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): February 23, 2017

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.)

202 6th Street, Suite 400
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 February 23, 2017, 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 fourth quarter and year to date period ended December 31, 2016.

Item 9.01 Financial Statements and Exhibits

(d) Exhibits

Exhibit No.	Description
99.1	Press Release issued and dated February 23, 2017
99.2	Transcript for February 23, 2017 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: February 27, 2017		Dannette Henning
		Chief Financial Officer

EX-99.1

Where Food Comes From, Inc. - 8-K
	Exhibit 99.1
FOR IMMEDIATE RELEASE	NEWS
February 23, 2017	OTCQB: WFCF

Where Food Comes From, Inc. Reports 2016 Financial Results

Revenue up 12% year over year to $11.6 million from $10.4 million 

Net income of $433,200 vs. $533,900 in prior year; profitability impacted by $305,500 in M&A costs in fourth quarter of 2016 

Adjusted EBITDA increased 13% to $1.4 million from $1.2 million 

Cash generated from operations increased 14% to $1.0 million from $0.9 million 

$3.2 million in cash, cash equivalents and short-term investments; 3.6:1 current ratio; no long-term debt

Q4 acquisition of SureHarvest adds approximately $1.7 million in annualized revenue, expands and diversifies commodity reach with high value specialty crops, positions Company for continued growth

CASTLE ROCK, Colo. – February 23, 2017 – Where Food Comes From, Inc. (d.b.a. IMI Global, Inc.) (OTCQB: WFCF), the most trusted resource for independent, third-party verification of food production practices in North America, today announced its 2016 financial results. 

“Where Food Comes From achieved another solid year of profitable growth, highlighted by double-digit increases in revenue, adjusted EBITDA and cash generation – all of which reached record highs in 2016,” said John Saunders, chairman and CEO. “We closed the year with a clean, strong balance sheet that included $3.2 million in cash, cash equivalents and short-term investments and had no long-term debt, and we are well positioned to continue capitalizing on organic and acquisitive expansion opportunities and extend our leadership position in this high growth industry.

“Our late fourth quarter acquisition of SureHarvest was a transformative event for Where Food Comes From,” Saunders added. “In addition to adding top-tier talent, a range of high value specialty crop coverage, complementary solutions and services, and more than 2,200 new customers from across the food chain, SureHarvest brings a valuable patent portfolio that we believe we can monetize with hundreds of food companies who are currently using traceability methodologies that are covered by those patents. We are moving forward with the integration of this transaction and are already seeing results of cross-selling activities between WFCF and SureHarvest.” 

Full Year Results 

Revenue for the full year increased 12% to $11.6 million from $10.4 million in 2015. Verification services revenue increased 14% to $10.3 million from $9.1 million year over year. Product revenue (cattle identification tags) remained relatively flat at $1.2 million year over year due to the effects of a strong US dollar and a decline in beef-related verifications as a result of lower cattle prices. Other revenue increased 13% to $125,400 from $111,300 last year.

Gross profit in 2016 increased 11% to $5.4 million from $4.9 million a year ago. Gross margin was 47%, unchanged from the same period a year ago. Selling, general and administrative expense as a percent of revenue for 2016 was 41% compared to 39% in 2015.

Net income attributable to Where Food Comes From, Inc. was $433,200, or $0.02 per share, compared with $533,900, or $0.02 per share, in 2015. The decline in net income was attributable to $305,500 in transaction costs associated with the SureHarvest acquisition. 

Adjusted EBITDA in 2016 was $1.4 million, up 13% from $1.2 million in 2015. 

The Company generated $1.0 million in net cash from operations in 2016, up 14% from $0.9 million in 2015.

Fourth Quarter Results 

Fourth quarter revenue increased 9% to $3.0 million from revenue of $2.8 million in the same quarter last year. Verification services revenue increased 6% to $2.6 million from $2.5 million, reflecting a larger customer base and the positive impact of the Company’s growing service bundling capabilities. Product revenue increased 26% to $324,900 from $258,100. Other revenue increased to $57,400 from $26,300 a year ago. 

Gross profit in the fourth quarter increased 6% year over year to $1.3 million from $1.2 million. Gross margin was 43% compared to 44% year over year. Selling, general and administrative expense as a percent of revenue was 45% in the fourth quarter, up from 34% in the same quarter last year.

