal balance due on maturity. As of December 31, 2013, the effective interest rate is 5.75%. The LOC is collateralized by all the business assets of ICS. As of the date of acquisition and through December 31, 2013, ICS had no amounts outstanding under this LOC.

Our obligations under our notes payable for the next five years and thereafter, as of December 31, 2013, are as follows:

Year ending December 31:
2014	$	24,782
2015		25,659
2016		27,741
2017		29,380
2018		23,045
Thereafter		59,930
	$	190,537

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Notes to the Consolidated Financial Statements

Note 7 - Income Taxes
 

The reconciliation of income taxes calculated at the statutory rates to our effective tax rate is as follows:

	December 31,
	2013			2012
Expected tax expense	$	(1,635	)	$	165,146
State tax provision, net		(144	)		14,572
Permanent differences		53,507			11,240
Stock-based compensation and other		(56,058	)		(131,683	)
Change in valuation allowance		—			(419,020	)
Other, net		2,552			(31,733	)
Total provision for taxes (deferred)	$	(1,778	)	$	(391,478	)

Deferred federal tax benefit for 2013 and 2012 was $1,678 and $389,737, respectively. Deferred state tax benefit for 2013 and 2012 was $100 and $1,741, respectively.

At December 31, 2013, we had a charitable contribution carry forward of approximately $15,500, which will expire between 2017 and 2018, and a business tax credit carry forward of $30,400, which will expire between 2030 and 2032.

The income tax effects of temporary differences that give rise to significant portions of deferred tax assets as of December 31, 2013 and 2012 are as follows:

	December 31,
	2013			2012
Deferred tax assets, current:
Net operating loss carryforwards	$	130,820		$	232,170
Accruals, stock based compensation and other		41,360			9,183
Other		18,004			1,591
Deferred tax assets, current		190,184			242,944
Deferred tax assets (liabilities), non-current:
Net operating loss carryforwards		566,456			371,097
Intangible assets related to acquisition of ICS & Validus		(92,156	)		(106,270	)
Property and equipment		(39,923	)		(28,971	)
Charitable contributions		15,517			19,972
Business tax credits		30,400			21,349
Deferred tax assets (liabilities), non-current		480,294			277,177
Net deferred tax assets	$	670,478		$	520,121

As of December 31, 2013, our net operating loss carryforwards for U.S. federal income tax purposes were approximately $1.9 million, and are subject to the following expiration schedule:

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Notes to the Consolidated Financial Statements

Net operating loss incurred:	Amount		Expiration dates:
December 31, 2006	$	1,334,284	December 31, 2026
December 31, 2007		365,518	December 31, 2027
December 31, 2013		157,500	December 31, 2033
Total tax carryforwards	$	1,857,802

Our unused net operating loss carryforwards may be applied against future taxable income.

Note 8 – Stock Buyback Plan

On January 7, 2008, we announced our intention to buy back up to one million shares of our common stock from the open market at the quoted market price on the date of repurchase. Repurchased shares under the Stock Buyback Plan by year are as follows:

	Number of Shares		Cost of Shares		Average Cost per Share
As of December 31, 2011		498,247	$	109,014	$	0.22
For the year ended December 31, 2012		15,000		12,280	$	0.82
For the year ended December 31, 2013		33,450		29,555	$	0.88
Total		546,697	$	150,849	$	0.28

The repurchased shares are recorded as part of treasury stock and are accounted for under the cost method.

Our stock buyback plan has been and will be used to return capital to shareholders and to minimize the dilutive impact of stock options and other share-based awards. In the future, we may consider additional share repurchases under our plan based on several factors, including our cash position, share price, operational liquidity, and planned investment and financing needs.

Note 9 - Stock Option and Warrant Plans

2006 Equity Incentive Plan

The 2006 Equity Incentive Plan (the “Plan”) provides for the issuance of stock-based awards to employees, officers, directors and consultants. The Plan permits the granting of stock awards and stock options. The vesting of stock-based awards is generally subject to meeting certain performance based objectives, the passage of time or a combination of both, and continued employment through the vesting period. The Plan provides for the issuance of a maximum of 3,000,000 shares of our common stock, of which 389,000 shares were still available for issuance as of December 31, 2013.

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Notes to the Consolidated Financial Statements

Stock Option Activity

During the years ended December 31, 2013 and 2012, the Company issued stock options as follows:

	2013	2012
Stock options granted	82,500 shares	100,000 shares
Expected life of options from date of grant	8 years	8 years
Risk free interest rate	.71% - 1.52%	2.26%
Expected volatility	199% - 202%	212.5%
Assumed dividend yield	0%	0%

Stock option activity during 2013 and 2012 is summarized as follows:

								Weighted Avg.
				Weighted Avg.		Weighted Avg.		Remaining
	Number of			Exercise Price		Fair Value		Contractual Life		Aggregate
	Options			per Share		per Share		(in years)		Intrinsic Value
Outstanding, January 1, 2012		1,321,000		$	0.25	$	0.07		2.83	$	98,295
Granted		100,000		$	1.15	$	1.15		9.72
Exercised		(615,200	)	$	0.24	$	0.04		0.48
Expired		—		$	—	$	—		—
Outstanding, December 31, 2012		805,800		$	0.25	$	0.24		3.85	$	561,723
Granted		82,500		$	1.16	$	1.21		9.56
Exercised		(454,966	)	$	0.23	$	0.05		0.11
Expired		(15,000	)	$	0.54	$	0.54		7.74
Outstanding, December 31, 2013		418,334		$	0.66	$	0.24		7.49	$	313,677
Exercisable, December 31, 2013		202,477		$	0.45	$	0.35		6.36	$	560,443
Unvested, December 31, 2013		215,857				$	0.88		8.56

The aggregate intrinsic value of stock options represents the total pre-tax intrinsic value (the aggregate difference between the closing stock price of our common stock on December 31, 2013 and the exercise price for in-the-money options) that would have been received by the option holders if all in-the-money options had been exercised on December 31, 2013.

The following table summarizes information concerning outstanding and exercisable options as of December 31, 2013:

53

Where Food Comes From, Inc.

Notes to the Consolidated Financial Statements

	Options Outstanding						Options Exercisable
			Average
			Remaining		Weighted Avg.				Weighted Avg.
	Number		Contractual Life		Exercise Price		Number		Exercise Price
	Outstanding		(in years)		per Share		Outstanding		per Share
Range of exercise prices per share:
$0.00 - $0.20		—		—	$	—		—	$	—
$0.21 - $0.30		203,334		7.25	$	0.24		133,320	$	0.24
$0.31 - $0.50		—		—	$	—		—	$	—
$0.51 - $0.80		37,500		1.17	$	0.61		37,500	$	0.61
$0.81 - $2.00		177,500		9.10	$	1.15		31,657	$	1.15
Total		418,334		7.49	$	0.66		202,477	$	0.45

Note 10 - Basic and Diluted Net Income (Loss) per Share

Basic income (loss) per share was computed by dividing income available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted income per share is based on the assumption that all dilutive convertible shares and stock options were converted or exercised. Dilution is computed by applying the treasury stock method. Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period.

The following is a reconciliation of the share data used in the basic and diluted income per share computations:

	Year ended December 31,
	2013		2012
Basic:
Weighted average number of shares outstanding		21,893,794		20,943,966
Diluted:
Weighted average number of shares outstanding		21,893,794		20,943,966
Weighted average effects of dilutive securities		—		734,892
Total		21,893,794		21,678,858
Antidilutive securities		418,334		100,000

Note 11 - Related Party Transactions
 

In 2013 and 2012, we recorded total net revenue of approximately $11,100 and $12,500, respectively, from related parties. The related parties included a business owned by the father of Leann Saunders, our President, and a business owned by Pete Lapaseotes, a member of our Board of Directors.

54

Where Food Comes From, Inc.

Notes to the Consolidated Financial Statements

Note 12 – Commitments and Contingencies
 

Operating Leases

In June 2012, we amended the building lease for our headquarters in Castle Rock, Colorado. The lease is for a period of three years with an expiration date of June 15, 2015. In addition to the primary rent, the lease requires additional payments for operating costs and other common area maintenance costs.

In September 2013, as part of the Validus acquisition, Validus entered into a lease agreement for its office space with Praedium in which Validus is leasing office space. The lease is for a period of three years, expiring October 31, 2016, and requires rental payments of approximately $2,600 per month. There is no renewal feature. In addition to primary rent, the lease requires additional payments for operating costs and other common area maintenance costs.

We also own approximately ¾ acre on which a 2,300 square foot building leased by our ICS office is located in Medina, North Dakota. The North Dakota office is leased for a period of 5 years with an expiration date of March 1, 2018. One additional option to renew for a 5-year term exists and is deemed to automatically renew unless written notice is provided 60 days before the end of the term. This location pays a minimum monthly rental rate of approximately $150 plus all utilities, taxes and other expenses based on actual expenses to maintain the building.

Rent expense for the years ended December 31, 2013 and 2012, was approximately $91,500 and $103,500, respectively.

Future minimum lease payments for our headquarters are as follows:

2014	$	105,192
2015		63,071
2016		27,598
2017		1,818
2018		303
Total lease commitments	$	197,982

Sub-lease Agreement

ICS sub-leases approximately 300 square feet of space located within its corporate office to a third party on a month-to-month basis. Monthly rent of $302 includes utilities and other common area maintenance. The sub-lease agreement provides for 30 days’ notice to terminate the agreement.

Capital Leases
 

During the first quarter ended March 31, 2012, we entered into a capital lease for certain office equipment with a base rent of $405 per month. This 63-month lease expires April 2017. Approximately $22,300 in asset cost has been included in property and equipment and is being amortized over 63 months. Imputed interest of 5.25% was used in determining the minimum lease payments.

ICS leased certain office equipment under a capital lease with a base rent of $521 per month. The lease expired in April 2013. Included in property and equipment is $7,100 in asset cost. Imputed interest of 6.25% was used in determining the minimum lease payments.

55

Where Food Comes From, Inc.

Notes to the Consolidated Financial Statements

As of December 31, 2013, future minimum lease payments for capital leases are as follows:

Years Ending December 31,	Amount
2014	$	4,860
2015		4,860
2016		4,860
2017		1,797
Future minimum lease payments		16,377
Less amount representing interest		(1,396	)
Present value of net minimum lease payments		14,981
Less current portion		(4,173	)
Capital lease obligations	$	10,808

56

Where Food Comes From, Inc.

Notes to the Consolidated Financial Statements

Employment Agreements

In January 2006, we entered into employment agreements with John Saunders, our Chief Executive Officer, and with Leann Saunders, our President. The agreements automatically renew annually unless a 60-day notice of non-renewal is provided by either the Company or the employee.

Effective January 1, 2012, ICS entered into an employment agreement with Christina Dockter as its Chief Executive Officer, for a period of 2 years. The agreement automatically renews annually unless a 60-day notice of non-renewal is provided by either the Company or the employee.

Effective September 16, 2013, Validus entered into an agreement with Earl Dotson, as its Chief Executive Officer, for a period of 30 months, expiring March 16, 2016. The agreement is automatically renewed at expiration for a one-year term unless a 90-day notice of non-renewal is provided by either the Company or the employee.

Legal proceedings

From time to time, we may become involved in various legal actions, administrative proceedings and claims in the ordinary course of business. We generally record losses for claims in excess of the limits of purchased insurance in earnings at the time and to the extent they are probable and estimable.

ICS was involved in a claim that is pending in the District Court of Lancaster County, Nebraska. The plaintiff in this claim alleged that ICS conspired with another party (collectively, the “Defendants”) to deny the plaintiff organic certification. The plaintiff was seeking damages (an amount up to approximately $7.5 million) from the alleged difference in value of his crops if they had been certified organic versus the value of the crops as conventional grains. In October 2013, a summary judgment was reached in favor of the Defendants and the court awarded ICS fees to cover a portion of attorney and other costs incurred to defend this case. The plaintiff had until October 30, 2013, to file an appeal with the court; however, no appeal was filed and the judgment was executed.

Employee Benefit Plan

On February 13, 2006, we established a 401(K) plan for the benefit of our employees. The Plan covers substantially all of our employees who have attained age 21. We may make a discretionary matching contribution in an amount that is determined by our Board of Directors. If a matching contribution is made, the amount cannot exceed the elective deferral contributions. For the years ended December 31, 2013 and 2012, we made matching contributions of approximately $17,800 and $19,000, respectively.

57

Where Food Comes From, Inc.

Notes to the Consolidated Financial Statements

Redeemable Noncontrolling Interest

Redeemable noncontrolling interest on our consolidated balance sheet represents the noncontrolling interest related to the Validus acquisition (see Note 3), in which Praedium, at its election, can require the Company to purchase its 40% investment in Valdius. Below reflects the activity of the redeemable noncontrolling interest as of and for the period September 16 – December 31, 2013.

Balance at acquistion date, September 16, 2013	$	1,000,306
Net income attributable to noncontrolling interest for the period September 16 - December 31, 2013		18,090
Balance, December 31, 2013	$	1,018,396

Note 13 – Supplemental Cash Flow Information

	Year to date ended December 31,
	2013		2012
Cash paid during the year:
Interest on Lapaseotes Notes - related party	$	5,918	$	10,333
Other interest	$	11,533	$	8,280
Income taxes	$	—	$	10,120
Non-cash investing and financing activities:
Unrealized gain on marketable securities	$	—	$	6,943
Assets acquired under capital lease obligations	$	—	$	22,258
Common stock issued in connection with ICS acquisition	$	—	$	77,778
Common stock issued in connection with Validus acquisition	$	1,010,459	$	—
Common stock issued in connection with Lapeseotes debt settlement	$	214,686	$	—

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ITEM 9.                CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None

ITEM 9A.             CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of the Company’s “disclosure controls and procedures” (as defined in the Securities Exchange Act of 1934 (Exchange Act) Rules 13a-15(e) or 15d-15(e)) as of the end of the period covered by this annual report, have concluded that our disclosure controls and procedures are effective based on their evaluation of these controls and procedures as required by paragraph (b) of Exchange Act Rules 13a-15 or 15d-15.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over our financial reporting. Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of our financial reporting for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes policies and procedures that: (i) pertain to maintaining records that in reasonable detail accurately and fairly reflect our transactions; (ii) provide reasonable assurance that transactions are recorded as necessary for preparation of our financial statements and that receipts and expenditures of company assets are made in accordance with management authorization; and (iii) provide reasonable assurance that unauthorized acquisition, use or disposition of company assets that could have a material effect on our financial statements would be prevented or detected on a timely basis. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our financial statements would be prevented or detected.

Our management evaluated the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based upon that evaluation, management concluded that the company’s internal control over financial reporting was effective as of December 31, 2013.

Attestation Report of the Registered Public Accounting Firm

This annual report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the company to provide only management’s report in this annual report.

Internal Control over Financial Reporting

There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

ITEM 9B.             OTHER INFORMATION

None

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PART III

ITEM 10.              DIRECTORS, EXECUTIVE OFFICERS, CONTROL PERSONS AND CORPORATE GOVERNANCE; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

Directors and Officers

Our directors are elected by the stockholders to a term of one (1) year and serve until his successor is elected and qualified. Our key executive officers are appointed by the Board of Directors to a term of one (1) year and serve until his successor is duly elected and qualified, or until he is removed from office.

The names and ages of our directors and executive officers and their positions are as follows:

Name	Age	Position Held
John Saunders	42	CEO and Chairman of the Board
Leann Saunders	43	President and Director
Dannette Henning	44	Chief Financial Officer
Tom Heinen	58	Director
Pete Lapasotes	55	Director
Adam Larson	44	Director
Dr. Gary Smith	75	Director
Robert VanSchoick	63	Director

John Saunders founded our company in 1998 and has been the chief executive officer since founding. Previously, Mr. Saunders was a partner and consultant for Pathfinder Consulting Services, Inc. in Parker, Colorado. An expert in both technology and the livestock industry, Mr. Saunders is a graduate of Yale University.

Leann Saunders joined IMI in 2003 and is our President. Mrs. Saunders is responsible for overseeing key customer relationships along with management of product development and delivery of USVerified solutions. Prior to 2003, Mrs. Saunders worked for PM Beef Holdings, an integrated beef company, and developed a supply system for PM’s Ranch to Retail product line and managed PM’s USDA Process Verified program. She then served as the company’s Vice President of Marketing and Communications. Prior to joining PM in 1996, Mrs. Saunders worked for McDonald’s Corporation as a Purchasing Specialist, and Hudson Foods Corporation. Mrs. Saunders graduated with a BS in Agriculture Business and an MS in Beef Industry Leadership from Colorado State University.

