8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION 

WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): May 5, 2014

WHERE FOOD COMES FROM, INC.  

(Exact Name of Registrant as Specified in its Charter)

Colorado
(State or Other Jurisdiction of
Incorporation) 333-133634
(Commission File Number) 43-1802805
(I.R.S. Employer Identification No.)

221 Wilcox, Suite A
Castle Rock, Colorado	80104
(Address of Principal Executive Offices)	(Zip Code)

(303) 895-3002
(Registrant’s Telephone Number, Including Area Code)

Not applicable
(Former name or former address, if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

☐	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02 Results of Operations and Financial Condition

Reference is made to the Where Food Comes From, Inc. (the “Company”) press release on May 5, 2014, and conference call transcript, attached hereto as Exhibits 99.1 and 99.2, respectively, and incorporated by reference herein (including, without limitation, the information set forth in the cautionary statement contained in the press release and conference call transcript), relating to the Company’s financial results for the first quarter ended March 31, 2014.

Item 9.01 Financial Statements and Exhibits

(d) Exhibits

Exhibit No.	Description
99.1	Press Release issued dated May 5, 2014
99.2	Transcript for May 5, 2014 conference call

SIGNATURE

     Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	WHERE FOOD COMES FROM, INC. (Registrant)
	By:	/s/ Dannette Henning
Date: May 9, 2014		Dannette Henning
		Chief Financial Officer

EX-99.1

Where Food Comes From, Inc. 8-K

Exhibit 99.1

FOR IMMEDIATE RELEASE	NEWS
May 5, 2014	OTCQB: WFCF

Where Food Comes From®, Inc. Reports 34% Revenue Increase in First Quarter of 2014

 
CASTLE ROCK, Colo. – Where Food Comes From, Inc. (d.b.a. IMI Global, Inc.) (OTCQB: WFCF), the trusted resource for third-party verification of food production practices, today announced financial results for its first quarter ended March 31, 2014.

 
Revenue in the first quarter was $1,376,400, up 34% from $1,025,500 in the first quarter last year. The growth was due to an increase in the number of customers using the Company’s verification services, which more than offset lower-than-expected revenue associated with pork audits resulting from the Porcine Epidemic Diarrhea Virus (PEDV).  Verification services revenue increased 41% to $1,205,200 in the first quarter from $853,600 in the same quarter last year. Hardware revenue consisting of cattle ear tags increased 5% to $135,400 from $129,000 year over year.  Labeling revenue declined 16% year-over-year to $35,800 from $42,900.

 
Gross profit in the first quarter was $557,500, or 41% of revenue, up slightly from gross profit of $533,800, or 52% or revenue, in the first quarter last year.  Selling, general and administrative expenses in the first quarter increased to $831,200 from $625,500 in the same quarter last year due primarily to absorption of a full quarter of overhead from the Validus subsidiary, which was acquired in the third quarter of 2013.

 
Net loss attributable to Where Food Comes From, Inc. in the first quarter was $133,600, or $0.01 per share, compared with net loss of $58,400, or less than $0.01 cent per share, in the same quarter a year ago.  The 2014 net loss was substantially attributable to lower-than-expected revenue due to the aforementioned PEDV issue.

 
“We followed a strong fourth quarter with continued revenue growth momentum in the first quarter of 2014,” said John Saunders, chairman and CEO.  “This growth reflects the successful execution of an M&A strategy designed to increase the size and scope of our solutions portfolio while mitigating risk associated with changing market dynamics such as Japan’s easing of import regulations in 2013, which resulted in a significant decline in Japanese age and source verification revenue in 2013. It is also worth noting that first quarter revenue growth – as well as profitability – was adversely impacted by the USDA’s decision to discourage on-farm pork audits until the Porcine Epidemic Diarrhea Virus subsides in order to reduce the risk of spread. We believe we will eventually resume on-farm pork audits once the PEDV situation resolves.”

Conference Call
The Company will conduct a conference call on Monday, May 5, 2014, at 10:00 a.m. Mountain Time.
 
Call-in numbers for the conference call:
Domestic Toll Free: 1-877-941-6009
International: 1-480-629-9819
Conference ID: 4681760
 
Phone replay:
A telephone replay of the conference call will be available through June 5, 2014, as follows:
Domestic Toll Free: 1-800-406-7325
International: 1-303-590-3030
Conference Code: 4681760

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About Where Food Comes From, Inc.
Where Food Comes From, Inc. (d.b.a. IMI Global) is America’s trusted resource for third party verification of food production practices. The Company supports more than 10,000 farmers, ranchers, processors, retailers and restaurants with a wide variety of value-added services through its IMI Global, International Certification Services, and Validus Verification Services units. In addition, the Company’s Where Food Comes From® retail and restaurant labeling program utilizes the verification of product attributes to connect consumers to the sources of the food they purchase through product labeling and web-based information sharing and education. Go to
www.wherefoodcomesfrom.com for additional information.