As a result of $305,500 in M&A related transaction costs in the fourth quarter, the Company reported a net loss attributable to Where Food Comes From, Inc. of $48,700, or less than one cent per share, compared with net income of $153,400, or $0.01 per share, in the same quarter a year ago. 

Adjusted EBITDA in the fourth quarter was essentially flat at $333,200 versus $337,200 in the same quarter last year. 

Balance Sheet 

The Company’s cash, cash equivalents and short-term investments balance at December 31, 2016, decreased 15% to $3.2 million from $3.8 million at 2015 year-end. Working capital was $3.4 million and the current ratio was 3.6:1. 

Conference Call 

The Company will conduct a conference call today at 10:00 a.m. Mountain Time.

Dial in: 

Domestic Toll Free: 1-877-407-8289 

International: 1-201-689-8341 

Conference ID: 13655224

Phone replay: 

A telephone replay of the conference call will be available through March 9, 2017, as follows: 

Domestic Toll Free: 1-877-660-6853 

International: 1-201-612-7415 

Conference Code: 13655224 

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 12,000 farmers, ranchers, vineyards, wineries, processors, retailers, distributors, trade associations and restaurants with a wide variety of value-added services through its IMI Global, International Certification Services, Validus Verification Services, SureHarvest, and Sterling Solutions 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. Visit www.wherefoodcomesfrom.com for additional information.

*Note on non-GAAP Financial Measures

This press release and the accompanying tables include a discussion of EBITDA and Adjusted EBITDA, which are non-GAAP financial measures provided as a complement to the results provided in accordance with generally accepted accounting principles (“GAAP”). The term “EBITDA” refers to a financial measure that we define as earnings (net income or loss) plus or minus net interest plus taxes, depreciation and amortization. Adjusted EBITDA excludes from EBITDA stock-based compensation and, when appropriate, other items that management does not utilize in assessing WFCF’s operating performance (as further described in the attached financial schedules). None of these non-GAAP financial measures are recognized terms under GAAP and do not purport to be an alternative to net income as an indicator of operating performance or any other GAAP measure. We have reconciled Adjusted EBITDA to GAAP net income in the Consolidated Statements of Operations table at the end of this release. We intend to continue to provide these non-GAAP financial measures as part of our future earnings discussions and, therefore, the inclusion of these non-GAAP financial measures will provide consistency in our financial reporting. 

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 the Company’s ability to continue producing financial results similar to those described in this press release; the Company’s ability to capitalize on organic and acquisitive expansion opportunities, extend its leadership position and monetize it’s patent portfolio; and demand for, and impact and efficacy of, the Company’s 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 fourth quarter 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

 
Where Food Comes From, Inc. 

Statements of Income 

(Unaudited)

	Three Months Ended December 31,						Twelve Months Ended December 31,
	2016			2015			2016			2015
Revenues
Service revenue	$	2,643,078		$	2,497,735		$	10,308,670		$	9,074,516
Product sales		324,934			258,063			1,180,919			1,209,619
Other revenue		57,421			26,335			125,444			111,334
Total revenue		3,025,433			2,782,133			11,615,033			10,395,469
Costs of revenue
Labor and other costs of services		1,544,724			1,407,339			5,518,024			4,810,737
Costs of products		193,959			156,220			684,121			729,979
Total costs of revenue		1,738,683			1,563,559			6,202,145			5,540,716
Gross profit		1,286,750			1,218,574			5,412,888			4,854,753
Selling, general and administrative expenses		1,366,177			939,141			4,778,389			4,059,520
Income (loss) from operations		(79,427	)		279,433			634,499			795,233
Other expense (income):
Interest expense		171			332			1,517			1,585
Other expense (income), net		(1,524	)		5,951			(4,131	)		(770	)
Income (loss) before income taxes		(78,074	)		273,150			637,113			794,418
Income tax expense (benefit)		(29,403	)		84,865			235,547			298,150
Net income (loss)		(48,671	)		188,285			401,566			496,268
Net loss (income) attributable to non-controlling interest		—			(34,935	)		31,605			37,649
Net income (loss) attributable to Where Food Comes From, Inc.	$	(48,671	)	$	153,350		$	433,171		$	533,917
Net income per share:
Basic	$	*		$	0.01		$	0.02		$	0.02
Diluted	$	*		$	0.01		$	0.02		$	0.02
Weighted average number of common shares outstanding:
Basic		23,821,108			21,243,745			23,818,762			23,797,236
Diluted		23,973,108			21,868,596			23,964,026			23,974,374