Dannette Henning was engaged as a consultant beginning in November 2007 and accepted responsibilities as the Chief Financial Officer in early 2008. From 2004 to 2007, Ms. Henning was the Controller for Einstein Noah Restaurant Group. From 2001 to 2003, she served as the Controller for Vari-L Company. Mrs. Henning’s previous experience includes financial management positions with KPMG Peat Marwick, DF&R Restaurant Company, and CSI/CDC Company. Mrs. Henning is a CPA with more than 20 years of professional experience. She received a BBA degree in Accounting from the University of Texas at Arlington.

Tom Heinen has served as a director since mid- 2006. He is a co-president of Heinen’s Fine Food Stores (Heinen’s). Heinen’s specializes in offering the freshest, highest quality foods while providing world-class service in seventeen neighborhood locations serving various communities throughout Northeast Ohio. Since 1994, Mr. Heinen has managed the labor relations, central manufacturing, and the overall strategic direction for the meat, foodservice and bakery areas of Heinen’s. Mr. Heinen graduated from Bucknell University in 1977 with a B.S.B.A. in Business Management. He also serves as a board member of The Boys and Girls Club of Cleveland.

Pete Lapaseotes has served as a director since Setpember 2012. He co-manages the Lapaseotes family farm and feeding operations in Bridgeport, Nebraska. The business includes a cow calf operation, a grass cattle operation and a finish feed yard. Mr. Lapaseotes is also a partner in five John Deere dealerships and 11 The Mercantile Farm, Ranch & Home retail stores. He is a member of the board of directors of Valley Bank and Trust.

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Adam Larson has served as a director since mid- 2006. He has been involved in the cattle feeding and ranching business since 1991. During that period, he has been a member and manager of eight family organizations involved in cattle ranching and cattle feeding and is primarily involved in cattle financing. Mr. Larson is a graduate of the University of Colorado.

Dr. Gary Smith has served as a director since mid- 2006. He serves as a University Distinguished Professor Emeritus at Colorado State University-Fort Collins and on the Graduate Faculty of Texas A&M University-College Station. In 2011, Dr. Smith retired from his position as a professor in the Department of Animal Science at Colorado State University, a position he held since 1990. Dr. Smith received his PhD in Meat Science and Muscle Biology from Texas A&M University. Dr. Smith has also taught at Washington State University, Texas A&M University and FSIS-USDA National Meat Inspection Training Center. Dr. Smith is a member of multiple professional associations and societies and has received numerous academic awards.

Robert Van Schoick II has served as a director since mid- 2006. He is president of Med-Pharmex Animal Health. His previous experience includes 28 years in sales and marketing with pharmaceutical giant Merck & Co., where he served for nine years with Merial, Merck’s world leading animal health joint venture. He holds BA and MA degrees from Austin College and a BS in Animal Science from Texas A&M.

Family Relationships

John Saunders and Leann Saunders are husband and wife.

Board Structure

The board of directors held one formal meeting and one telephonic meeting during calendar year 2013. We currently have no nominating, executive, compensation committee or other board committee performing equivalent functions. Currently, all members of our board of directors participate in discussions concerning executive officer compensation; however, Mr. and Mrs. Saunders abstain from voting concerning their compensation. Messrs. Lapaseotes, Larson, Smith and Van Schoick function as the Audit Committee and Mr. Larsonacts as a financial expert.

Code of Conduct

Our board of directors has adopted a code of conduct, which is posted on our website at http://imiglobal.com. Our Code of Conduct applies to all employees, including our Chief Executive Officer, Chief Financial Officer and Controller. The Code of Conduct sets forth specific policies to guide the designated officers in their duties. We intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding any amendment to, or waiver from, a provision of this Code of Ethics by posting such information on our website, at the address and location specified above.

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ITEM 11.              EXECUTIVE COMPENSATION

Summary Compensation Table

The following table sets forth, for the last two completed fiscal years ended December 31, 2013 and 2012, the cash compensation paid by the Company, as well as certain other compensation paid with respect to those years and months, to the Chief Executive Officer and to each of the two other executive officers of the Company in all capacities in which they served:

	Annual Compensation
Name and Position	Year	Salary ($)	Bonus ($)	Other ($)(1)	Total
John Saunders	2013	131,364	—	6,150	137,514
CEO	2012	150,000	1,500	—	151,500
Leann Saunders	2013	140,250	—	6,150	146,400
President	2012	132,788	1,500	—	134,288
Dannette Henning	2013	54,442	500	16,500	71,442
Chief Financial Officer	2012	53,058	1,500	5,750	60,308

(1) Amounts in this column represent the aggregate grant date fair value of stock options in the reported year, determined in accordance with ASC Topic 718. For a discussion of the assumptions used in calculating grant date fair value, see Note 9 to our audited financial statements.

Employment Contracts

In January 2006, we entered into employment agreements with John Saunders, our Chief Executive Officer, and with Leann Saunders, our President. The agreements automatically renew annually unless a 60-day notice of non-renewal is provided by either the Company or the employee.

Effective January 1, 2012, ICS entered into an employment agreement with Christina Dockter as its Chief Executive Officer, for a period of 2 years. The agreement automatically renews annually unless a 60-day notice of non-renewal is provided by either the Company or the employee.

Effective September 16, 2013, Validus entered into an agreement with Earl Dotson, as its Chief Executive Officer, for a period of 30 months, expiring March 16, 2016. The agreement is automatically renewed at expiration for a one-year term unless a 90-day notice of non-renewal is provided by either the Company or the employee.

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Outstanding Options Awards at Fiscal Year – End

The following table sets forth the total number of securities underlying unexercised options held by our named executive officers as of December 31, 2013:

								Value of Outstanding in-the-
	Number of Outstanding Options							Money Options*
			Unexercisable				Expiration			Unexercisable
Name Executive Officer		Exercisable (#)	(#)		Exercise Price		Date	Exercisable ($)		($)
John Saunders		6,666		3,334	$	0.24	4/1/2021	$	19,665	$	9,835
		—		5,000	$	1.23	9/9/2023	$	—	$	14,750
Leann Saunders		6,666		3,334	$	0.24	4/1/2021	$	19,665	$	9,835
		—		5,000	$	1.23	9/9/2023	$	—	$	14,750
Dannette Henning		6,666		3,334	$	0.24	4/1/2021	$	19,665	$	9,835
		1,666		3,334	$	1.15	9/18/2022	$	4,915	$	9,835
		—		15,000	$	1.10	5/30/2023	$	—	$	44,250
		—		3,000	$	1.85	1/15/2024	$	—	$	8,850

* Based on the closing stock price of our common stock on February 17, 2014 of $2.95 per share.

Option Exercises in the Last Fiscal Year

	Option Awards
	Number of Shares
	acquired upon Exercise		Value Realized on
Name Executive Officer		(#)	Exercise ($)
Dannette Henning		50,000		56,500

Director Compensation

We presently compensate all directors by paying them $500 per meeting attending in person and $200 per telephonic meeting in excess of fifteen minutes. The same compensation applies for any committee meetings attended. In addition, directors are reimbursed for all company travel related expenses. Equity awards of options to purchase 5,000 shares of our common stock at $1.15 per share were granted to members of our board of directors during the year ended December 31, 2012. Equity awards of options to purchase 5,000 shares of our common stock at $1.23 per share were granted to members of our board of directors during the year ended December 31, 2013.

63

	Fees
	Earned or		Option
	Paid in		Awards
Name and Position	Cash		($)(1)		Total
Tom Heinen		1,000		6,150		7,150
Pete Lapasotes		1,000		6,150		7,150
Adam Larson		1,000		6,150		7,150
Dr. Gary Smith		1,000		6,150		7,150
Robert VanSchoick		1,000		6,150		7,150

(1) Amounts in this column represent the aggregate grant date fair value of stock options granted in the reported year, determined in accordance with ASC Topic 718. For a discussion of the assumptions used in calculating grant date fair value, see Note 9 to our audited financial statements

ITEM 12.              SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERS MATTERS

The following table sets forth as of February 18, 2014 the record and beneficial ownership of Common Stock held by (i) each person who is known to the Company to be the beneficial owner of more than 5% of the Common Stock of the Company; (ii) each current director; (iii) each “named executive officer” (as defined in Regulation S-B, Item 402 under the Securities Act of 1933); and (iv) all executive officers and directors of the Company as a group. Securities reported as “beneficially owned” include those for which the named persons may exercise voting power or investment power, alone or with others. Voting power and investment power are not shared with others unless so stated. The number and percent of shares of Common Stock of the Company beneficially owned by each such person as of February 18, 2013 includes the number of shares, which such person has the right to acquire within sixty (60) days after such date.

Name and Address	Number of Shares		Percentage Ownership
Michael D. Smith	2,562,896	(1)	11.1%
3310 I-40 West, Suite 100, Amarillo, TX 79102
Yorkmont Capital Partners, LP and its affliates	1,230,569	(7)	5.3%
2313 Lake Austin Blvd, Suite 202, Austin, TX 78703
John and Leann Saunders	7,454,643	(2), (3), (4)	32.2%
Tom Heinen	103,333	(2), (5)	*
Pete Lapaseotes	773,348	(2), (6)	3.3%
Adam Larson	206,666	(2), (6)	*
Dr. Gary Smith	71,666	(2), (6)	*
Robert VanSchoick	21,666	(2), (6)	*
Dannette Henning	61,666	(2), (6)	*
All officers and directors as a group (7 persons)	8,692,988		37.6%
* Less than 1% beneficial ownership

(1) This table is based upon information obtained from our stock records. Unless otherwise indicated in the footnotes to the above table and subject to community property laws where applicable, we believe that each stockholder named in the above table has sole or shared voting and investment power with respect to the shares indicated as beneficially owned

64

(2) The address for all persons is 221 Wilcox, Suite A, Castle Rock, CO 80104

(3) John and Leann Saunders are husband and wife and own the shares as joint tenants.

(4) Includes options to purchase 20,000 shares of common stock which are currently exercisable.

(5) Includes options to purchase 3,333 shares of common stock which are currently exercisable.

(6) Includes options to purchase 11,666 shares of common stock which are currently exercisable.

(7) Based on Statement 13G filed with the SEC on February 7, 2014. The Statement was filed jointly by Yorkmont Capital Partners, LP; Yorkmont Capital Management, LLC, which is the general partner of Yorkmont Capital Partners, LP.

Change of Control

There are currently no arrangements that would result in a change of control of the company.

Equity Compensation Plan Information

The following table sets forth securities authorized for issuance under our equity compensation plans as of December 31, 2013:

Plan Category	No. of securities to be issued upon exercise of outstanding options and warrants		Weighted average exercise price of outstanding options and warrants	No. of securities remaining available for future issuance under equity compensation plans
Equity compensation plans approved by security holders:
2006 Equity Incentive Plan	418,334	$	0.66	389,000
Equity compensation plans not approved by security holders:	—			—
Total	418,334			389,000

ITEM 13.              CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

John Saunders, our CEO and Chairman of the Board, is married to Leann Saunders, our President. Both Mr. and Mrs. Saunders serve on our Board of Directors.

In 2013 and 2012, we recorded revenue of approximately $11,100 and $12,500, respectively, from related parties. The related parties included a business owned by the father of Leann Saunders, our President, and a business owned by Pete Lapaseotes, a member of our Board of Directors.

In September 2007, we obtained $300,000 in unsecured debt financing. In April 2009, an additional $50,000 was obtained under the same financing terms. The notes were held by a major shareholder who is related to Mr. Lapaseotes, a member of our Board of Directors. The debt was settled during 2013. See Note 8 to the consolidated financial statements for discussion on terms of settlement.

Messrs. Heinen, Larson, Smith and Van Schoick are considered independent directors. Mr. Lapaseotes, Mr. Saunders and Mrs. Saunders are not independent. Messrs. Lapaseotes, Larson, Smith and Van Schoick function as the Audit Committee and Mr. Larsonacts as a financial expert.

65

ITEM 14.              PRINCIPAL ACCOUNTANTS FEES AND SERVICES

The following table presents fees for professional audit services rendered by GHP Horwath, P.C. for the audits of the Company’s annual financial statements for the years ended December 31, 2013 and 2012.

	2013		2012
Audit fees (1)	$	54,000	$	48,000
Audit related fees (2)		7,500		—
Tax fees		—		—
	$	61,500	$	48,000

(1) Includes fees and expenses related to the fiscal year audit and interim reviews, notwithstanding when the fees and expenses were billed or when the services were rendered. Audit fees also include fees and expenses related to SEC filings.

(2) Represents audit fees incurred specific to the acquisition of Validus.

66

ITEM 15.              EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

Exhibit Number		Document Name
	2.1	Asset Purchase and Contribution Agreement, dated as of September 16, 2013 by and among Praedium Ventures, LLC; the Members of Praedium Ventures LLC; Where Food Comes From, Inc. and Validus Verification Services, LLC	Incorpoarted by reference to Exhibit 2.1 of the Registrant's current report on Form 8-K filed September 19, 2013
	3.1	Articles of Incorporation	Incorporated by reference to Exhibit 3.1 of the Registrant’s Registration Statement on Form SB-2 filed April 28, 2006.
	3.2	Articles of Amendment	Incorporated by reference to Exhibit 3.1 of the Registrant's Current Report on Form 8-K filed December 15, 2012.
	3.3	By-laws of the Registrant	Incorporated by reference to Exhibit 3.2 of the Registrant’s Registration Statement on Form SB-2 filed April 28, 2006.
	4.1	Form of the Registrant's Common Stock Certificate	Incorporated by reference to Exhibit 4.1 of the Registrant’s Registration Statement on Form SB-2/A filed June 22, 2006.
	4.2	2005 Stock Option Plan	Inco+E16rporated by reference to Exhibit 4.2 of the Registrant’s Registration Statement on Form SB-2 filed April 28, 2006.
	4.3	2006 Equity Incentive Plan	Incorporated by reference to Exhibit 4.3 of the  Registrant’s Registration Statement on Form SB-2 filed April 28, 2006.
	10.1	Lease dated July 15, 2005 for offices in Platte City, Missouri	Incorporated by reference to Exhibit 10.1 of the Registrant’s Registration Statement on Form SB-2 filed April 28, 2006.
	10.2	Employment Agreement dated January 1, 2006 between the Registrant  and John K. Saunders	Incorporated by reference to Exhibit 10.0 of the Registrant’s Registration Statement on Form SB-2 filed April 28, 2006.
	10.3	Employment Agreement dated January 1, 2006 between the Registrant and Leann Saunders	Incorporated by reference to Exhibit 10.3 of the Registrant’s Registration Statement on Form SB-2 filed April 28, 2006.
	10.4	Lease agreement effective April 15, 2006 for offices in Castle Rock, Colorado	Incorporated by reference to Exhibit 10.11 of the Registrant's Registration Statement on Form SB-2/A filed August 3, 2006.
	10.5	Purchase and Exchange Agreement, dated as of February 29, 2012, by and among Integrated Management Information, Inc. and International Certification Services, Inc.	Incorporated by reference to Exhibit 2.1 of the  Registrant’s Current Report on Form 8-K filed March 2, 2012
	10.6	Shareholders’ Agreement, dated as of February 29, 2012, by and among Integrated Management Information, Inc. and International Certification Services, Inc. and the selling shareholders.	Incorporated by reference to Exhibit 2.2 of the  Registrant’s Current Report on Form 8-K filed March 2, 2012
	10.7	Amended and Restated Operating Agreement of Validus Verification Services LLC, dated as of September 16, 2013	Incorporated by reference to Exhibit 2.2 of the Registrant’s current report on Form 8-K filed September 19, 2013
	10.8	Employment Agreement, effective September 16, 2013, by and between Validus Verification Services LLC and Earl Dotson	Incorporated by reference to Exhibit 2.3 of the Registrant’s current report on Form 8-K filed September 19, 2013
	31.1	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith
	31.2	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith
	32.1	Certification Pursuant to 18 U.S.C. Section 1350 as adopted by Section 906 of the Sarbanes-Oxley Act of 2002	Filed herewith
	32.2	Certification Pursuant to 18 U.S.C. Section 1350 as adopted by Section 906 of the Sarbanes-Oxley Act of 2002	Filed herewith

67

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: March 4, 2014	Where Food Comes From, Inc.
		By:	/s/ John K. Saunders
			Chief Executive Officer

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signatures	Title	Date
/s/ John K. Saunders­	Chairman and CEO	March 4, 2014
John K. Saunders	(Principal executive officer)
/s/ Leann Saunders	President and Director	March 4, 2014
Leann Saunders
/s/ Dannette Henning	Chief Financial Officer	March 4, 2014
Dannette Henning	(Principal financial and accounting officer)
/s/ Tom Heinen	Director	March 4, 2014
Tom Heinen
/s/ Pete Lapaseotes	Director	March 4, 2014
Pete Lapaseotes
/s/ Adam Larson	Director	March 4, 2014
Adam Larson
/s/ Dr. Gary Smith	Director	March 4, 2014
Dr. Gary Smith
/s/ Robert VanSchoick	Director	March 4, 2014
Robert VanSchoick