 
CAUTIONARY STATEMENT
This news release contains "forward-looking statements" within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, based on current expectations, estimates and projections that are subject to risk.  Forward-looking statements are inherently uncertain, and actual events could differ materially from the Company’s predictions.  Important factors that could cause actual events to vary from predictions include those discussed in our SEC filings.  Specifically, statements in this news release about industry leadership; the ability of the Company’s M&A strategy to mitigate market risks, expectations to resume pork audits, and the demand for, and impact and efficacy of, the Company’s and its subsidiaries’ products and services on the marketplace are forward-looking statements that are subject to a variety of factors, including availability of capital, personnel and other resources; competition; governmental regulation of the agricultural industry; the market for beef and other commodities; and other factors.  Financial results for the first quarter and twelve-month period are not necessarily indicative of future results.  Readers should not place undue reliance on these forward-looking statements.  The Company assumes no obligation to update its forward-looking statements to reflect new information or developments.  For a more extensive discussion of the Company’s business, please refer to the Company’s SEC filings at www.sec.gov.

Company Contacts:
 
John Saunders
Chief Executive Officer
303-895-3002
 
Jay Pfeiffer
Pfeiffer High Investor Relations, Inc.
303-393-7044

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Where Food Comes From, Inc.

Statements of Loss

(unaudited)

	Three Months Ended
	March 31,
		2014			2013
Revenues
Service revenues	$	1,205,173		$	853,606
Product sales		135,420			129,009
Other revenues		35,833			42,888
Total revenues		1,376,426			1,025,503
Costs of revenues
Labor and other costs of services		717,171			405,792
Costs of products		101,709			85,889
Total costs of revenues		818,880			491,681
Gross profit		557,546			533,822
Selling, general and administrative expenses		831,154			625,515
Loss from operations		(273,608	)		(91,693	)
Other expense (income):
Interest expense		2,823			6,779
Other income, net		(778	)		(447	)
Loss before income taxes		(275,653	)		(98,025	)
Income tax benefit		(78,368	)		(34,288	)
Net loss		(197,285	)		(63,737	)
Net loss attributable to
non-controlling interest		63,657			5,354
Net loss attributable to Where Food
Comes From, Inc.	$	(133,628	)	$	(58,383	)
Net loss per share:
Basic	$	(0.01	)	$	*
Diluted	$	(0.01	)	$	*
Weighted average number of common
shares outstanding:
Basic		22,692,859			21,439,355
Diluted		22,692,859			21,439,355
* less than a penny ($0.01) per share

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Where Food Comes From, Inc.

Balance Sheets

		March 31, 2014			December 31, 2013
		(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents	$	876,601		$	1,067,537
Accounts receivable, net		570,680			683,800
Prepaid expenses and other current assets		123,108			143,576
Deferred tax assets		190,184			190,184
Total current assets		1,760,573			2,085,097
Property and equipment, net		244,671			253,206
Intangible and other assets, net		1,751,074			1,716,115
Goodwill		1,279,762			1,279,762
Long-term deferred tax assets		558,662			480,294
Total assets	$	5,594,742		$	5,814,474
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	285,399		$	277,633
Accrued expenses and other current liabilities		47,385			56,091
Customer deposits		53,686			39,134
Deferred revenue		290,280			149,660
Short-term debt and current portion of notes payable		25,132			24,782
Current portion of capital lease obligations		4,228			4,173
Total current liabilities		706,110			551,473
Capital lease obligations, net of current portion		9,730			10,808
Notes payable and other long-term debt, net of
current portion		159,302			165,755
Total liabilities		875,142			728,036
Contingently redeemable non-controlling interest		942,222			1,018,396
Equity:
Common stock		23,240			23,233
Additional paid-in capital		5,359,715			5,216,327
Treasury stock		(150,849	)		(150,849	)
Accumulated deficit		(1,454,728	)		(1,321,100	)
Total Where Food Comes From, Inc. equity		3,777,378			3,767,611
Non-controlling interest		—			300,431
Total equity		3,777,378			4,068,042
Total liabilities and equity	$	5,594,742		$	5,814,474

EX-99.2

Where Food Comes From, Inc. 8-K

Exhibit 99.2

WHERE FOOD COMES FROM, INC.