* Less than $0.01 per share

Where Food Comes From, Inc. Calculation of Adjusted EBITDA* (Unaudited)
	Three Months Ended December 31,					Twelve Months Ended December 31,
	2016			2015		2016		2015
Net Income (loss)	$	(48,671	)	$	153,350	$	433,171	$	533,917
Adjustments to EBITDA:
Interest expense		171			332		1,517		1,585
Income tax expense (benefit)		(29,403	)		84,865		235,547		298,150
Depreciation and amortization		68,185			64,538		267,645		256,272
EBITDA*		(9,718	)		303,085		937,880		1,089,924
Adjustments:
Stock-based compensation		37,414			34,120		121,871		117,696
Cost of acquisition		305,463			—		305,463		—
Adjusted EBITDA*	$	333,159		$	337,205	$	1,365,214	$	1,207,620

*Use of Non-GAAP Financial Measures: Non-GAAP results are presented only as a supplement to the financial statements and for use within management’s discussion and analysis based on U.S. generally accepted accounting principles (GAAP). The non-GAAP financial information is provided to enhance the reader’s understanding of the Company’s financial performance, but non-GAAP measures should not be considered in isolation or as a substitute for financial measures calculated in accordance with GAAP. Reconciliations of the most directly comparable GAAP measures to non-GAAP measures are provided herein.

All of the items included in the reconciliation from net income to EBITDA and from EBITDA to Adjusted EBITDA are either (i) non-cash items (e.g., depreciation, amortization of purchased intangibles, stock-based compensation, etc.) or (ii) items that management does not consider to be useful in assessing the Company’s ongoing operating performance (e.g., M&A costs, income taxes, gain on sale of investments, loss on disposal of assets, etc.). In the case of the non-cash items, management believes that investors can better assess the Company’s operating performance if the measures are presented without such items because, unlike cash expenses, these adjustments do not affect the Company’s ability to generate free cash flow or invest in its business.

We use, and we believe investors benefit from the presentation of, EBITDA and Adjusted EBITDA in evaluating our operating performance because it provides us and our investors with an additional tool to compare our operating performance on a consistent basis by removing the impact of certain items that management believes do not directly reflect our core operations. We believe that EBITDA is useful to investors and other external users of our financial statements in evaluating our operating performance because EBITDA is widely used by investors to measure a company’s operating performance without regard to items such as interest expense, taxes, and depreciation and amortization, which can vary substantially from company to company depending upon accounting methods and book value of assets, capital structure and the method by which assets were acquired.

Because not all companies use identical calculations, the Company’s presentation of non-GAAP financial measures may not be comparable to other similarly titled measures of other companies. However, these measures can still be useful in evaluating the Company’s performance against its peer companies because management believes the measures provide users with valuable insight into key components of GAAP financial disclosures.

Where Food Comes From, Inc. Balance Sheets
	December 31,			December 31,
	2016			2015
ASSETS
Current Assets:
Cash and cash equivalents	$	2,489,985		$	3,529,680
Accounts receivable, net		1,344,646			1,110,052
Short-term investments		733,104			251,717
Prepaid expenses and other current assets		203,744			154,912
Total current assets		4,771,479			5,046,361
Property and equipment, net		1,229,350			157,950
Intangible and other assets, net		4,228,228			1,760,199
Goodwill		2,652,250			1,279,762
Deferred tax assets, net		—			231,452
Total assets	$	12,881,307		$	8,475,724
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	333,784		$	417,836
Accrued expenses and other current liabilities		480,047			92,574
Customer deposits		80,832			77,784
Deferred revenue		443,564			194,087
Short-term debt and current portion of notes payable		—			7,846
Current portion of capital lease obligations		4,067			4,634
Total current liabilities		1,342,294			794,761
Capital lease obligations, net of current portion		15,735			1,776
Notes payable and other long-term debt, net		—			8,365
Lease incentive obligation		158,025			—
Deferred tax liabilities		49,440			—
Total liabilities		1,565,494			804,902
Contingently redeemable non-controlling interest		1,888,135			936,370
Stockholders’ equity:
Common stock		24,890			23,822
Additional paid-in capital		10,052,597			7,446,634
Treasury stock		(524,892	)		(177,916	)
Accumulated deficit		(124,917	)		(558,088	)
Total Equity		9,427,678			6,734,452
Total liabilities and stockholders’ equity	$	12,881,307		$	8,475,724