68

EX-31.1

 Where Food Comes From, Inc. 10-K

EXHIBIT 31.1

 I, John Saunders, certify that:

1. I have reviewed this annual report on Form 10-K of Where Food Comes From, Inc.

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 4, 2014 

/s/ John Saunders

John Saunders, Chief Executive Officer

69

EX-31.2

Where Food Comes From, Inc. 10-K

EXHIBIT 31.2

I, Dannette Henning, certify that:

1. I have reviewed this annual report on Form 10-K of Where Food Comes From, Inc.

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 4, 2014 

/s/ Dannette Henning

Dannette Henning, Chief Financial Officer

70

EX-32.1

Where Food Comes From, Inc. 10-K

EXHIBIT 32.1

Certification of Periodic Financial Report

Pursuant to 18 U.S.C. Section 1350

For purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned, John Saunders the Chief Executive Officer of Where Food Comes From, Inc. (the “Company”), hereby certifies that, to his knowledge:

(i) the Annual Report on Form 10-K of the Company for the years ended December 31, 2013 and 2012, as filed with the Securities and Exchange Commission on the date hereof (the “Report”) fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and  

(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: March 4, 2014 

/s/ John Saunders

John Saunders, Chief Executive Officer

71

EX-32.2

Where Food Comes From, Inc. 10-K

EXHIBIT 32.2

Certification of Periodic Financial Report

Pursuant to 18 U.S.C. Section 1350

For purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned, Dannette Henning, the Chief Financial Officer of Where Food Comes From, Inc. (the “Company”), hereby certifies that, to his knowledge:

(i) the Annual Report on Form 10-K of the Company for the years ended December 31, 2013 and 2012, as filed with the Securities and Exchange Commission on the date hereof (the “Report”) fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and  

(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: March 4, 2014 

/s/ Dannette Henning

Dannette Henning, Chief Financial Officer

72

XML

Business Acquisitions (Details 1) (USD $)	Dec. 31, 2013	Dec. 31, 2012	Sep. 16, 2013 Validus Acquisition	Sep. 16, 2013 Validus Acquisition As Adjusted	Sep. 16, 2013 Validus Acquisition Customer Relationships	Sep. 16, 2013 Validus Acquisition Trademarks and Trade Names	Sep. 16, 2013 Validus Acquisition Accreditations
Intangible Assets Acquired:
Identifiable Intangible Assets				$ 1,475,000	$ 935,000	$ 465,000	$ 75,000
Goodwill	1,279,762	532,997		746,765
Excess attributable to intangible assets			$ 2,350,765	$ 2,221,765

XML

Income Taxes (Details 2) (USD $)	12 Months Ended
	Dec. 31, 2007	Dec. 31, 2006	Dec. 31, 2013
Operating loss carry forward expiration schedule
Operating loss carryforwards amount			$ 1,857,302
U.S. Federal income tax
Operating loss carry forward expiration schedule
Operating loss carryforwards amount	$ 365,518	$ 1,334,284	$ 157,500
Expiration dates	Dec. 31, 2027	Dec. 31, 2026

XML

Notes Payable (Details Narrative) (USD $)	12 Months Ended				12 Months Ended
	Dec. 31, 2013 ICS Revolving Line of Credit	Dec. 31, 2013 Unsecured Debt Lapaseotes Notes Payable - Related Party	Dec. 31, 2012 Unsecured Debt Lapaseotes Notes Payable - Related Party	Sep. 30, 2007 Unsecured Debt Lapaseotes Notes Payable - Related Party	Dec. 31, 2013 Great Western Bank SBA Loan	Dec. 31, 2009 Note Payable - Vehicle 1	Dec. 31, 2013 Note Payable - Vehicle 2
Debt instrument, face amount		$ 300,000			$ 200,000	$ 35,963	$ 37,407
Interest and principal payments						870	715
Interest rate		6.00%				7.40%	5.50%
Repayment of principal			50,000
Share price				$ 1.22
Shares issued in exchange for debt, shares		175,972
Non-cash loss on debt extinguishment		(14,686)
Effective interest rate	5.75%				5.75%
Interest rate, basis spread	(0.50%)				2.50%
Interest rate description	Bank Index				Prime plus 2.5%
Maturity date	Apr. 04, 2014	Mar. 31, 2014			May 01, 2021
Collateral description	The LOC is collateralized by all the business assets of ICS.				The loan agreement is collateralized by the accounts receivable, property and equipment, and intangible assets of the Company. The note is further guaranteed by John and Leann Saunders, significant shareholders, officers and members of the Companys Board of Directors, with a security interest in 3,000,000 shares of the Companys common stock, which are personally owned by the Saunders.		Vehicle
Security interest personally owned shares of the Company's stock (shares)					3,000,000
Line of Credit, borrowing capacity	$ 70,050

XML

Stock Buyback Plan (Details) (USD $)	12 Months Ended		41 Months Ended	65 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2013
Stock Buyback Plan Details
Number of shares	33,450	15,000	498,247	546,697
Cost of shares	$ 29,555	$ 12,280	$ 109,014	$ 150,849
Average cost per share	$ 0.88	$ 0.82	$ 0.22	$ 0.28

XML

Intangible Assets (Details) (USD $)					12 Months Ended						12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2013 Tradenames and Trademarks	Dec. 31, 2012 Tradenames and Trademarks	Dec. 31, 2013 Tradenames and Trademarks Lower Range	Dec. 31, 2013 Tradenames and Trademarks Upper Range	Dec. 31, 2013 Accreditations	Dec. 31, 2012 Accreditations	Dec. 31, 2013 Customer Relationships	Dec. 31, 2012 Customer Relationships	Dec. 31, 2012 Customer Relationships Lower Range	Dec. 31, 2013 Customer Relationships Upper Range	Dec. 31, 2013 Beneficial lease arrangement	Dec. 31, 2012 Beneficial lease arrangement
Intangible and other assets, gross	$ 1,358,470	$ 348,470	$ 64,307	$ 64,307			$ 88,663	$ 13,663	$ 1,085,300	$ 150,300			$ 120,200	$ 120,200
Accumulated amortization	107,355	44,660
[us-gaap:FiniteLivedIntangibleAssetsNet]	1,251,115	303,810
Tradenames/trademarks (not subject to amortization)	465,000
Intangible and other assets, net	$ 1,716,115	$ 303,810
Estimated Useful Life					2 years 6 months	8 years	5 years				8 years	15 years	11 years

XML

The Company and Basis of Presentation (Details Narrative) (International Certification Services, Inc.)	Mar. 01, 2013	Feb. 29, 2012
International Certification Services, Inc.
Acquisition of International Certification Services, Inc., ownership percentage acquired	40.00%	60.00%

XML

Stock Option and Warrant Plans (Details) (USD $)	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012
Options
Balance, beginning	805,800	1,321,000
Granted	82,500	100,000
Exercised	(454,966)	(615,200)
Expired	(15,000)
Balance, ending	418,334	805,800
Exercisable	202,477
Unvested	215,857
Weighted Average Exercise Price per Share
Balance, beginning	$ 0.25	$ 0.25
Granted	$ 1.16	$ 1.15
Exercised	$ 0.23	$ 0.24
Expired	$ 0.54
Balance, ending	$ 0.66	$ 0.25
Exercisable	$ 0.45
Weighted Average Fair Value per Share
Balance, beginning	$ 0.24	$ 0.07
Granted	$ 1.21	$ 1.15
Exercised	$ 0.05
Expired	$ 0.54	$ 0.04
Balance, ending	$ 0.35	$ 0.24
Exercisable	$ 0.88
Weighted Average Remaining Contractual Life (in years)
Balance, beginning	3 years 10 months 6 days	2 years 9 months 29 days
Granted	9 years 6 months 22 days	9 years 8 months 12 days
Exercised	0 years 1 month 10 days
Expired	7 years 8 months 26 days	0 years 5 months 23 days
Balance, ending	7 years 5 months 26 days	3 years 10 months 6 days
Exercisable	6 years 4 months 10 days
Unvested	8 years 6 months 22 days
Aggregate Intrinsic Value
Balance, beginning	$ 561,723	$ 98,295
Balance, ending	313,677	561,723
Exercisable	$ 560,443

XML

Intangible Assets (Tables)

12 Months Ended

Dec. 31, 2013

Intangible Assets Tables

Schedule of intangible assets

The following table summarizes our intangible assets as of December 31:

					Estimated
	2013		2012		useful life
Intangible assets subject to amortization:
Tradenames/ Trademarks	$	64,307	$	64,307	2.5  - 8.0 years
Accreditations		88,663		13,663	5.0 years
Customer relationships		1,085,300		150,300	8.0 - 15.0 years
Beneficial lease arrangement		120,200		120,200	11.0 years
		1,358,470		348,470
Less accumulated amortization		107,355		44,660
		1,251,115		303,810
Tradenames/ trademarks (not subject to amortization)		465,000		—	indefinite
	$	1,716,115	$	303,810

Schedule of future scheduled amortization

Future scheduled amortization of intangible assets is as follows:

Fiscal year ending December 31:
2014	$	117,470
2015		116,519
2016		115,568
2017		113,747
2018		108,461
Thereafter		679,350
	$	1,251,115

XML

Notes Payable (Details 1) (USD $)	Dec. 31, 2013	Dec. 31, 2012
Maturities of Notes Payable for the years ending December 31
2014	$ 24,782
2015	25,659
2016	27,741
2017	29,380
2018	23,045
Thereafter	59,930
[LongTermNotesPayable]	$ 190,537	$ 413,979

XML

Business Acquisitions (Details 4) (International Certification Services, Inc., USD $)	12 Months Ended
	Dec. 31, 2012
International Certification Services, Inc.
Pro Forma Results of operations:
Total revenue	$ 5,433,900
Net income	$ 847,800
Basic earnings per share	$ 0.04
Diluted earnings per share	$ 0.04

XML

Business Acquisitions (Details Narrative) (USD $)	12 Months Ended		0 Months Ended	12 Months Ended				0 Months Ended	2 Months Ended	10 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Sep. 16, 2013 Validus Acquisition	Dec. 31, 2013 Validus Acquisition	Dec. 31, 2013 Validus Acquisition Selling, General and Administrative Expenses [Member]	Dec. 31, 2012 Validus Acquisition Selling, General and Administrative Expenses [Member]	Sep. 16, 2013 Validus Acquisition Praedium Ventures LLC	Feb. 29, 2012 International Certification Services, Inc.	Mar. 01, 2013 International Certification Services, Inc.	Dec. 31, 2012 International Certification Services, Inc.
Total consideration for acquisition			$ 1,500,000					$ 427,800
Cash payments for acquisition			565,000					350,000
Shares issued for acquisition			708,681					172,840
Value of shares issued for acquisition	935,459	77,778	935,459					77,800
Closing price of common stock			$ 1.32					$ 0.45
Percentage of business acquired			60.00%					60.00%	40.00%
Ownership percentage that may be acquired, right of first refusal							40.00%	40.00%
Intangible Asset Useful Life				7 years 9 months 14 days
Advisory and Legal Fees incurred					219,000	50,000				50,500
Advisory and Legal Fees incurred to date				269,000
Total revenues	5,533,464	5,261,367								978,100
Net income	(3,033)	873,168								7,025
Expected cash to be paid for remainder of acquired company									$ 196,000

XML

Income Taxes (Details) (USD $)	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012
Income Taxes Details
Expected tax expense	$ (1,635)	$ 165,146
State tax provision, net	(144)	14,572
Permanent differences	53,507	11,240
Stock-based compensation and other	(56,058)	(131,683)
Change in valuation allowance		(419,020)
Other, net	2,552	(31,733)
Total provision for taxes (deferred)	$ (1,778)	$ (391,478)

XML

Commitments and Contingencies (Details Narrative) (USD $)	12 Months Ended		3 Months Ended		12 Months Ended		12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2013 Validus Acquisition	Sep. 16, 2013 Validus Acquisition Praedium Ventures LLC	Dec. 31, 2013 International Certification Services, Inc.	Feb. 29, 2012 International Certification Services, Inc.	Dec. 31, 2013 IMI Office Equipment	Dec. 31, 2013 ICS Office Equipment
Corporate office, monthly rental rate			$ 2,600		$ 150
Sub-leased space within its corporate office to third party, monthly rent					302
Asset cost, included in property and equipment							22,300	17,000
Office equipment, base rent							405	521
Future minimum payments under capital leases, imputed interest							5.25%	6.25%
Rent Expense	91,500	103,500
Lawsuit - damages sought	7,500,000
Matching contributions to employee benefit plan	$ 17,800	$ 19,000
Ownership percentage that may be acquired, right of first refusal				40.00%		40.00%

XML

Intangible Assets (Details 1) (USD $)	Dec. 31, 2013	Dec. 31, 2012
Future scheduled amortization for the fiscal year ending December 31
2014	$ 117,470
2015	116,519
2016	115,568
2017	113,747
2018	108,461
Thereafter	679,350
[us-gaap:FiniteLivedIntangibleAssetsNet]	$ 1,251,115	$ 303,810

XML

Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2013

Summary Of Significant Accounting Policies

Summary of Significant Accounting Policies

Note 2 - Summary of Significant Accounting Policies
 

Cash and Cash Equivalents
 

All cash and short-term investments with original maturities of three months or less are considered cash and cash equivalents, since they are readily convertible to cash. We place our cash with high quality financial institutions. At times, cash balances may exceed the FDIC insurance limit, however; we have not experienced any losses related to balances that exceed such FDIC insurance limits, and we believe our credit risk is minimal.

Revenue Recognition

We offer a range of products and services to deploy and maintain identification, traceability, and verification systems and to facilitate customers’ participation in and compliance with USDA’s Quality System Assessment, Process Verification and Export Verification Programs. We generate revenue primarily from the sale of our verification solutions, consulting services and hardware sales. We sell our products and services directly to customers at various levels in the livestock supply chain.

Revenue is recognized when persuasive evidence of an agreement with the customer exists, delivery has occurred or services have been provided, the sales price is fixed or determinable, collectability is reasonably assured, and risk of loss and title have transferred to the customer.

No single customer generated more than 10% of total net revenue in 2013 or 2012.

Service revenues primarily consist of fees charged for verification audits and other verification services that the Company performs for customers. Revenue from verification audits is recognized upon completion of the audits. Contracts for these services are cancelable only for non-performance.

Deferred revenue represents payments received in advance from our customers for annual customer support services not yet performed as of December 31, and revenue is recognized as services are performed, generally over the one year contract term.

Customer deposits represent down-payments made in advance of a verification audit to be performed for a customer and deposits are applied to the customer’s accounts when invoiced.

Revenues under contracts for consulting services are recognized when completed (for short-term projects). On occasion, we may enter into long-term projects, for which we use the percentage of completion method. No such long-term projects occurred during 2013 and 2012.

Product sales are primarily generated from the sale of cattle identification ear tags. Revenue is recognized when goods are shipped and after title has transferred to the customer.

Other revenue primarily represents the fees earned from our “WhereFoodComesFrom®” labeling program. Revenue is recognized when our customer, who has been granted a right to use our WhereFoodComesFrom® label, places this label on their product and ships their product. Revenue is billed based on pounds of product shipped.

Generally, we do not provide right of return or warranty on product sales or services performed.
 

Accounts Receivable and Allowance for Doubtful Accounts

The majority of our receivables are due from trade customers. Credit is extended based on our evaluation of the customer’s financial condition and generally, collateral is not required. Accounts receivable are due approximately 30 days from the invoice date and are stated at amounts due from customers, net of an allowance for doubtful accounts. Accounts receivable that are outstanding longer than the contractual payment terms are considered past due. We determine our allowance by considering a number of factors, including the length of time trade accounts receivable are past due, our previous loss and payment history, the customer’s current ability to pay its obligations to us and the condition of the general economy and the industry as a whole. We write off accounts receivable when they become uncollectible, and payments subsequently received on such receivables are credited to the allowance for doubtful accounts. The allowance for doubtful accounts was approximately $20,700 and $16,200, at December 31, 2013 and 2012, respectively.

No single customer accounted for greater than 10% of our accounts receivable balances at December 31, 2013. One customer accounted for 10% of our outstanding accounts receivable balance at December 31, 2012.

Cost of Revenues
 

Cost of revenues includes the cost of products sold, which consists of livestock ear tags used in connection with the US Verified Source and Age Verification programs. Salaries and related fringe benefits directly associated with our verification services are allocated to cost of revenues.

Livestock identification ear tags sold in connection with our verification offerings are purchased primarily from one supplier. However, there are numerous other companies which manufacture and market such ear tags.

Fair Value Measurements

The carrying value of cash and cash equivalents, accounts receivable, and accounts payable approximate fair value due to their short maturities. The amounts shown for debt and notes payable also approximate fair value because current interest rates and terms offered to us for similar debt are substantially the same.