2014 First Quarter Conference Call Script

Call date: Monday, May 5, 2014

Call time: 10:00 a.m. Mountain Time

Jay Pfeiffer

Good afternoon and welcome to the Where Food Comes From 2014 first quarter conference call.

During the course of this call, we will be making forward-looking statements based on current expectations, estimates and projections that are subject to risk. Specifically, our statements about future revenue, expenses, profitability, cash, growth strategy, market acceptance of the Company’s products and services, and potential acquisitions are forward looking statements. Listeners should not place undue reliance on these statements. There are many factors that could cause actual results to differ materially from our forward-looking statements. We encourage you to review our publicly filed documents as well as our news releases and website for more information about the Company. At present it is the Company’s policy not to provide specific guidance with respect to future revenue and earnings expectations or new customer wins.

I will now turn the call over to John Saunders, chairman and chief executive officer.

John Saunders

Thank you, Jay.

Good morning, everyone, and thanks for joining us today.

The first quarter of 2014 was the second consecutive quarter of year-over-year revenue growth for Where Food Comes From. You’ll recall that in the fourth quarter we reported a 39% revenue increase and we followed that in the first quarter with a 34% increase. As you know, Where Food Comes From historically has delivered fairly consistent revenue growth and it’s good to be back on track. Restoration of double digit growth is attributable to a couple of factors: First, our M&A strategy – designed to increase the size and scope of our solutions portfolio and insulate us from the risks of ever-changing market dynamics – has been a great success. Second, demand for our legacy solutions such as Non-Hormone Treated Cattle and Verified Natural Beef programs has been on the rise.

I’d like to recap a few key financial highlights for the first quarter that are direct results of these two factors:

Q1 revenue was $1.4 million, up 34% from $1.0 million in the first quarter last year. Verification services revenue increased 41% to $1.2 million from $850,000 in Q1 last year. Specifically, this growth was due to an increase in the number of customers using our verification services – an increase associated primarily with our M&A strategy – although I’m happy to say our legacy IMI business also showed growth in the first quarter on a stand-alone basis. What makes this growth more impressive is that we achieved it in spite of a couple of significant challenges, which I referenced earlier in my comment about ever-changing market dynamics. The first challenge was the more than year-long deterioration of our Japanese source and age business, which contracted approximately 65% in 2013. Keep in mind, it wasn’t that long ago that Japanese verification activity was considered one of the cornerstones of our business and the thought of that going away almost overnight was unimaginable. Yet today, Japan represents only a fraction of our core business and we are healthier and stronger than ever as a company.

Our second challenge involved our most significant M&A transaction of 2013 -- Validus, the US leader in independent certification of socially responsible production practices covering pork, poultry and dairy. Validus overnight increased our customer base by 50% while adding unique new capabilities to our solutions portfolio. Their contribution to revenue in Q1 was significant, but not nearly what it would have been had not yet another unscheduled “market dynamic” presented itself – the Porcine Epidemic Diarrhea Virus, or PEDV. As a result of PEDV, Validus was prevented from doing pork audits in the first quarter, and that of course impacted their revenue. This makes our 34% revenue growth all the more impressive. And keep in mind, once we have sufficient bio-security systems in place, those Validus pork audits are expected to resume – so we believe that revenue was merely postponed.

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The broader point I’m trying to make is that, when we initiated our M&A program several years ago, this is one of the things we had in mind. By acquiring competitors with strengths similar to ours, we add customers and revenue sources and expand our geographic footprint. But by acquiring competitors with complementary skill sets, we also add customers and revenue streams but, more importantly, we insulate ourselves against the kinds of challenging market dynamics I just described – dynamics as diverse and random as Japan regulatory actions and domestic swine disease.

Looking at it from another perspective – and this is important to me both as CEO and as a large WFCF stockholder – the fact that Where Food Comes From now audits to more standards in more foods groups for more customers than any company in our space is absolutely critical because it not only spreads our risk and limits our downside when things like Japan and PEDV happen, but it expands our upside because we clearly have the most to offer in an industry expected to grow steadily for years to come – and to grow in ways we didn’t even anticipate a few years ago. Today we are one year closer to mandatory animal disease traceability, which we expect will put our ability to scale our business to the test. And we’re hearing more and more about consumer-driven trends such as the recent McDonald’s announcement around sourcing products from verified sustainable beef producers. We are currently auditing existing US beef producers to their own state’s existing Beef Quality Assurance programs.