EX-99.2

Where Food Comes From, Inc. - 8-K

Exhibit 99.2

WHERE FOOD COMES FROM, INC. 

2016 Year End Conference Call Script 

Call date: Thursday, February 23, 2017

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

Good morning and welcome to the Where Food Comes From 2016 year-end earnings 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. Statements about future revenue, expenses, profitability, cash, growth strategy, new customer wins, business opportunities, market acceptance of our products and services, and potential acquisitions are forward looking statements. Listeners should not place undue reliance on these statements as 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. Today we will also be discussing EBITDA and Adjusted EBITDA, which are non-GAAP financial measures provided as a complement to the results provided in accordance with generally accepted accounting principles. We use, and we believe investors benefit from the presentation of, EBITDA and Adjusted EBITDA in evaluating our operating performance because it provides us and our investors with an additional tool to compare our operating performance on a consistent basis by removing the impact of certain items that management believes do not directly reflect our core operations. 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

Good morning everyone and thanks for joining us today.

Today I want to spend a fair amount of time discussing the SureHarvest transaction because we’ve had a lot of questions about why we consider this acquisition to be so transformative for Where Food Comes From and we think it’s important that our stockholders understand the strategic implications of this move. But first I want to touch on a few financial highlights because we had another solid year of profitable growth.

For the full year:

● Revenue increased 12% to $11.6 million from $10.4 million. 100% of this growth was organic.

● Late in Q4 we added another $1.7 million in annualized revenue via SureHarvest. And looking ahead, prospects are good for growth among all of our operating subsidiaries, so we are looking forward to another solid performance in 2017.

● From a GAAP standpoint, net income in 2016 declined to $433,000 from $534,000 in the prior year. However, that decline was due to the expenditure of approximately $305,000 in M&A costs associated with the fourth quarter SureHarvest acquisition. Absent that transaction, net income would have approximated $738,000 – representing a 38% increase over 2015 net income. Also, I think it is important to note that although a majority of the M&A expenses hit in the fourth quarter, we have been working on this transaction for more than a year.

● As you probably noticed in our press release this morning, we are now reporting non-GAAP EBITDA and adjusted EBITDA numbers because we think it gives investors a better understanding of how well we are performing in the context of actual day-to-day operating expenses when you back out non-cash expenses and other items such as stock-based comp and M&A costs.

● Adjusted EBITDA increased 13% in 2016 to $1.4 million from $1.2 million a year ago. To put that in perspective, in 2013 our adjusted EBITDA was $443,000. So in just three years our adjusted EBITDA has more than tripled.

● We also continued to generate solid cash flows in 2016. Cash generated from operations increased 14% year over year to $1.0 million from $900,000 last year. Once again, to lend a little perspective, in 2013 we generated net cash of $217,000, so that’s closer to a four-fold increase in just three years.

● We closed the year with $3.2 million in cash, cash equivalents and short-term investments. Our current ratio was 3.6:1 and we have no long-term debt.

● These results underscore the overall health of our business and reflect the deep commitment and work ethic of individuals across all of our operating subsidiaries.

Turning now to our acquisition of SureHarvest:

● Consistent with our approach in previous M&A transactions, we acquired a 60% controlling interest in SureHarvest with the right of first refusal on the remaining 40%. We do it this way for a couple of reasons: 1) We want to ensure the continued commitment and participation of key principals of the businesses we acquire, and this buys us a few years to keep these people engaged and focused on the continued success of their business. 2) The terms of our anticipated purchase of the remaining 40% interest are based on profitability metrics. This helps to ensure that the principals are fully invested in managing their operations with an eye toward profitability. As an aside, we’re happy to say that the principals of ICS, Validus and Sterling Solutions all remain in place after those transactions were fully completed and we hope that’s the case with the SureHarvest team a few years from now.