Fair value accounting guidance defines fair value, establishes a framework for measuring fair value under GAAP and expands disclosures about fair value measurements, for both financial and non-financial assets. It also establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The fair value hierarchy consists of three broad levels, which are described below:

● Level 1: Quoted prices in active markets for identical assets or liabilities that the entity has the ability to access.

● Level 2: Observable inputs other than prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated with observable market data.

● Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

Property and Equipment

Property and equipment are recorded at cost and are depreciated using the straight-line method over the estimated useful lives of the respective assets. Land is not depreciated. Buildings are depreciated over 20 years. All other property and equipment have depreciable lives which range from three to seven years.

Intangible Assets

Our intangible assets consist of a customer relationships, accreditations, a beneficial lease arrangement and tradename/trademarks related to the acquisitions of ICS and Validus, recorded at estimated fair value.

Intangible assets also include certain trademark rights and the related costs incurred to obtain the trademark rights recorded at cost. Certain of these assets are subject to amortization using the straight-line method over the estimated useful lives of the respective assets (Note 5).

In connection with the Validus acquisition, the Company allocated a portion of the purchase price to tradenames/trademarks. These tradenames/trademarks were determined to have an indefinite useful life and are not currently amortized. Authoritative guidance requires that intangible assets not subject to amortization (indefinite-lived assets) be tested for impairment on an annual basis, or more frequently if events or changes in circumstances indicate that the asset might be impaired.

Impairment of Long-Lived Assets

We review all of our long-lived assets (including intangible assets) for impairment at least annually or whenever impairment indicators are determined to be present. If an impairment exists, the amount of impairment is measured as the excess of the carrying amount of the asset over its fair value as determined utilizing estimated discounted future cash flows, or some other fair value measure, or the expected proceeds, net of costs to sell, upon sale of the asset.

Significant judgments are required to estimate the fair value of intangible assets including estimating future cash flows, determining appropriate discount rates and other assumptions. Changes in these estimates and assumptions or the occurrence of one or more confirming events in future periods could cause the actual results or outcomes to materially differ from such estimates and could also affect the determination of fair value and/or impairment at future reporting dates. No impairment was identified on the Company’s intangible assets through December 31, 2013.

Goodwill

Goodwill relates to the acquisition of ICS and Validus. ICS and Validus are both reporting units one level below our Certification and Verification Services segment. The other non-amortizable intangible asset relates to the trademarks/trade name acquired in the Validus acquisition and was determined to have an indefinite life. We review goodwill and non-amortizable intangible assets for impairment annually in the fourth quarter, or more frequently if impairment indicators arise. Impairment indicators include (i) a significant decrease in the market value of an asset (ii) a significant change in the extent or manner in which an asset is used or a significant physical change in an asset, (iii) a significant adverse change in legal factors or in the business climate that could affect the value of an asset or an adverse action by a regulator, and (iv) a current period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with an asset used for the purpose of producing revenue. During 2013, we completed a goodwill impairment analysis, and based upon the work performed, we concluded that no impairment existed in our ICS reporting unit, and that goodwill was not at risk in failing step one of the goodwill impairment test. The Validus goodwill was valued at the time of acquisition and will be analyzed annually for impairment in the same manner as described above.

Research and Development, Software Development Costs, and Internal Use Software Development Costs

Research and development costs are charged to operations as incurred. We did not incur any research and development expense in 2013 and 2012.

Software development costs are capitalized once technological feasibility of a product is established and such costs are determined to be recoverable. For products where proven technology exists, this may occur very early in the development cycle. Factors we consider in determining when technological feasibility has been established include (i) whether a proven technology exists; (ii) the quality and experience levels of the individuals developing the software; (iii) whether the software is similar to previously developed software which has used the same or similar technology; and (iv) whether the software is being developed with a proven underlying engine. Technological feasibility is evaluated on a product-by-product basis. Capitalized costs for those products that are cancelled or abandoned are charged immediately to cost of sales. The recoverability of capitalized software development costs is evaluated on the expected performance of the specific products for which the costs relate.

Internal use software development costs represent the capitalization of certain external and internal computer software costs incurred during the application development stage. The application development stage is characterized by software design and configuration activities, coding, testing and installation. Training costs and maintenance are expensed as incurred, while upgrades and enhancements are capitalized if it is probable that such expenditures will result in additional functionality.

Website software development costs related to certain planning and training costs incurred in the development of website software are expensed as incurred, while application development stage costs are capitalized.

Prior to 2011, we capitalized certain external and internal use software and website development costs totaling $183,385. The estimated useful lives of these pre-2011 costs capitalized was evaluated for each specific project and ranges from one to three years. In 2013, we acquired certain assets of Validus, which included internally- developed software with an estimated fair value of $129,000. During 2013 and 2012, the amortization of capitalized costs totaled approximately $12,800 and $24,000, respectively. Capitalized costs are included in property and equipment.

Advertising Expenses
 

Advertising costs are expensed as incurred. Total advertising expense for the years ended December 31, 2013 and 2012, were approximately $59,700 and $70,200, respectively.
 

Income Taxes

We compute income taxes using the asset and liability method. Under this method, deferred income taxes are recognized for differences between the basis of assets and liabilities for financial statement and income statement purposes using the enacted statutory rate in effect for the year these differences are expected to be taxable or deductible. Deferred income tax expense or benefit is based on the changes in the net deferred tax asset or liability from period to period. A deferred tax asset or liability is recognized whenever there are future tax effects from existing temporary differences and operating loss and tax credit carryforwards. If we determine that a deferred tax asset could be realized in a greater or lesser amount than recorded, the asset’s recorded amount is adjusted and the income statement is either credited or charged, respectively, in the period during which the determination is made.

We reduce our deferred tax assets by a valuation allowance if we determine that it is more likely than not that some portion or all of these tax assets will not be realized. In making this determination, we consider various qualitative and quantitative factors, such as:

● The level of historical taxable income and projections for future taxable income over periods in which the deferred tax assets would be deductible,

● Accumulation of income (loss) before taxes utilizing a look-back period of three years.

● Events within the industry,

● The cyclical nature of our business,

● The health of the economy,

● Our future forecasts of taxable income, and

● Historical trending.

The recognition of our net deferred income tax assets requires significant management judgment regarding the interpretation of applicable statutes, the status of various income tax audits, and our particular facts and circumstances. In the first quarter of 2012, after assessing the existing qualitative and quantitative data, including the wide-spread consensus that the economic climate was beginning to improve, we reversed the remaining portion of our valuation allowance after concluding the likelihood for a full realization of the benefits of our deferred tax assets was more likely than not.

We recognize the tax benefit from an uncertain tax position when we determine that it is more-likely-than-not that the position would be sustained upon examination by taxing authorities. The amount recognized is measured as the largest amount of benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. If we derecognize an uncertain tax position, our policy is to record any applicable interest and penalties within the provision for income tax. Management believes there are no current uncertain tax positions that would result in an asset or liability being recognized in the accompanying financial statements. Interest and penalties on unrecognized tax benefits, if any, are recognized as a component of income tax expense.

We file income tax returns in the US federal jurisdiction and various state jurisdictions. We are no longer subject to US federal tax examination for years beginning before January 1, 2010 and the state tax returns that remain subject to examination range from December 31, 2009 through the years ended December 31, 2013.

Stock-Based Compensation

The fair value of stock options is estimated using the Black-Scholes option-pricing model, which incorporates ranges of assumptions for inputs. Our assumptions are as follows:

● Dividend yield is based on our historical and anticipated policy of not paying cash dividends.

● Expected volatility assumptions were derived from our actual volatilities.

● The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the date of grant with maturity dates approximately equal to the expected life at the grant date.

● The expected term of options represents the period of time that options granted are expected to be outstanding giving consideration to vesting schedules, based on historical exercise patterns, which we believe are representative of future behavior.

Our stock-based compensation cost for the years ended December 31, 2013 and 2012, was approximately $70,200 and $29,300, respectively, and has been included in income from operations.

The fair value of stock options granted during 2013 and 2012 (Note 9) was estimated using the following assumptions:

	Years ended December 31,
	2013	2012
Stock options granted	82,500 shares	100,000 shares
Expected life of options from date of grant	8 years	8 years
Risk free interest rate	0.71% - 1.52%	2.26%
Expected volatility	199% - 203%	212.5%
Assumed dividend yield	0%	0%

As of December 31, 2013, total unrecognized stock-based compensation cost related to non-vested awards granted under our option plans, and expected periods of recognition, are as follows:

Year ending
December 31,
2014	$	73,838
2015		58,482
2016		15,846
	$	148,166

Recently Issued Accounting Standards

In July 2013, the Financial Accounting Standards Board (“FASB”) issued guidance that codifies the classification of certain unrecognized tax benefits related to net operating loss carryforwards, similar tax losses and tax credit carryforwards. This guidance will be effective for our Company on January 1, 2014. The adoption of this guidance is not expected to have a material impact on our financial position, result of operations or cash flows.

In July 2012, the FASB issued guidance that simplifies how entities test indefinite lived intangible assets for impairment and permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. This guidance was effective for our Company on January 1, 2013. The adoption of this guidance did not have a material impact on our financial position, results of operations or cash flows.

We have considered all other recently issued accounting pronouncements and do not believe the adoption of such pronouncements will have a material impact on our consolidated financial statements.

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Commitments and Contingencies (Details) (USD $)	Dec. 31, 2013	Dec. 31, 2012
Operating leases future minimum lease payments
2014		$ 105,192
2015		63,071
2016		27,598
2017		1,818
2018	303
Total lease commitments		$ 197,982

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Property and Equipment (Details Narrative) (USD $)	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012
Property And Equipment Details Narrative
Depreciation Expense	$ 57,000	$ 58,300

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Stock Option and Warrant Plan (Tables)

12 Months Ended

Dec. 31, 2013

Stock Option And Warrant Plan Tables

Schedule of stock option activity

Stock option activity during 2013 and 2012 is summarized as follows:

								Weighted Avg.
				Weighted Avg.		Weighted Avg.		Remaining
	Number of			Exercise Price		Fair Value		Contractual Life		Aggregate
	Options			per Share		per Share		(in years)		Intrinsic Value
Outstanding, January 1, 2012		1,321,000		$	0.25	$	0.07		2.83	$	98,295
Granted		100,000		$	1.15	$	1.15		9.72
Exercised		(615,200	)	$	0.24	$	0.04		0.48
Expired		—		$	—	$	—		—
Outstanding, December 31, 2012		805,800		$	0.25	$	0.24		3.85	$	561,723
Granted		82,500		$	1.16	$	1.21		9.56
Exercised		(454,966	)	$	0.23	$	0.05		0.11
Expired		(15,000	)	$	0.54	$	0.54		7.74
Outstanding, December 31, 2013		418,334		$	0.66	$	0.24		7.49	$	313,677
Exercisable, December 31, 2013		202,477		$	0.45	$	0.35		6.36	$	560,443
Unvested, December 31, 2013		215,857				$	0.88		8.56

Schedule of outstanding and exercisable stock options

The following table summarizes information concerning outstanding and exercisable options as of December 31, 2013:

	Options Outstanding						Options Exercisable
			Average
			Remaining		Weighted Avg.				Weighted Avg.
	Number		Contractual Life		Exercise Price		Number		Exercise Price
	Outstanding		(in years)		per Share		Outstanding		per Share
Range of exercise prices per share:
$0.00 - $0.20		—		—	$	—		—	$	—
$0.21 - $0.30		203,334		7.25	$	0.24		133,320	$	0.24
$0.31 - $0.50		—		—	$	—		—	$	—
$0.51 - $0.80		37,500		1.17	$	0.61		37,500	$	0.61
$0.81 - $2.00		177,500		9.10	$	1.15		31,657	$	1.15
Total		418,334		7.49	$	0.66		202,477	$	0.45

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Stock Buyback Plan (Tables)

12 Months Ended

Dec. 31, 2013

Stock Buyback Plan Tables

Repurchased shares under the Stock Buyback Plan by year

Repurchased shares under the Stock Buyback Plan by year are as follows:

	Number of Shares		Cost of Shares		Average Cost per Share
As of December 31, 2011		498,247	$	109,014	$	0.22
For the year ended December 31, 2012		15,000		12,280	$	0.82
For the year ended December 31, 2013		33,450		29,555	$	0.88
Total		546,697	$	150,849	$	0.28

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Stock Option and Warrant Plans (Details Narrative)	Dec. 31, 2013
Stock Option And Warrant Plans Details Narrative
Shares authorized for issuance under incentive plan	3,000,000
Shares available for issuance	389,000

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Property and Equipment (Details) (USD $)	Dec. 31, 2013	Dec. 31, 2012
Property and equipment, gross	$ 783,437	$ 645,674
Accumulated Depreciation	530,231	499,111
Property and equipment, net	253,206	146,563
Automobiles
Property and equipment, gross	47,397	47,397
Furniture and office equipment
Property and equipment, gross	150,528	158,491
Software and tools
Property and equipment, gross	350,944	205,218
Website development and other enhancements
Property and equipment, gross	183,385	183,385
Building and Leasehold Improvements
Property and equipment, gross	48,747	48,747
Land
Property and equipment, gross	$ 2,436	$ 2,436

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Basic and Diluted Net Income (Loss) per Share (Tables)

12 Months Ended

Dec. 31, 2013

Basic And Diluted Net Income Loss Per Share Tables

Schedule of reconciliation of basic and diluted income (loss) per share computations

The following is a reconciliation of the share data used in the basic and diluted income per share computations:

	Year ended December 31,
	2013		2012
Basic:
Weighted average number of shares outstanding		21,893,794		20,943,966
Diluted:
Weighted average number of shares outstanding		21,893,794		20,943,966
Weighted average effects of dilutive securities		—		734,892
Total		21,893,794		21,678,858
Antidilutive securities		418,334		100,000

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Commitments and Contingencies (Tables)

12 Months Ended

Dec. 31, 2013

Commitments And Contingencies Tables

Operating leases future minimum lease payments

Future minimum lease payments for our headquarters are as follows:

2014	$	105,192
2015		63,071
2016		27,598
2017		1,818
2018		303
Total lease commitments	$	197,982

Capital leases future minimum lease payments

As of December 31, 2013, future minimum lease payments for capital leases are as follows:

Years Ending December 31,	Amount
2014	$	4,860
2015		4,860
2016		4,860
2017		1,797
Future minimum lease payments		16,377
Less amount representing interest		(1,396	)
Present value of net minimum lease payments		14,981
Less current portion		(4,173	)
Capital lease obligations	$	10,808

Schedule of redeemable noncontrolling interest

Below reflects the activity of the redeemable noncontrolling interest as of and for the period September 16 – December 31, 2013.

Balance at acquistion date, September 16, 2013	$	1,000,306
Net income attributable to noncontrolling interest for the period September 16 - December 31, 2013		18,090
Balance, December 31, 2013	$	1,018,396

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The Company and Basis of Presentation

12 Months Ended

Dec. 31, 2013

Company And Basis Of Presentation

The Company and Basis of Presentation

Note 1 - The Company and Basis of Presentation

Business Overview
 

Where Food Comes From, Inc. is a Colorado corporation based in Castle Rock, Colorado (the “Company,” “our,” “we,” or “us”). We provide verification and certification solutions for the agriculture, livestock and food industry. Most of our customers are located throughout the United States.

In December 2012, we changed our corporate name from Integrated Management Information, Inc. (“IMI”) to Where Food Comes From, Inc. to better reflect our brand strategy and to raise awareness in the investor community.

On February 29, 2012, we completed an acquisition of a 60% ownership investment in a North Dakota company, International Certification Services, Inc. (“ICS”) (Note 3). This acquisition has been accounted for using the acquisition method of accounting and, accordingly, its results are included in the Company’s consolidated financial statements from the date of acquisition.

On September 16, 2013, we acquired the auditing business of Praedium Ventures, LLC, (“Praedium”) previously known as Validus Ventures, LLC (Note 3). This acquisition has been accounted for using the acquisition method of accounting and, accordingly, its results are included in the Company’s consolidated financial statements from the date of acquisition.

We operate in one segment.

Basis of Presentation

Our consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues, costs and expenses during the reporting period. Actual results could differ from the estimates.

The accompanying consolidated financial statements include the results of operations, financial position and cash flows of the Company and its subsidiaries. All intercompany balances have been eliminated in consolidation.