A few more quick notes on M&A’s impact on Q1: In the first quarter, as I’m sure you’re aware, we closed the acquisition of the Merck Animal Health verification business. This transaction added new customers and revenue streams, and we’ll begin feeling the full effects of that in the second quarter when we’ll enjoy a full 3 months of contribution from that business versus just one month’s impact in Q1. The Merck deal combined with the Micro Technologies partnership, which added roughly 1,000 new customers, further consolidated our leadership position in the beef audit space, where Merck and Micro were our two largest competitors. We followed the Merck acquisition in March by exercising our call option to acquire the remaining 40% interest in International Certification Services, Inc., which is now a wholly owned subsidiary specializing in organic certification and the exploding gluten free space. We continue to evaluate M&A opportunities that support our plans for expansion and diversification.

In terms of the performances of our individual businesses, we are very encouraged by the trends we’re seeing. As I mentioned, the IMI business showed good growth in Q1 and Validus delivered solid results in spite of the PEDV situation and continues to justify our decision to move ahead with that acquisition. ICS, which we haven’t talked a lot about, has made great strides in implementing operational efficiencies and is expected to begin having a more significant impact on our bottom line results. As far as Merck and Micro go, we have quickly transitioned those customers into our system and are right on track with integration efforts.

Looking ahead in 2014, we’re optimistic about prospects for continued growth and an improved bottom line.

As always, we thank you for joining us on the call today.

Operator, I’ll now open the call to questions…. 

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Summary of Question and Answer session:

• When can we expect to resume pork audits? There are no definitive answers. Correct biosecurity measures (temperature/weather, frequency of conducting audit, virus exposure, etc.) need to be in place. There are opportunities for innovations around conducting audits and we are hoping to resume probably the later part of this year.

• WFCF brand revenue declined due to 2 large customers one-time initial fees earned in 2013.

• Can we break out Q1 numbers without acquisitions? It is difficult to break out organic growth because many source and age customers traded up to the NHTC and verified natural programs. Also, only one month of this quarter included Merck and probably doesn’t represent anything meaningful. Both Validus and IMI generate the minority of their revenue in Q1 due to seasonality. In Q4 2014 Validus revenue exceeded expectations. Our solutions are built for Q2 and Q3. Biosecurity measures demand full time employees which increase labor costs but eventually the sow industry will require those audits in order to catch up. We manage to profitability as a consolidated company so we look at bundling opportunities, cutting costs and diversification as to how companies source their products today.

• What is timing of McDonalds going to 3^rd party verification? We have had a long term relationship with McDonalds and we work with many of their suppliers. They, as well as Walmart, are realistic about committing to 15% by 2023 of sustainable beef producers…they are not committing to 100% but will endorse existing programs to get product flowing such that in the future they can make a claim that in 5-7 years they can make a statement like “25% of beef is coming from sustainably produced farms.” We cannot estimate a date but what it does create for us is an industry that is looking at sustainability and animal welfare. This uniquely positions us in Castle Rock to deal with these types of issues they are dealing with…

• What is the most material opportunity for the Company in nest 12 months? Both McDonalds and Walmart would be hard to compete with the impact that they would have on our business but we are realistic in believing that they are not in a position to launch “McCertification.” We have producers and packers under NHTC that would do a good job at representing what McDonalds would be trending towards…similar to Whole Foods talking about GMO’s…

• When do you expect to see bundling synergies in the financials and margin improvements? We are already seeing it in ICS with combined service elements in Organics, and in Validus with combination of dairy and Holstein beef industries. In the past couple of weeks we have conducted our first joint audit. Materially, we may see financial impacts by Q1 next year.

• Will Japan source and age verification return in next couple of years? Japan is engaged in TPP negotiations and establishing some parameters around tariffs. Japan’s relationship with Australian beef with means US beef needs to continue to compete in Japan and with Australian’s mandatory ID programs.

• Cost of revenues – what needs to be done to “beef up” to handle mega-opportunities, ie EE headcount and capex? We are very lean but have very highly talented and capable employees which means we incur a fixed SG&A that must be absorbed in Q1 but it supports the ramp up in Q2. Additionally, we hire PT auditors in regional or specific commodity basis. Administratively, we have the bandwidth but we must wait on audits to come in during specific seasons.

• Is Costco an opportunity compared to McDonalds and Walmart? They are a great target for us and we have worked with Costco for many years. We are in touch with them weekly, meaning, we conduct a lot of customer service before we ever conduct our first on-farm or ranch audit for a specific customer which leads to our WFCF labeling program.

Closing remarks from John Saunders.