● Where Food Comes From paid $2.8 million for SureHarvest, the majority of which was paid in common stock. In addition to continuing to use our stock as currency, we like the idea of having SureHarvest owners having a lot of skin in the game and a vested interest in the continued success of Where Food Comes From.

● As we said earlier, SureHarvest adds another $1.7 million in annualized revenue. But much more importantly, the long-term strategic value of this transaction is the potential to move Where Food Comes From to a whole new level as a leader in our space.

● Let me take a step back to explain what I mean by this. Our goal from the start has been to build a great business that dominates our space and is difficult to replicate. That’s our starting point. We began the process by building our IMI Global cattle traceability business into the industry’s largest. In the process, we developed systems, infrastructure and expertise that could be very effectively leveraged by adding new verification services – either organically or through M&A.

● Over the past 8-10 years we’ve successfully executed on that strategy – beginning with a dominant position in the beef industry and building on that with solutions for all major proteins except seafood and a growing presence and solid foothold in many emerging, consumer-driven areas such as organic, non-GMO, gluten free, humane handling, sustainability and many other programs and standards. And as we’ve discussed many times, our growing services portfolio uniquely enables us to offer customers throughout the food chain the cost savings and convenience of bundled services.

● Despite our success in executing on this strategy, there have been a few key components that were missing. For example, we had lacked a significant footprint in the massive west coast growing areas as well as commodity coverage in high value specialty crops. Another missing link was a broad-based solution to address the increasing demand in the area of sustainability. We addressed all of those issues with the SureHarvest acquisition.

● SureHarvest brings 2,200 long-term, steadfast and innovative customers throughout California, Oregon and Washington. Their customers represent all stops along the food chain, including growers, packers, shippers, distributors, processors, retailers and trade associations. Their commodity coverage includes wine grapes, almonds, hazelnuts, mushrooms, leafy greens, avocados and other fresh produce. The addition of these commodities enables us to impact virtually all components of a consumer’s dinner plate – protein, produce, dairy, grain and even a glass of wine. And the more real estate we cover on a consumer’s plate, the more opportunity we have to generate consumer pull-through demand for our brand. Think about that for a minute. Right now, among our handful of competitors, there are only a few that cover even a couple of standards and food groups. We cover virtually all food groups and by far more standards than any other verification entity. This is our central strategy of building a competitive moat around the business.

● SureHarvest also brings a broad range of solutions that either augment or complement our own solutions portfolio. Chief among these is their flagship Sustainability MIS solution that is used by growers and trade groups to measure various sustainability metrics in what is one of the fastest growing class of standards in American agriculture. SureHarvest has developed a comprehensive SaaS-based solution and has really written the book on sustainability on the farm and vineyard side of things.

● And finally, SureHarvest brings a valuable patent portfolio that we believe can be monetized over time with hundreds of food brands who are currently using methods of traceability that are covered by those patents.

● The integration of SureHarvest is going smoothly. The synergies and cross-selling opportunities that we envisioned are beginning to manifest in various ways, including some we hadn’t even contemplated. Let me give you a few examples:

○ Here’s an example: The Almond Board of California and roughly 10% of California almond producers are engaged with SureHarvest’s Sustainability MIS engine, which is a self assessment that requires follow-up audits. Following the acquisition announcement we started hearing from almond producers interested in our auditing services not only because of our experience in the field but due to our ability to bundle other audits such as organic. And in addition to going after these customers, we are going after the 90% of California almond growers who are not yet on the program. And of course there are similar opportunities with trade associations and producers in the other commodities SureHarvest covers that are surfing on the sustainability tsunami and have similarly low penetration rates and where the real growth is still ahead of us.

○ We also believe there are several major almond brands that will build upon this success to help them market their own consumer outreach programs.

○ Let me give you another example of an intriguing new business opportunity: The California Sustainable Winegrowing Alliance just recently launched a new standard and label called Certified Sustainable. This was in response to a research initiative that showed a majority of the U.S. wine trade considers sustainability when making purchasing decisions and demand is expected to increase over the next decade. In order to display the Certified Sustainable logo on bottles, both vineyards and wineries must be certified by an independent third party.