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Supplemental Cash Flow Information (Tables)

12 Months Ended

Dec. 31, 2013

Supplemental Cash Flow Information Tables

Schedule of supplemental cash flow information

	Year to date ended December 31,
	2013		2012
Cash paid during the year:
Interest on Lapaseotes Notes - related party	$	5,918	$	10,333
Other interest	$	11,533	$	8,280
Income taxes	$	—	$	10,120
Non-cash investing and financing activities:
Unrealized gain on marketable securities	$	—	$	6,943
Assets acquired under capital lease obligations	$	—	$	22,258
Common stock issued in connection with ICS acquisition	$	—	$	77,778
Common stock issued in connection with Validus acquisition	$	1,010,459	$	—
Common stock issued in connection with Lapeseotes debt settlement	$	214,686	$	—

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Business Acquisitions (Details 2) (Validus Acquisition, USD $)	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012
Validus Acquisition
Pro Forma Results of operations:
Total revenue	$ 6,912,276	$ 6,544,589
Net income	$ (20,685)	$ 461,606
Basic earnings per share	$ 0.00	$ 0.02
Diluted earnings per share	$ 0.00	$ 0.02

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Income Taxes (Details 1) (USD $)	Dec. 31, 2013	Dec. 31, 2012
Deferred Tax assets current:
Net operating loss carryforwards	$ 130,820	$ 232,170
Accruals, stock based compensation	41,360	9,183
Other	18,004	1,591
Deferred tax assets, current	190,184	242,944
Deferred tax assets (liabilities) noncurrent:
Net operating loss carryforwards	566,456	371,097
Intangible assets related to acquisition of ICS & Validus	(92,156)	(106,270)
Property and equipment	(39,923)	(28,971)
Charitable contributions	15,517	19,972
Business tax credits	30,400	21,349
Deferred tax assets (liabilities), non-current	480,294	277,177
Net deferred tax assets	$ 670,478	$ 520,121

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Consolidated Balance Sheets (USD $)	Dec. 31, 2013	Dec. 31, 2012
Current assets:
Cash and cash equivalents	$ 1,067,537	$ 1,403,489
Accounts receivable, net	683,800	377,072
Prepaid expenses and other current assets	143,576	80,189
Deferred tax assets	190,184	242,944
Total current assets	2,085,097	2,103,694
Property and equipment, net	253,206	146,563
Intangible and other assets, net	1,716,115	303,810
Goodwill	1,279,762	532,997
Long-term deferred tax assets	480,294	277,177
Total assets	5,814,474	3,364,241
Current liabilities:
Accounts payable	277,633	134,913
Accrued expenses and other current liabilities	56,091	58,808
Customer deposits	39,134	27,478
Deferred revenue	149,660	139,022
Short-term debt and current portion of notes payable	24,782	22,873
Current portion of capital lease obligations	4,173	5,506
Total current liabilities	551,473	388,600
Capital lease obligations, net of current portion	10,808	14,981
Notes payable and other long-term debt, net of current portion	165,755	191,106
Notes payable, related party		200,000
Total liabilities	728,036	794,687
Commitments and contingencies
Contingently redeemable non-controlling interest	1,018,396
Equity:
Preferred stock, $0.001 par value; 5,000,000 shares authorized; none issued or outstanding
Common stock, $0.001 par value; 95,000,000 shares authorized; 23,233,483 (2013) and 21,837,046 (2012) shares issued, and 22,686,786 (2013) and 21,323,799 (2012) shares outstanding	23,233	21,837
Additional paid-in-capital	5,216,327	3,668,556
Treasury stock of 546,697 (2013) and 513,247 shares (2012)	(150,849)	(121,294)
Accumulated deficit	(1,321,100)	(1,287,540)
Total Where Food Comes From, Inc. equity	3,767,611	2,281,559
Non-controlling interest	300,431	287,995
Total equity	4,068,042	2,569,554
Total liabilites and equity	$ 5,814,474	$ 3,364,241

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Intangible Assets (Details Narrative) (USD $)	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012
Intangible Assets Details Narrative
Amortization Expense	$ 62,700	$ 35,900

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Consolidated Statements of Cash Flows (USD $)	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012
Cash Flows From Operating Activities
Net (loss) income	$ (3,033)	$ 873,168
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization	119,696	94,111
Stock-based compensation expense	70,152	29,325
Common stock issued for services rendered	75,000
Common stock issued in connection with extinguishment of debt	14,686
Deferred tax benefit	(1,778)	(391,638)
Bad debt expense	3,000	8,886
Gain on sale of marketable securities		(11,892)
Gain on disposal of property and equipment		(3,208)
Change in operating assets and liabilities, net of effect from acquisitions:
Accounts receivable	(159,729)	(109,498)
Prepaid expenses and other current assets	(63,387)	(22,000)
Accounts payable	142,720	(33,953)
Accrued expenses and other current liabilities	8,939	1,379
Deferred revenue	10,638	(99,966)
Net cash provided by operating activites	216,904	334,714
Investing activities:
Acquisition of International Certification Services, Inc., net of cash acquired		(214,774)
Acquisition of Validus Verification Services	(565,000)
Purchases of property and equipment	(34,645)	(73,876)
Proceeds from sale of marketable securities		302,096
Proceeds from sale of property and equipment		12,519
Purchase of other long-term assets		(13,664)
Net cash (used in) provided by investing activities	(599,645)	12,301
Financing activities:
Repayments of notes payable	(23,442)	(75,271)
Proceeds from notes payable		37,407
Repayments of capital lease obligations	(5,506)	(8,300)
Proceeds from stock option exercise	105,292	145,898
Stock repurchase under Buyback Program	(29,555)	(12,280)
Net cash provided by financing activities	46,789	87,454
Net change in cash and cash equivalents	(335,952)	434,469
Cash and cash equivalents at beginning of period	1,403,489	969,020
Cash and cash equivalents at end of period	$ 1,067,537	$ 1,403,489

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Basic and Diluted Net Income (Loss) per Share (Details) (USD $)	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012
Basic:
Weighted average shares outstanding	21,893,794	20,943,966
Diluted:
Weighted average effects of dilutive securities		73.4892
Total Diluted	21,839,794	21,678,858
Antidilutive securities:	$ 418,334	$ 100,000

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Summary of Significant Accounting Policies (Details)	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012
Stock options granted	82,500	100,000
Expected life of options from date of grant	8 years	8 years
Risk free interest rate		2.26%
Expected Volatility		212.50%
Assumed dividend yield	0.00%	0.00%
Lower Range
Risk free interest rate	0.71%
Expected Volatility	199.00%
Upper Range
Risk free interest rate	1.52%
Expected Volatility	203.00%

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Supplemental Cash Flow Information (Details) (USD $)	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012
Cash paid during the year:
Interest paid	$ 11,533	$ 8,280
Income taxes		10,120
Non-cash investing activities:
Unrealized gain on marketable securities		6,943
Assets acquired under capital lease obligations		22,258
Common stock issued in connection with ICS acquisition		77,778
Common stock issued in connection with Validus acquisition	1,010,459
Common stock issued in connection with Lapeseotes debt settlement	214,686
Lapaseotes Notes Payable - Related Party
Cash paid during the year:
Interest paid	$ 5,918	$ 10,333

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Summary of Significant Accounting Policies (Tables)

12 Months Ended

Dec. 31, 2013

Summary Of Significant Accounting Policies Tables

Schedule of assumptions used in assessing fair value of stock options

The fair value of stock options granted during 2013 and 2012 (Note 9) was estimated using the following assumptions:

	Years ended December 31,
	2013	2012
Stock options granted	82,500 shares	100,000 shares
Expected life of options from date of grant	8 years	8 years
Risk free interest rate	0.71% - 1.52%	2.26%
Expected volatility	199% - 203%	212.5%
Assumed dividend yield	0%	0%

Schedule of total unrecognized stock-based compensation cost

As of December 31, 2013, total unrecognized stock-based compensation cost related to non-vested awards granted under our option plans, and expected periods of recognition, are as follows:

Year ending
December 31,
2014	$	73,838
2015		58,482
2016		15,846
	$	148,166

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Summary of Significant Accounting Policies (Details 1) (USD $)	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Summary Of Significant Accounting Policies Details 1
Total Unrecognized stock-based compenstation related to non-vested awards	$ 15,846	$ 58,482	$ 73,838	$ 148,166

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Property and Equipment (Tables)

12 Months Ended

Dec. 31, 2013

Property And Equipment Tables

Schedule of property and equipment

The major categories of property and equipment are as follows as of December 31:

	2013		2012
Automobiles	$	47,397	$	47,397
Furniture and office equipment		150,528		158,491
Software and tools		350,944		205,218
Website development and other enhancements		183,385		183,385
Building and leasehold improvements		48,747		48,747
Land		2,436		2,436
		783,437		645,674
Less accumulated depreciation		530,231		499,111
Property and equipment, net	$	253,206	$	146,563

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Consolidated Statements of Equity (USD $)	Common Stock	Additional Paid-in Capital	Treasury Stock	Other Comprehensive (Loss) Gain	Accumulated Deficit	Noncontrolling Interest	Total
Balance, beginning at Dec. 31, 2011	$ 21,049	$ 3,416,343	$ (109,014)	$ (6,693)	$ (2,157,898)		$ 1,163,787
Balance, beginning, shares at Dec. 31, 2011	20,550,759
Shares issued in acquisition	173	77,605					77,778
Shares issued in acquisition, shares	172,840
Non-controlling interest through acquisition						285,185	285,185
Stock-based compensation expense		29,325					29,325
Stock repurchase on the open market			(12,280)				(12,280)
Stock repurchase on the open market, shares	(15,000)						(15,000)
Issuance of common shares upon exercise of options	615	145,283					145,898
Issuance of common shares upon exercise of options, shares	615,200						(615,200)
Reclassification adjustment for loss included in net income				6,693			6,693
Net (loss) income					870,358	2,810	873,168
Balance, ending at Dec. 31, 2012	21,837	3,668,556	(121,294)		(1,287,540)	287,995	2,569,554
Balance, ending, shares at Dec. 31, 2012	21,323,799						21,323,799
Shares issued in acquisition	709	934,750					935,459
Shares issued in acquisition, shares	708,681
Stock-based compensation expense		70,152					70,152
Stock repurchase on the open market			(29,555)				(29,555)
Stock repurchase on the open market, shares	(33,450)						(33,450)
Issuance of common shares upon exercise of options	454	104,838					105,292
Issuance of common shares upon exercise of options, shares	454,966						(454,966)
Excess tax benefit from share based payments		148,579					148,579
Issuance of common shares in settlement of debt	176	214,509					214,685
Issuance of common shares in settlement of debt, shares	175,972
Issuance of common shares for acquisition-related consulting fees	57	74,943					75,000
Issuance of common shares for acquisition-related consulting fees, shares	56,818
Net (loss) income					(33,560)	30,527	(3,033)
Balance, ending at Dec. 31, 2013	$ 23,233	$ 5,216,327	$ (150,849)		$ (1,321,100)	$ 300,431	$ 4,068,042
Balance, ending, shares at Dec. 31, 2013	22,686,786						22,686,786

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Consolidated Balance Sheets (Parenthetical) (USD $)	Dec. 31, 2013	Dec. 31, 2012
Statement of Financial Position [Abstract]
Preferred stock, par value	$ 0.001	$ 0.001
Preferred stock, shares authorized	5,000,000	5,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value	$ 0.001	$ 0.001
Common stock, shares authorized	95,000,000	95,000,000
Common stock, shares issued	23,233,483	21,837,046
Common stock, shares outstanding	22,686,786	21,323,799
Treasury stock, shares	546,697	513,247

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Basic and Diluted Net Income (Loss) per Share

12 Months Ended

Dec. 31, 2013

Basic And Diluted Net Income Loss Per Share

Basic and Diluted Net Income (Loss) per Share

Note 10 - Basic and Diluted Net Income (Loss) per Share

Basic income (loss) per share was computed by dividing income available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted income per share is based on the assumption that all dilutive convertible shares and stock options were converted or exercised. Dilution is computed by applying the treasury stock method. Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period.

The following is a reconciliation of the share data used in the basic and diluted income per share computations:

	Year ended December 31,
	2013		2012
Basic:
Weighted average number of shares outstanding		21,893,794		20,943,966
Diluted:
Weighted average number of shares outstanding		21,893,794		20,943,966
Weighted average effects of dilutive securities		—		734,892
Total		21,893,794		21,678,858
Antidilutive securities		418,334		100,000

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Document and Entity Information (USD $)	12 Months Ended
	Dec. 31, 2013	Feb. 24, 2014	Jun. 30, 2013
Document And Entity Information
Entity Registrant Name	Where Food Comes From, Inc.
Entity Central Index Key	0001360565
Document Type	10-K
Document Period End Date	Dec. 31, 2013
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Is Entity a Well-known Seasoned Issuer?	No
Is Entity a Voluntary Filer?	No
Is Entity's Reporting Status Current?	Yes
Entity Filer Category	Smaller Reporting Company
Entity Public Float			$ 19,283,382
Entity Common Stock, Shares Outstanding		22,693,452
Document Fiscal Period Focus	FY
Document Fiscal Year Focus	2013

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Related Party Transactions

12 Months Ended

Dec. 31, 2013

Related Party Transactions [Abstract]

Related Party Transactions

Note 11 - Related Party Transactions
 

In 2013 and 2012, we recorded total net revenue of approximately $11,100 and $12,500, respectively, from related parties. The related parties included a business owned by the father of Leann Saunders, our President, and a business owned by Pete Lapaseotes, a member of our Board of Directors.

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Consolidated Statements of Income (Loss) (USD $)	12 Months Ended
	Dec. 31, 2013		Dec. 31, 2012
Revenues:
Service revenues	$ 4,682,738		$ 4,328,277
Product sales	723,449		809,084
Other revenue	127,277		124,006
Total revenues	5,533,464		5,261,367
Costs of revenues:
Labor and other costs of services	2,307,846		1,844,655
Costs of products	519,221		586,767
Total costs of revenues	2,827,067		2,431,422
Gross profit	2,706,397		2,829,945
Selling, general and administrative expenses	2,679,089		2,341,665
Income from operations	27,308		488,280
Other expense (income):
Interest expense	33,588		25,929
Gain on sale of marketable securities			(11,892)
Gain on disposal of property and equipment			(3,208)
Other income, net	(1,469)		(4,239)
(Loss) income before income taxes	(4,811)		481,690
Income tax benefit	(1,778)		(391,478)
Net (loss) income	(3,033)		873,168
Net income attributable to non-controlling interest	(30,527)		(2,810)
Net (loss) income attributable to Where Food Comes From, Inc.	$ (33,560)		$ 870,358
Net (loss) income per share:
Basic		[1]	$ 0.04
Diluted		[1]	$ 0.04
Weighted average number of common shares outstanding:
Basic	21,893,794		20,943,966
Diluted	21,839,794		21,678,858

[1] * less than a penny ($0.01) per share

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Intangible Assets

12 Months Ended

Dec. 31, 2013

Intangible Assets

Intangible Assets

Note 5 – Intangible Assets

The following table summarizes our intangible assets as of December 31:

					Estimated
	2013		2012		useful life
Intangible assets subject to amortization:
Tradenames/ Trademarks	$	64,307	$	64,307	2.5  - 8.0 years
Accreditations		88,663		13,663	5.0 years
Customer relationships		1,085,300		150,300	8.0 - 15.0 years
Beneficial lease arrangement		120,200		120,200	11.0 years
		1,358,470		348,470
Less accumulated amortization		107,355		44,660
		1,251,115		303,810
Tradenames/ trademarks (not subject to amortization)		465,000		—	indefinite
	$	1,716,115	$	303,810

Amortization expense for the years ended December 31, 2013 and 2012 was approximately $62,700 and $35,900, respectively. Future scheduled amortization of intangible assets is as follows:

Fiscal year ending December 31:
2014	$	117,470
2015		116,519
2016		115,568
2017		113,747
2018		108,461
Thereafter		679,350
	$	1,251,115

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Property and Equipment

12 Months Ended

Dec. 31, 2013

Property And Equipment

Property and Equipment

Note 4 - Property and Equipment

The major categories of property and equipment are as follows as of December 31:

	2013		2012
Automobiles	$	47,397	$	47,397
Furniture and office equipment		150,528		158,491
Software and tools		350,944		205,218
Website development and other enhancements		183,385		183,385
Building and leasehold improvements		48,747		48,747
Land		2,436		2,436
		783,437		645,674
Less accumulated depreciation		530,231		499,111
Property and equipment, net	$	253,206	$	146,563

Depreciation expense for the years ended December 31, 2013 and 2012 was approximately $57,000 and $58,300, respectively.

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Business Acquisitions (Tables)

12 Months Ended

Dec. 31, 2013

Business Acquisitions Tables

Schedule of estimated fair value at acquisition - Validus acquisition

The following table summarizes the provisional estimated fair values assigned to the assets and liabilities acquired in addition to the excess of the purchase price over the net assets acquired at the Validus acquisition date.

	Sept 16, 2013						Sept 16, 2013
	(As reported)			Adjustments			(As adjusted)
Accounts receivable	$	150,000					$	150,000
Internally developed software		—			129,000			129,000
Excess attributable to intangible assets		2,350,765			(129,000	)		2,221,765
Total fair value		2,500,765						2,500,765
Fair value of non-controlling interest		(1,000,306	)					(1,000,306	)
Total consideration	$	1,500,459					$	1,500,459

Schedule of intangible assets acquired - Validus Acquisition

The fair value amounts of the components of intangible assets are as follows:

Customer relationships	$	935,000
Trademarks/trade names		465,000
Accreditations		75,000
Identifiable intangible assets		1,475,000
Goodwill		746,765
Total intangible assets	$	2,221,765

Schedule of proforma results of operations - Validus Acquisition

The following unaudited pro forma information presents the results of operations for the years ended December 31, 2013 and 2012, as if the acquisition of Validus had occurred on January 1, 2013 and 2012.

	Unaudited
	2013			2012
Total revenue	$	6,912,276		$	6,544,589
Net (loss) income	$	(20,685	)	$	461,606
Basic and diluted earnings (loss) per share	$	(0.00	)	$	0.02

Schedule of estimated fair value at acquisition - ICS acquisition

The following table summarizes the estimated provisional fair values of the assets acquired and liabilities assumed based on information that was available at the Acquisition Date.

	Feb 29, 2012						Feb 29, 2012
	(As reported)			Adjustments			(As adjusted)
Cash	$	135,200					$	135,200
Accounts receivable		49,700						49,700
Prepaid expenses and other current assets		21,000						21,000
Deferred tax assets		21,400						21,400
Property and equipment		60,600						60,600
Other assets		400						400
Accounts payable		(20,500	)					(20,500	)
Accrued expenses		(12,500	)					(12,500	)
Customer deposits		(29,400	)					(29,400	)
Deferred revenue		(239,000	)					(239,000	)
Capital lease obligation		(6,500	)					(6,500	)
Deferred tax liability		—			(117,197	)		(117,197	)
Identifiable intangible assets:		355,000			(355,000	)		—
Customer lists		—			150,300			150,300
Beneficial lease arrangement		—			120,200			120,200
Tradename		—			46,300			46,300
Goodwill		377,600			155,397			532,997
Total fair value		713,000						713,000
Fair value of non-controlling interest		(285,200	)					(285,200	)
Total consideration	$	427,800					$	427,800

Schedule of proforma results of operations - ICS Acquisition

The following unaudited pro forma information presents the results of operations for the year ended December 31, 2012, as if the acquisition of ICS had occurred on January 1, 2012.

	Unaudited
	2012
Total revenue	$	5,433,900
Net income	$	847,800
Basic and diluted earnings per share	$	0.04

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Commitments and Contingencies

12 Months Ended

Dec. 31, 2013

Commitments And Contingencies

Commitments and Contingencies

Note 12 – Commitments and Contingencies
 

Operating Leases

In June 2012, we amended the building lease for our headquarters in Castle Rock, Colorado. The lease is for a period of three years with an expiration date of June 15, 2015. In addition to the primary rent, the lease requires additional payments for operating costs and other common area maintenance costs.

In September 2013, as part of the Validus acquisition, Validus entered into a lease agreement for its office space with Praedium in which Validus is leasing office space. The lease is for a period of three years, expiring October 31, 2016, and requires rental payments of approximately $2,600 per month. There is no renewal feature. In addition to primary rent, the lease requires additional payments for operating costs and other common area maintenance costs.

We also own approximately ¾ acre on which a 2,300 square foot building leased by our ICS office is located in Medina, North Dakota. The North Dakota office is leased for a period of 5 years with an expiration date of March 1, 2018. One additional option to renew for a 5-year term exists and is deemed to automatically renew unless written notice is provided 60 days before the end of the term. This location pays a minimum monthly rental rate of approximately $150 plus all utilities, taxes and other expenses based on actual expenses to maintain the building.

Rent expense for the years ended December 31, 2013 and 2012, was approximately $91,500 and $103,500, respectively.

Future minimum lease payments for our headquarters are as follows:

2014	$	105,192
2015		63,071
2016		27,598
2017		1,818
2018		303
Total lease commitments	$	197,982

Sub-lease Agreement

ICS sub-leases approximately 300 square feet of space located within its corporate office to a third party on a month-to-month basis. Monthly rent of $302 includes utilities and other common area maintenance. The sub-lease agreement provides for 30 days’ notice to terminate the agreement.

Capital Leases
 

During the first quarter ended March 31, 2012, we entered into a capital lease for certain office equipment with a base rent of $405 per month. This 63-month lease expires April 2017. Approximately $22,300 in asset cost has been included in property and equipment and is being amortized over 63 months. Imputed interest of 5.25% was used in determining the minimum lease payments.

ICS leased certain office equipment under a capital lease with a base rent of $521 per month. The lease expired in April 2013. Included in property and equipment is $7,100 in asset cost. Imputed interest of 6.25% was used in determining the minimum lease payments.

As of December 31, 2013, future minimum lease payments for capital leases are as follows:

Years Ending December 31,	Amount
2014	$	4,860
2015		4,860
2016		4,860
2017		1,797
Future minimum lease payments		16,377
Less amount representing interest		(1,396	)
Present value of net minimum lease payments		14,981
Less current portion		(4,173	)
Capital lease obligations	$	10,808

Employment Agreements

In January 2006, we entered into employment agreements with John Saunders, our Chief Executive Officer, and with Leann Saunders, our President. The agreements automatically renew annually unless a 60-day notice of non-renewal is provided by either the Company or the employee.

Effective January 1, 2012, ICS entered into an employment agreement with Christina Dockter as its Chief Executive Officer, for a period of 2 years. The agreement automatically renews annually unless a 60-day notice of non-renewal is provided by either the Company or the employee.

Effective September 16, 2013, Validus entered into an agreement with Earl Dotson, as its Chief Executive Officer, for a period of 30 months, expiring March 16, 2016. The agreement is automatically renewed at expiration for a one-year term unless a 90-day notice of non-renewal is provided by either the Company or the employee.

Legal proceedings

From time to time, we may become involved in various legal actions, administrative proceedings and claims in the ordinary course of business. We generally record losses for claims in excess of the limits of purchased insurance in earnings at the time and to the extent they are probable and estimable.

ICS was involved in a claim that is pending in the District Court of Lancaster County, Nebraska. The plaintiff in this claim alleged that ICS conspired with another party (collectively, the “Defendants”) to deny the plaintiff organic certification. The plaintiff was seeking damages (an amount up to approximately $7.5 million) from the alleged difference in value of his crops if they had been certified organic versus the value of the crops as conventional grains. In October 2013, a summary judgment was reached in favor of the Defendants and the court awarded ICS fees to cover a portion of attorney and other costs incurred to defend this case. The plaintiff had until October 30, 2013, to file an appeal with the court; however, no appeal was filed and the judgment was executed.

Employee Benefit Plan

On February 13, 2006, we established a 401(K) plan for the benefit of our employees. The Plan covers substantially all of our employees who have attained age 21. We may make a discretionary matching contribution in an amount that is determined by our Board of Directors. If a matching contribution is made, the amount cannot exceed the elective deferral contributions. For the years ended December 31, 2013 and 2012, we made matching contributions of approximately $17,800 and $19,000, respectively.

Redeemable Noncontrolling Interest

Redeemable noncontrolling interest on our consolidated balance sheet represents the noncontrolling interest related to the Validus acquisition (see Note 3), in which Praedium, at its election, can require the Company to purchase its 40% investment in Valdius. Below reflects the activity of the redeemable noncontrolling interest as of and for the period September 16 – December 31, 2013.

Balance at acquistion date, September 16, 2013	$	1,000,306
Net income attributable to noncontrolling interest for the period September 16 - December 31, 2013		18,090
Balance, December 31, 2013	$	1,018,396

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Stock Buyback Plan

12 Months Ended

Dec. 31, 2013

Stock Buyback Plan

Stock Buyback Plan

Note 8 – Stock Buyback Plan

On January 7, 2008, we announced our intention to buy back up to one million shares of our common stock from the open market at the quoted market price on the date of repurchase. Repurchased shares under the Stock Buyback Plan by year are as follows:

	Number of Shares		Cost of Shares		Average Cost per Share
As of December 31, 2011		498,247	$	109,014	$	0.22
For the year ended December 31, 2012		15,000		12,280	$	0.82
For the year ended December 31, 2013		33,450		29,555	$	0.88
Total		546,697	$	150,849	$	0.28

The repurchased shares are recorded as part of treasury stock and are accounted for under the cost method.

Our stock buyback plan has been and will be used to return capital to shareholders and to minimize the dilutive impact of stock options and other share-based awards. In the future, we may consider additional share repurchases under our plan based on several factors, including our cash position, share price, operational liquidity, and planned investment and financing needs.

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Related Party Transactions (Details Narrative) (USD $)	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012
Related Party Transactions Details Narrative
Revenue from related parties	$ 11,100	$ 12,500

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Notes Payable

12 Months Ended

Dec. 31, 2013

Notes Payable [Abstract]

Notes Payable

Note 6 - Notes Payable
 

Notes payable consist of the following:

	December 31,
	2013		2012
Equipment Note Payable	$	30,729	$	37,407
Lapaesotes Note Payable - Related Party		—		200,000
Great Western Bank SBA Loan		159,808		176,572
		190,537		413,979
Less current portion of notes payable and other long-term debt		24,782		22,873
Notes payable and other long-term debt	$	165,755	$	391,106

Equipment Note Payable

In 2009, we issued a note payable in the amount of $35,963 for the purchase of a vehicle. Interest and principal payments were due in equal monthly installments of $870 over four years beginning March 17, 2009. This note bears an interest rate of 7.4% per annum and is collateralized by the vehicle. In December 2012, we paid the outstanding balance in full and traded in the vehicle towards the purchase of another vehicle. Additionally, we entered into a new note payable for $37,407 with interest and principal payments due in equal monthly installments of $715 over five years beginning January 2013. This note bears an interest rate of 5.5% per annum and is collateralized by the vehicle.

Lapaseotes Notes Payable – Related Party

In September 2007, we obtained $300,000 in unsecured debt financing. The notes were held by a major shareholder who is related to Mr. Lapaseotes, a member of our Board of Directors. Principal was due in full upon the maturity date; interest was payable quarterly. In April 2012, we paid an additional $50,000 towards the principal.

In September 2013, the Board and Mr. Lapaseotes agreed to settle the note and accrued interest with the issuance of the Company’s common stock, at a 6% premium of the outstanding balance based on the stock price of $1.22 on the date of the agreement. As a result, 175,972 shares of the Company’s common stock were issued in settlement of the debt. We recorded a $14,686 non-cash loss on extinguishment, presented within interest expense, related to the premium associated with the settlement of this debt.

Great Western Bank SBA Loan

On April 22, 2011, we entered into a U.S. Small Business Administration (“SBA”) Note with Great Western Bank. This note, which matures on May 1, 2021, provides for $200,000 in additional working capital. The interest rate is at prime plus 2.5% and is adjusted quarterly. Principal and interest are payable monthly. As of December 31, 2013, the effective interest rate is 5.750%. The note can be prepaid without penalties and contains certain customary affirmative and negative covenants.

The loan agreement is collateralized by the accounts receivable, property and equipment, and intangible assets of the Company. The note is further guaranteed by John and Leann Saunders, significant shareholders, officers and members of the Company’s Board of Directors, with a security interest in 3,000,000 shares of the Company’s common stock, which are personally owned by the Saunders.

ICS Revolving Line of Credit

ICS has a revolving line of credit (“LOC”) agreement which matures on April 4, 2014, and provides for $70,050 in working capital. The interest rate is at the bank index rate less 0.5% and is adjusted daily. Interest is calculated using a 360 day year. Principal and interest are payable upon demand, but if demand is not made, then annual payments of accrued interest only is due, with the principal balance due on maturity. As of December 31, 2013, the effective interest rate is 5.75%. The LOC is collateralized by all the business assets of ICS. As of the date of acquisition and through December 31, 2013, ICS had no amounts outstanding under this LOC.

Our obligations under our notes payable for the next five years and thereafter, as of December 31, 2013, are as follows:

Year ending December 31:
2014	$	24,782
2015		25,659
2016		27,741
2017		29,380
2018		23,045
Thereafter		59,930
	$	190,537

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Income Taxes

12 Months Ended

Dec. 31, 2013

Income Taxes

Income Taxes

Note 7 - Income Taxes
 

The reconciliation of income taxes calculated at the statutory rates to our effective tax rate is as follows:

	December 31,
	2013			2012
Expected tax expense	$	(1,635	)	$	165,146
State tax provision, net		(144	)		14,572
Permanent differences		53,507			11,240
Stock-based compensation and other		(56,058	)		(131,683	)
Change in valuation allowance		—			(419,020	)
Other, net		2,552			(31,733	)
Total provision for taxes (deferred)	$	(1,778	)	$	(391,478	)

Deferred federal tax benefit for 2013 and 2012 was $1,678 and $389,737, respectively. Deferred state tax benefit for 2013 and 2012 was $100 and $1,741, respectively.

At December 31, 2013, we had a charitable contribution carry forward of approximately $15,500, which will expire between 2017 and 2018, and a business tax credit carry forward of $30,400, which will expire between 2030 and 2032.

The income tax effects of temporary differences that give rise to significant portions of deferred tax assets as of December 31, 2013 and 2012 are as follows:

	December 31,
	2013			2012
Deferred tax assets, current:
Net operating loss carryforwards	$	130,820		$	232,170
Accruals, stock based compensation and other		41,360			9,183
Other		18,004			1,591
Deferred tax assets, current		190,184			242,944
Deferred tax assets (liabilities), non-current:
Net operating loss carryforwards		566,456			371,097
Intangible assets related to acquisition of ICS & Validus		(92,156	)		(106,270	)
Property and equipment		(39,923	)		(28,971	)
Charitable contributions		15,517			19,972
Business tax credits		30,400			21,349
Deferred tax assets (liabilities), non-current		480,294			277,177
Net deferred tax assets	$	670,478		$	520,121

As of December 31, 2013, our net operating loss carryforwards for U.S. federal income tax purposes were approximately $1.9 million, and are subject to the following expiration schedule:

Net operating loss incurred:	Amount		Expiration dates:
December 31, 2006	$	1,334,284	December 31, 2026
December 31, 2007		365,518	December 31, 2027
December 31, 2013		157,500	December 31, 2033
Total tax carryforwards	$	1,857,802

Our unused net operating loss carryforwards may be applied against future taxable income.

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Stock Option and Warrant Plans

12 Months Ended

Dec. 31, 2013

Stock Option And Warrant Plans

Stock Option and Warrant Plans

Note 9 - Stock Option and Warrant Plans

2006 Equity Incentive Plan

The 2006 Equity Incentive Plan (the “Plan”) provides for the issuance of stock-based awards to employees, officers, directors and consultants. The Plan permits the granting of stock awards and stock options. The vesting of stock-based awards is generally subject to meeting certain performance based objectives, the passage of time or a combination of both, and continued employment through the vesting period. The Plan provides for the issuance of a maximum of 3,000,000 shares of our common stock, of which 389,000 shares were still available for issuance as of December 31, 2013.

Stock Option Activity

During the years ended December 31, 2013 and 2012, the Company issued stock options as follows:

	2013	2012
Stock options granted	82,500 shares	100,000 shares
Expected life of options from date of grant	8 years	8 years
Risk free interest rate	.71% - 1.52%	2.26%
Expected volatility	199% - 202%	212.5%
Assumed dividend yield	0%	0%

Stock option activity during 2013 and 2012 is summarized as follows:

								Weighted Avg.
				Weighted Avg.		Weighted Avg.		Remaining
	Number of			Exercise Price		Fair Value		Contractual Life		Aggregate
	Options			per Share		per Share		(in years)		Intrinsic Value
Outstanding, January 1, 2012		1,321,000		$	0.25	$	0.07		2.83	$	98,295
Granted		100,000		$	1.15	$	1.15		9.72
Exercised		(615,200	)	$	0.24	$	0.04		0.48
Expired		—		$	—	$	—		—
Outstanding, December 31, 2012		805,800		$	0.25	$	0.24		3.85	$	561,723
Granted		82,500		$	1.16	$	1.21		9.56
Exercised		(454,966	)	$	0.23	$	0.05		0.11
Expired		(15,000	)	$	0.54	$	0.54		7.74
Outstanding, December 31, 2013		418,334		$	0.66	$	0.24		7.49	$	313,677
Exercisable, December 31, 2013		202,477		$	0.45	$	0.35		6.36	$	560,443
Unvested, December 31, 2013		215,857				$	0.88		8.56

The aggregate intrinsic value of stock options represents the total pre-tax intrinsic value (the aggregate difference between the closing stock price of our common stock on December 31, 2013 and the exercise price for in-the-money options) that would have been received by the option holders if all in-the-money options had been exercised on December 31, 2013.

The following table summarizes information concerning outstanding and exercisable options as of December 31, 2013:

	Options Outstanding						Options Exercisable
			Average
			Remaining		Weighted Avg.				Weighted Avg.
	Number		Contractual Life		Exercise Price		Number		Exercise Price
	Outstanding		(in years)		per Share		Outstanding		per Share
Range of exercise prices per share:
$0.00 - $0.20		—		—	$	—		—	$	—
$0.21 - $0.30		203,334		7.25	$	0.24		133,320	$	0.24
$0.31 - $0.50		—		—	$	—		—	$	—
$0.51 - $0.80		37,500		1.17	$	0.61		37,500	$	0.61
$0.81 - $2.00		177,500		9.10	$	1.15		31,657	$	1.15
Total		418,334		7.49	$	0.66		202,477	$	0.45

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Commitments and Contingencies (Details 2) (USD $)	12 Months Ended		3 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2013 Validus Acquisition
Balance at acquistion date			$ 1,000,306
Net income attributable to non-controlling interest	(30,527)	(2,810)	18,090
Balance, ending	$ 1,018,396		$ 1,018,396

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Commitments and Contingencies (Details 1) (USD $)	Dec. 31, 2012
Capital leases future minimum lease payments
2014	$ 4,860
2015	4,860
2016	4,860
2017	1,797
Future minimum lease payments	16,377
Less amount representing interest	(1,396)
Present value of net minimum lease payments	14,981
Less current portion	(4,173)
Capital lease obligations	$ 10,808

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Summary of Significant Accounting Policies (Details Narrative) (USD $)	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012
Allowance for doubtful accounts	$ 20,700	$ 16,200
Capitalized software costs		183,385
Amortization of capitalized software costs	12,800	24,000
Internally developed software acquired	129,000
Advertising Expense	59,700	70,200
Stock-based compensation expense	$ 70,152	$ 29,325
Building
Depreciable lives	20 years
Other Property and Equipment | Lower Range
Depreciable lives	3 years
Other Property and Equipment | Upper Range
Depreciable lives	7 years
Revenue Concentration
Threshold for significant customer identification	10.00%	10.00%
Accounts Receivable Concentration
Concentration Risk, percentage		10.00%
Number of customers above concentration threshold		1
Threshold for significant customer identification	10.00%

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Income Taxes (Details Narrative) (USD $)	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012
Deferred federal tax benefit	$ 1,678	$ 389,737
Deferred state tax benefit	100	1,741
Charitable contribution carryforward	15,500
U.S. Federal income tax
Carryforwards tax credits	1,699,802
Business Tax Credit Carryforward
Carryforwards tax credits	$ 30,400

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Summary of Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2013

Summary Of Significant Accounting Policies Policies

Cash and Cash Equivalents

Cash and Cash Equivalents
 

All cash and short-term investments with original maturities of three months or less are considered cash and cash equivalents, since they are readily convertible to cash. We place our cash with high quality financial institutions. At times, cash balances may exceed the FDIC insurance limit, however; we have not experienced any losses related to balances that exceed such FDIC insurance limits, and we believe our credit risk is minimal.

Revenue Recognition

Revenue Recognition

We offer a range of products and services to deploy and maintain identification, traceability, and verification systems and to facilitate customers’ participation in and compliance with USDA’s Quality System Assessment, Process Verification and Export Verification Programs. We generate revenue primarily from the sale of our verification solutions, consulting services and hardware sales. We sell our products and services directly to customers at various levels in the livestock supply chain.

Revenue is recognized when persuasive evidence of an agreement with the customer exists, delivery has occurred or services have been provided, the sales price is fixed or determinable, collectability is reasonably assured, and risk of loss and title have transferred to the customer.

No single customer generated more than 10% of total net revenue in 2013 or 2012.

Service revenues primarily consist of fees charged for verification audits and other verification services that the Company performs for customers. Revenue from verification audits is recognized upon completion of the audits. Contracts for these services are cancelable only for non-performance.

Deferred revenue represents payments received in advance from our customers for annual customer support services not yet performed as of December 31, and revenue is recognized as services are performed, generally over the one year contract term.

Customer deposits represent down-payments made in advance of a verification audit to be performed for a customer and deposits are applied to the customer’s accounts when invoiced.

Revenues under contracts for consulting services are recognized when completed (for short-term projects). On occasion, we may enter into long-term projects, for which we use the percentage of completion method. No such long-term projects occurred during 2013 and 2012.

Product sales are primarily generated from the sale of cattle identification ear tags. Revenue is recognized when goods are shipped and after title has transferred to the customer.

Other revenue primarily represents the fees earned from our “WhereFoodComesFrom®” labeling program. Revenue is recognized when our customer, who has been granted a right to use our WhereFoodComesFrom® label, places this label on their product and ships their product. Revenue is billed based on pounds of product shipped.

Generally, we do not provide right of return or warranty on product sales or services performed.
 

Accounts Receivable and Allowance for Doubtful Accounts

Accounts Receivable and Allowance for Doubtful Accounts

The majority of our receivables are due from trade customers. Credit is extended based on our evaluation of the customer’s financial condition and generally, collateral is not required. Accounts receivable are due approximately 30 days from the invoice date and are stated at amounts due from customers, net of an allowance for doubtful accounts. Accounts receivable that are outstanding longer than the contractual payment terms are considered past due. We determine our allowance by considering a number of factors, including the length of time trade accounts receivable are past due, our previous loss and payment history, the customer’s current ability to pay its obligations to us and the condition of the general economy and the industry as a whole. We write off accounts receivable when they become uncollectible, and payments subsequently received on such receivables are credited to the allowance for doubtful accounts. The allowance for doubtful accounts was approximately $20,700 and $16,200, at December 31, 2013 and 2012, respectively.

No single customer accounted for greater than 10% of our accounts receivable balances at December 31, 2013. One customer accounted for 10% of our outstanding accounts receivable balance at December 31, 2012.

Cost of Revenues

Cost of Revenues
 

Cost of revenues includes the cost of products sold, which consists of livestock ear tags used in connection with the US Verified Source and Age Verification programs. Salaries and related fringe benefits directly associated with our verification services are allocated to cost of revenues.

Livestock identification ear tags sold in connection with our verification offerings are purchased primarily from one supplier. However, there are numerous other companies which manufacture and market such ear tags.

Fair Value Measurements

Fair Value Measurements

The carrying value of cash and cash equivalents, accounts receivable, and accounts payable approximate fair value due to their short maturities. The amounts shown for debt and notes payable also approximate fair value because current interest rates and terms offered to us for similar debt are substantially the same.

Fair value accounting guidance defines fair value, establishes a framework for measuring fair value under GAAP and expands disclosures about fair value measurements, for both financial and non-financial assets. It also establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The fair value hierarchy consists of three broad levels, which are described below:

● Level 1: Quoted prices in active markets for identical assets or liabilities that the entity has the ability to access.

● Level 2: Observable inputs other than prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated with observable market data.

● Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

Property and Equipment

Property and Equipment

Property and equipment are recorded at cost and are depreciated using the straight-line method over the estimated useful lives of the respective assets. Land is not depreciated. Buildings are depreciated over 20 years. All other property and equipment have depreciable lives which range from three to seven years.

Intangible Assets

Intangible Assets

Our intangible assets consist of a customer relationships, accreditations, a beneficial lease arrangement and tradename/trademarks related to the acquisitions of ICS and Validus, recorded at estimated fair value.

Intangible assets also include certain trademark rights and the related costs incurred to obtain the trademark rights recorded at cost. Certain of these assets are subject to amortization using the straight-line method over the estimated useful lives of the respective assets (Note 5).

In connection with the Validus acquisition, the Company allocated a portion of the purchase price to tradenames/trademarks. These tradenames/trademarks were determined to have an indefinite useful life and are not currently amortized. Authoritative guidance requires that intangible assets not subject to amortization (indefinite-lived assets) be tested for impairment on an annual basis, or more frequently if events or changes in circumstances indicate that the asset might be impaired.

Impairment of Long-Lived Assets

Impairment of Long-Lived Assets

We review all of our long-lived assets (including intangible assets) for impairment at least annually or whenever impairment indicators are determined to be present. If an impairment exists, the amount of impairment is measured as the excess of the carrying amount of the asset over its fair value as determined utilizing estimated discounted future cash flows, or some other fair value measure, or the expected proceeds, net of costs to sell, upon sale of the asset.

Significant judgments are required to estimate the fair value of intangible assets including estimating future cash flows, determining appropriate discount rates and other assumptions. Changes in these estimates and assumptions or the occurrence of one or more confirming events in future periods could cause the actual results or outcomes to materially differ from such estimates and could also affect the determination of fair value and/or impairment at future reporting dates. No impairment was identified on the Company’s intangible assets through December 31, 2013.

Goodwill

Goodwill

Goodwill relates to the acquisition of ICS and Validus. ICS and Validus are both reporting units one level below our Certification and Verification Services segment. The other non-amortizable intangible asset relates to the trademarks/trade name acquired in the Validus acquisition and was determined to have an indefinite life. We review goodwill and non-amortizable intangible assets for impairment annually in the fourth quarter, or more frequently if impairment indicators arise. Impairment indicators include (i) a significant decrease in the market value of an asset (ii) a significant change in the extent or manner in which an asset is used or a significant physical change in an asset, (iii) a significant adverse change in legal factors or in the business climate that could affect the value of an asset or an adverse action by a regulator, and (iv) a current period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with an asset used for the purpose of producing revenue. During 2013, we completed a goodwill impairment analysis, and based upon the work performed, we concluded that no impairment existed in our ICS reporting unit, and that goodwill was not at risk in failing step one of the goodwill impairment test. The Validus goodwill was valued at the time of acquisition and will be analyzed annually for impairment in the same manner as described above.

Research and Development, Software Development Costs, and Internal Use Software Development Costs

Research and Development, Software Development Costs, and Internal Use Software Development Costs

Research and development costs are charged to operations as incurred. We did not incur any research and development expense in 2013 and 2012.

Software development costs are capitalized once technological feasibility of a product is established and such costs are determined to be recoverable. For products where proven technology exists, this may occur very early in the development cycle. Factors we consider in determining when technological feasibility has been established include (i) whether a proven technology exists; (ii) the quality and experience levels of the individuals developing the software; (iii) whether the software is similar to previously developed software which has used the same or similar technology; and (iv) whether the software is being developed with a proven underlying engine. Technological feasibility is evaluated on a product-by-product basis. Capitalized costs for those products that are cancelled or abandoned are charged immediately to cost of sales. The recoverability of capitalized software development costs is evaluated on the expected performance of the specific products for which the costs relate.

Internal use software development costs represent the capitalization of certain external and internal computer software costs incurred during the application development stage. The application development stage is characterized by software design and configuration activities, coding, testing and installation. Training costs and maintenance are expensed as incurred, while upgrades and enhancements are capitalized if it is probable that such expenditures will result in additional functionality.

Website software development costs related to certain planning and training costs incurred in the development of website software are expensed as incurred, while application development stage costs are capitalized.

Prior to 2011, we capitalized certain external and internal use software and website development costs totaling $183,385. The estimated useful lives of these pre-2011 costs capitalized was evaluated for each specific project and ranges from one to three years. In 2013, we acquired certain assets of Validus, which included internally- developed software with an estimated fair value of $129,000. During 2013 and 2012, the amortization of capitalized costs totaled approximately $12,800 and $24,000, respectively. Capitalized costs are included in property and equipment.

Advertising Expenses

Advertising Expenses
 

Advertising costs are expensed as incurred. Total advertising expense for the years ended December 31, 2013 and 2012, were approximately $59,700 and $70,200, respectively.

Income Taxes

Income Taxes

We compute income taxes using the asset and liability method. Under this method, deferred income taxes are recognized for differences between the basis of assets and liabilities for financial statement and income statement purposes using the enacted statutory rate in effect for the year these differences are expected to be taxable or deductible. Deferred income tax expense or benefit is based on the changes in the net deferred tax asset or liability from period to period. A deferred tax asset or liability is recognized whenever there are future tax effects from existing temporary differences and operating loss and tax credit carryforwards. If we determine that a deferred tax asset could be realized in a greater or lesser amount than recorded, the asset’s recorded amount is adjusted and the income statement is either credited or charged, respectively, in the period during which the determination is made.

We reduce our deferred tax assets by a valuation allowance if we determine that it is more likely than not that some portion or all of these tax assets will not be realized. In making this determination, we consider various qualitative and quantitative factors, such as:

● The level of historical taxable income and projections for future taxable income over periods in which the deferred tax assets would be deductible,

● Accumulation of income (loss) before taxes utilizing a look-back period of three years.

● Events within the industry,

● The cyclical nature of our business,

● The health of the economy,

● Our future forecasts of taxable income, and

● Historical trending.

The recognition of our net deferred income tax assets requires significant management judgment regarding the interpretation of applicable statutes, the status of various income tax audits, and our particular facts and circumstances. In the first quarter of 2012, after assessing the existing qualitative and quantitative data, including the wide-spread consensus that the economic climate was beginning to improve, we reversed the remaining portion of our valuation allowance after concluding the likelihood for a full realization of the benefits of our deferred tax assets was more likely than not.

We recognize the tax benefit from an uncertain tax position when we determine that it is more-likely-than-not that the position would be sustained upon examination by taxing authorities. The amount recognized is measured as the largest amount of benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. If we derecognize an uncertain tax position, our policy is to record any applicable interest and penalties within the provision for income tax. Management believes there are no current uncertain tax positions that would result in an asset or liability being recognized in the accompanying financial statements. Interest and penalties on unrecognized tax benefits, if any, are recognized as a component of income tax expense.

We file income tax returns in the US federal jurisdiction and various state jurisdictions. We are no longer subject to US federal tax examination for years beginning before January 1, 2010 and the state tax returns that remain subject to examination range from December 31, 2009 through the years ended December 31, 2013.

Stock-Based Compensation

Stock-Based Compensation

The fair value of stock options is estimated using the Black-Scholes option-pricing model, which incorporates ranges of assumptions for inputs. Our assumptions are as follows:

● Dividend yield is based on our historical and anticipated policy of not paying cash dividends.

● Expected volatility assumptions were derived from our actual volatilities.

● The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the date of grant with maturity dates approximately equal to the expected life at the grant date.

● The expected term of options represents the period of time that options granted are expected to be outstanding giving consideration to vesting schedules, based on historical exercise patterns, which we believe are representative of future behavior.

Our stock-based compensation cost for the years ended December 31, 2013 and 2012, was approximately $70,200 and $29,300, respectively, and has been included in income from operations.

The fair value of stock options granted during 2013 and 2012 (Note 9) was estimated using the following assumptions:

	Years ended December 31,
	2013	2012
Stock options granted	82,500 shares	100,000 shares
Expected life of options from date of grant	8 years	8 years
Risk free interest rate	0.71% - 1.52%	2.26%
Expected volatility	199.3% - 203.0%	212.5%
Assumed dividend yield	0%	0%

As of December 31, 2013, total unrecognized stock-based compensation cost related to non-vested awards granted under our option plans, and expected periods of recognition, are as follows:

Year ending
December 31,
2014	$	73,838
2015		58,482
2016		15,846
	$	148,166

Recently Issued Accounting Standards

Recently Issued Accounting Standards

In July 2013, the Financial Accounting Standards Board (“FASB”) issued guidance that codifies the classification of certain unrecognized tax benefits related to net operating loss carryforwards, similar tax losses and tax credit carryforwards. This guidance will be effective for our Company on January 1, 2014. The adoption of this guidance is not expected to have a material impact on our financial position, result of operations or cash flows.

In July 2012, the FASB issued guidance that simplifies how entities test indefinite lived intangible assets for impairment and permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. This guidance was effective for our Company on January 1, 2013. The adoption of this guidance did not have a material impact on our financial position, results of operations or cash flows.

We have considered all other recently issued accounting pronouncements and do not believe the adoption of such pronouncements will have a material impact on our consolidated financial statements.

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Notes Payable (Tables)

12 Months Ended

Dec. 31, 2013

Notes Payable Tables

Schedule of notes payable

Notes payable consist of the following:

	December 31,
	2013		2012
Equipment Note Payable	$	30,729	$	37,407
Lapaesotes Note Payable - Related Party		—		200,000
Great Western Bank SBA Loan		159,808		176,572
		190,537		413,979
Less current portion of notes payable and other long-term debt		24,782		22,873
Notes payable and other long-term debt	$	165,755	$	391,106

Schedule of maturity of notes payable

Our obligations under our notes payable for the next five years and thereafter, as of December 31, 2013, are as follows:

Year ending December 31:
2014	$	24,782
2015		25,659
2016		27,741
2017		29,380
2018		23,045
Thereafter		59,930
	$	190,537

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Notes Payable (Details) (USD $)	Dec. 31, 2013	Dec. 31, 2012
Notes payable
Equipment Note Payable	$ 30,729	$ 37,407
Lapaesotes Note Payable - Related Party		200,000
Great Western Bank SBA Loan	159,808	176,572
[LongTermNotesPayable]	190,537	413,979
Less current portion of notes payable and other long-term debt	24,782	22,873
Notes payable and other long-term debt	$ 165,755	$ 391,106

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Business Acquisitions (Details 3) (USD $)	Dec. 31, 2013	Dec. 31, 2012	Feb. 29, 2012 International Certification Services, Inc.	Feb. 29, 2012 International Certification Services, Inc. Customer Relationships	Feb. 29, 2012 International Certification Services, Inc. Beneficial lease arrangement	Feb. 29, 2012 International Certification Services, Inc. Tradename	Feb. 29, 2012 International Certification Services, Inc. Adjustments	Feb. 29, 2012 International Certification Services, Inc. Adjustments Customer Relationships	Feb. 29, 2012 International Certification Services, Inc. Adjustments Beneficial lease arrangement	Feb. 29, 2012 International Certification Services, Inc. Adjustments Tradename	Feb. 29, 2012 International Certification Services, Inc. As Adjusted	Feb. 29, 2012 International Certification Services, Inc. As Adjusted Customer Relationships	Feb. 29, 2012 International Certification Services, Inc. As Adjusted Beneficial lease arrangement	Feb. 29, 2012 International Certification Services, Inc. As Adjusted Tradename
Cash			$ 135,200								$ 135,200
Accounts receivable			49,700								49,700
Prepaid expenses and other current assets			21,000								21,000
Deferred tax assets			21,400								21,400
Property and equipment			60,600								60,600
Other assets			400								400
Accounts payable			(20,500)								(20,500)
Accrued expenses			(12,500)								(12,500)
Customer deposits			(29,400)								(29,400)
Deferred revenue			(239,000)								(239,000)
Capital lease obligation			(6,500)								(6,500)
Deferred tax liability							(117,197)				(117,197)
Identifiable Intangible Assets			355,000				(355,000)	150,300	120,200	46,300		150,300	120,200	46,300
Goodwill	1,279,762	532,997	377,600				155,397				532,997
Total fair value			713,000								713,000
Fair value of non-controlling interest			(285,200)								(285,200)
Total consideration			$ 427,800								$ 427,800

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Consolidated Statements of Comprehensive Income (Loss) (USD $)	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012
Statement of Comprehensive Income [Abstract]
Net (loss) income	$ (3,033)	$ 873,168
Unrealized gain on marketable securities		6,693
Comprehensive (loss) income	(3,033)	879,861
Comprehensive income attributable to non controlling interest	(30,527)	(2,810)
Comprehensive (loss) income attributable to Where Food Comes From, Inc.	$ (33,560)	$ 877,051

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Business Acquisitions

12 Months Ended

Dec. 31, 2013

Business Acquisitions

Business Acquisitions

Note 3 – Business Acquisitions

Validus Acquisition

On September 16, 2013, we entered into an Asset Purchase and Contribution Agreement (the “Purchase Agreement”), by and among the Company, Validus Verification Services LLC (the “Buyer” or “Validus”), and Praedium Ventures, LLC (the “Seller”).

Pursuant to the Purchase Agreement, WFCF caused Validus to be organized to purchase and acquire certain audit, assessment and verification business assets of the Seller. Such assets acquired included, but were not limited to, verification tools used in the acquired business, including the processes, procedures, systems and documents, intellectual property, a database, contracts and licenses and accounts receivable. Validus acquired such assets in exchange for aggregate consideration of approximately $1.5 million, which included $565,000 in cash and 708,681 shares (the “Shares”) of common stock of WFCF valued at approximately $940,000, based upon the closing price of our common stock on September 16, 2013, of $1.32 per share. In connection with this transaction, the Seller was also issued a 40% interest in Validus, with the Company holding a 60% interest. The Company has the first right of refusal on the remaining 40% of the outstanding stock.

At any time following the thirty-month anniversary of the effective date of the Purchase Agreement, the Company shall have the option, but not the obligation, to purchase all the units (the 40% interest) of Validus held by Praedium, and Praedium shall have the option, but not the obligation, to require the Company to purchase all the units of Validus held by Praedium. The purchase price for the units shall be equal to the amount the selling holders of the units would be entitled to receive upon a liquidation of the Validus assuming all of the assets of Validus are sold for a purchase price equal to the product of eight and half times trailing twelve-month earnings before income taxes, depreciation and amortization, as defined.

Because Praedium, at its option, can require the Company to purchase its 40% interest in Validus, the Validus noncontrolling interest meets the definition of a contingently redeemable noncontrolling interest.

Redeemable noncontrolling interests are presented at the greater of their carrying amount or redemption value at the end of each reporting period and are shown as a separate caption between liabilities and equity (mezzanine section) in the accompanying balance sheet.

We believe that Validus is the leading dairy, pork and poultry certifiers in the United States and represents an opportunity to extend the range of our existing programs and establish our capabilities in other major food groups. As a result of this acquisition, we believe we are now positioned to offer our customers new solutions across the verification and certification spectrum. We also believe it provides diversification for our company, enables us to better serve our customers, and provides another avenue for our WFCF program.
 

The following table summarizes the provisional estimated fair values assigned to the assets and liabilities acquired in addition to the excess of the purchase price over the net assets acquired at the Validus acquisition date. Measurement period adjustments were completed in 2013 and reflect new information obtained about facts and circumstances that existed as of the Acquisition Date. Accordingly, the carrying amounts were retrospectively adjusted as of September 16, 2013. The impact of the retrospective adjustments was not material to the Company’s results of operations or cash flows for the period from the Acquisition Date through December 31, 2013.

	Sept 16, 2013						Sept 16, 2013
	(As reported)			Adjustments			(As adjusted)
Accounts receivable	$	150,000					$	150,000
Internally developed software		—			129,000			129,000
Excess attributable to intangible assets		2,350,765			(129,000	)		2,221,765
Total fair value		2,500,765						2,500,765
Fair value of non-controlling interest		(1,000,306	)					(1,000,306	)
Total consideration	$	1,500,459					$	1,500,459

The fair value of the non-controlling interest was based upon the gross consideration that would have been paid assuming 100% of the outstanding stock had been acquired. Excess attributable to intangible assets reflects the excess over the identifiable assets acquired to intangible assets based on the allocation of the purchase price. At December 31, 2013, the weighted average remaining lives of the identified intangible assets is 7.79 years. The fair value amounts of the components of intangible assets are as follows:

Customer relationships	$	935,000
Trademarks/trade names		465,000
Accreditations		75,000
Identifiable intangible assets		1,475,000
Goodwill		746,765
Total intangible assets	$	2,221,765

The following unaudited pro forma information presents the results of operations for the years ended December 31, 2013 and 2012, as if the acquisition of Validus had occurred on January 1, 2013 and 2012.

	Unaudited
	2013			2012
Total revenue	$	6,912,276		$	6,544,589
Net (loss) income	$	(20,685	)	$	461,606
Basic and diluted earnings (loss) per share	$	(0.00	)	$	0.02

Through December 31, 2013, we incurred a total of approximately $269,000 in advisory and legal fees related to the acquisition of Validus, of which, approximately $219,000 and $50,000 are reported in selling, general and administrative expenses in the accompanying consolidated statements of income (loss) for the years ended December 31, 2013 and 2012, respectively.

ICS Acquisition

On February 29, 2012, we entered into a Purchase and Exchange Agreement (the “Purchase Agreement”), by and among the Company and ICS, and other shareholders as individually named in the Agreement (collectively the “Sellers”).

Pursuant to the Purchase Agreement, on February 29, 2012 (the “Acquisition Date”), the Company acquired 60% of the issued and outstanding common stock of ICS in exchange for aggregate consideration of approximately $427,800, which included $350,000 in cash and 172,840 shares of common stock of the Company valued at approximately $77,800, based upon the closing price of our common stock on February 29, 2012, of $0.45 per share. The Purchase Agreement also includes non-dilution provisions, and we have right of first refusal on the remaining 40% of the outstanding stock. The transaction was accounted for using the acquisition method of accounting.

The following table summarizes the estimated provisional fair values of the assets acquired and liabilities assumed based on information that was available at the Acquisition Date. Measurement period adjustments were completed in 2012 and reflect new information obtained about facts and circumstances that existed as of the Acquisition Date. Accordingly, the carrying amounts were retrospectively adjusted as of February 29, 2012. The impact of the retrospective adjustments was not material to the Company’s results of operations or cash flows for the period from the Acquisition Date through December 31, 2012.

	Feb 29, 2012						Feb 29, 2012
	(As reported)			Adjustments			(As adjusted)
Cash	$	135,200					$	135,200
Accounts receivable		49,700						49,700
Prepaid expenses and other current assets		21,000						21,000
Deferred tax assets		21,400						21,400
Property and equipment		60,600						60,600
Other assets		400						400
Accounts payable		(20,500	)					(20,500	)
Accrued expenses		(12,500	)					(12,500	)
Customer deposits		(29,400	)					(29,400	)
Deferred revenue		(239,000	)					(239,000	)
Capital lease obligation		(6,500	)					(6,500	)
Deferred tax liability		—			(117,197	)		(117,197	)
Identifiable intangible assets:		355,000			(355,000	)		—
Customer lists		—			150,300			150,300
Beneficial lease arrangement		—			120,200			120,200
Tradename		—			46,300			46,300
Goodwill		377,600			155,397			532,997
Total fair value		713,000						713,000
Fair value of non-controlling interest		(285,200	)					(285,200	)
Total consideration	$	427,800					$	427,800

On the acquisition date, the fair value of the non-controlling interest was estimated to be $285,200. This amount was based upon the gross consideration that would have been paid assuming 100% of the outstanding stock had been acquired.

From the Acquisition Date through December 31, 2012, ICS revenues and net income were approximately $978,100 and $7,025, respectively. The following unaudited pro forma information presents the results of operations for the year ended December 31, 2012, as if the acquisition of ICS had occurred on January 1, 2012.

	Unaudited
	2012
Total revenue	$	5,433,900
Net income	$	847,800
Basic and diluted earnings per share	$	0.04

Included in the pro forma information for the year ended December 31, 2012, is approximately $50,500 in accounting, advisory and legal fees incurred related to the acquisition of ICS.

The Company’s right of refusal on the remaining 40% of the outstanding stock of ICS expires on February 28, 2014. On March 1, 2014, the Company exercised its call option to purchase the remaining 40% interest of the stock of ICS in exchange for cash consideration of approximately $196,000, pursuant to the Shareholders’ Agreement, dated February 29, 2012. The Company has 30 days after exercise of the call option to make the cash payment.

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Stock Option and Warrant Plans (Details 1) (USD $)	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Outstanding options	418,334	805,800	1,321,000
Weighted average Remaining Contractual Life, options outstanding	7 years 5 months 26 days	3 years 10 months 6 days	2 years 9 months 29 days
Weighted Average Exercise Price Per Share, options outstanding	$ 0.66	$ 0.25	$ 0.25
Options exercisable	202,477
Weighted Average Exercise Price Per Share, options exercisable	$ 0.45
Exercise Price $0.00 - $0.20
Outstanding options
Weighted Average Exercise Price Per Share, options outstanding
Options exercisable
Weighted Average Exercise Price Per Share, options exercisable
Exercise Price $0.00 - $0.20 | Lower Range
Exercise Price	$ 0.00
Exercise Price $0.00 - $0.20 | Upper Range
Exercise Price	$ 0.20
Exercise Price $0.21 - $0.30
Outstanding options	203,334
Weighted average Remaining Contractual Life, options outstanding	7 years 3 months
Weighted Average Exercise Price Per Share, options outstanding	$ 0.24
Options exercisable	133,320
Weighted Average Exercise Price Per Share, options exercisable	$ 0.24
Exercise Price $0.21 - $0.30 | Lower Range
Exercise Price	$ 0.21
Exercise Price $0.21 - $0.30 | Upper Range
Exercise Price	$ 0.30
Exercise Price $0.31 - $0.50
Outstanding options
Weighted Average Exercise Price Per Share, options outstanding
Options exercisable
Weighted Average Exercise Price Per Share, options exercisable
Exercise Price $0.31 - $0.50 | Lower Range
Exercise Price	$ 0.31
Exercise Price $0.31 - $0.50 | Upper Range
Exercise Price	$ 0.50
Exercise Price $0.51 - $0.80
Outstanding options	37,500
Weighted average Remaining Contractual Life, options outstanding	1 year 2 months 1 day
Weighted Average Exercise Price Per Share, options outstanding	$ 0.61
Options exercisable	37,500
Weighted Average Exercise Price Per Share, options exercisable	$ 0.61
Exercise Price $0.51 - $0.80 | Lower Range
Exercise Price	$ 0.51
Exercise Price $0.51 - $0.80 | Upper Range
Exercise Price	$ 0.80
Exercise Price $0.81 - $2.00
Outstanding options	177,500
Weighted average Remaining Contractual Life, options outstanding	9 years 1 month 6 days
Weighted Average Exercise Price Per Share, options outstanding	$ 1.15
Options exercisable	31,657
Weighted Average Exercise Price Per Share, options exercisable	$ 1.15
Exercise Price $0.81 - $2.00 | Lower Range
Exercise Price	$ 0.81
Exercise Price $0.81 - $2.00 | Upper Range
Exercise Price	$ 2.00

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Income Taxes (Tables)

12 Months Ended

Dec. 31, 2013

Income Taxes Tables

Schedule of reconciliation of income taxes

The reconciliation of income taxes calculated at the statutory rates to our effective tax rate is as follows:

	December 31,
	2013			2012
Expected tax expense	$	(1,635	)	$	165,146
State tax provision, net		(144	)		14,572
Permanent differences		53,507			11,240
Stock-based compensation and other		(56,058	)		(131,683	)
Change in valuation allowance		—			(419,020	)
Other, net		2,552			(31,733	)
Total provision for taxes (deferred)	$	(1,778	)	$	(391,478	)

Schedule of deferred tax assets

The income tax effects of temporary differences that give rise to significant portions of deferred tax assets as of December 31, 2013 and 2012 are as follows:

	December 31,
	2013			2012
Deferred tax assets, current:
Net operating loss carryforwards	$	130,820		$	232,170
Accruals, stock based compensation and other		41,360			9,183
Other		18,004			1,591
Deferred tax assets, current		190,184			242,944
Deferred tax assets (liabilities), non-current:
Net operating loss carryforwards		566,456			371,097
Intangible assets related to acquisition of ICS & Validus		(92,156	)		(106,270	)
Property and equipment		(39,923	)		(28,971	)
Charitable contributions		15,517			19,972
Business tax credits		30,400			21,349
Deferred tax assets (liabilities), non-current		480,294			277,177
Net deferred tax assets	$	670,478		$	520,121

Operating loss carry forward expiration schedule

As of December 31, 2013, our net operating loss carryforwards for U.S. federal income tax purposes were approximately $1.9 million, and are subject to the following expiration schedule:

Net operating loss incurred:	Amount		Expiration dates:
December 31, 2006	$	1,334,284	December 31, 2026
December 31, 2007		365,518	December 31, 2027
December 31, 2013		157,500	December 31, 2033
Total tax carryforwards	$	1,857,802

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Business Acquisitions (Details) (USD $)	Dec. 31, 2013	Sep. 16, 2013 Validus Acquisition	Sep. 16, 2013 Validus Acquisition Adjustments	Sep. 16, 2013 Validus Acquisition As Adjusted
Net Assets Acquired:
Accounts receivable		$ 150,000		$ 150,000
Internally developed software acquired	129,000		129,000	129,000
Excess attributable to intangible assets		2,350,765	(129,000)	2,221,765
Total fair value		2,500,765		2,500,765
Fair value of non-controlling interest		(1,000,306)		(1,000,306)
Total consideration		$ 1,500,459		$ 1,500,459

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Supplemental Cash Flow Information

12 Months Ended

Dec. 31, 2013

Supplemental Cash Flow Information [Abstract]

Supplemental Cash Flow Information

Note 13 – Supplemental Cash Flow Information

	Year to date ended December 31,
	2013		2012
Cash paid during the year:
Interest on Lapaseotes Notes - related party	$	5,918	$	10,333
Other interest	$	11,533	$	8,280
Income taxes	$	—	$	10,120
Non-cash investing and financing activities:
Unrealized gain on marketable securities	$	—	$	6,943
Assets acquired under capital lease obligations	$	—	$	22,258
Common stock issued in connection with ICS acquisition	$	—	$	77,778
Common stock issued in connection with Validus acquisition	$	1,010,459	$	—
Common stock issued in connection with Lapeseotes debt settlement	$	214,686	$	—