The point I’m trying to make is that Where Food Comes From – by virture of the SureHarvest acquisition – has significantly strengthened its position as America’s most diversified and most experienced provider of certifications of food claims – an industry that by most accounts is still in its infancy and poised to grow well into the future as food producers strive to keep pace with consumer preferences.

I’ll close by steering the discussion back around to our financial performance. Assuming the industry continues to grow and we continue to participate in that growth, we believe that the platform we have established is highly scalable and has the capacity to manage a business two or three times our current size without making any commensurate incremental investments in personnel or technology. This obviously bodes well for our bottom line – and with that I’ll open the call to questions….operator?

Question-and-Answer Session

Operator - [Operator Instructions] Our first question comes from the line of Ian Cassel with MicroCap Club. Please go ahead with your questions.

Ian Cassel - Hi John, I have two questions, I think the first one is you talked a little bit about the SureHarvest MIS with that platform continues to be a really robust platform and we are talking about sustainability, do you have any plans to take that to other two groups even within your other subsidiaries?

John Saunders - Great question. Yes that was a big part of our strategy and we have already began to utilize the platform that SureHarvest has to integrate with our operations around beef and pork and poultry and to create one standard strategic place for benchmarking data for large food companies looking to benchmark themselves against those in the industry as a whole.

Ian Cassel - Okay. But that kind of goes into my next question, you mentioned this sustainability Tsunami that you see, can you maybe quantify that little bit more and expand on that, what exactly you are seeing maybe within your own customer base for potential brands that are looking to tackle this sustainability issue?

John Saunders - Well we were clearly public early last year the pledge that one of our large customers Danone had made to their customers and the direction that they were heading around sustainability, naturality and transparency, so you don’t have to look much further than what they are doing, what is important about what SureHarvest brings and why their software as a service model is so important to us and our future plans is they have been an area that has been affected by sustainability for more than 20 years.

So as I mentioned their innovation and their customers have led them down path that really the industry standard for what sustainability looks like from a production agriculture standpoint. And they built not only the sustainability MIS which is an industry base tool, benchmarking tool but also their farming MIS which is natural tool utilized by production agriculture vendors to manage the day to day operations of their facilities.

Both of those tools we see first of all working very seamlessly together but having a massive appeal in other industries that we are working and then down the road to international opportunities.

Ian Cassel - Okay. Thank you.

Operator - [Operator Instructions] Our next question comes from the line of Travis Wiedower, Wiedower Capital. Please proceed with your questions.

Travis Wiedower - Hi John, can you update us on the labeling segment and kind of how you see that evolving over the next say two to five years?

John Saunders - Sure. We continue to spend the majority of our time looking at ways that we can continue to promote the labeling program and the verification that represents to the producers that are utilizing the program. We have had a long-term relationship with them, we have had announced a large poultry producer, North Poultry that has a branded product in Whole Foods about 150 stores under their defined menu brands, I’m excited to report that we have several opportunities both retail and quick service that we continue to move closer to either wise in the program and developing the systems in place.

So I think over the next 6 to 12 months, you will have more good news about the labeling program and the growth of it.

Travis Wiedower - Okay, thanks. That is good to hear. And then you conducted I believe a 183 onsite orders for the McDonalds pilot program, couple years ago in Canada. Are there a 183 farmers now annual customers of your or are those one time audits for our pilot.

John Saunders - The program was the pilot project. So, it had a definitely beginning an end. All of the producers that were engaged in that program continued to be the part of the Canadian round table for sustainable group and that improvement is in the process as is the United States round table for sustainable beat and kind of flushing out the results of that pilot project and then what the mechanism is going to be that standard in those producers that engaged in the program.

We continue to be a part of that process and as the new process goes, there is a significant amount of time that goes into development of that and then also continuing to look at how that’s going to be implemented on a broad basis across the industry that they reflect. So, we’re pretty hopeful that the work that was done as part of the program and produces that were engaged in that program will be the foundation for what becomes more board based program in Canada.

Operator - [Operator Instructions] Our next question comes from the line of Marc Robins with Catalyst Research. Please go ahead with your question.

Marc Robins - Hi, thank you. Hello John. President Trump has really kind of changed a lot of things at a variety of government agencies FDA, EBA, HHS and so forth. I’m just wondering, it’s still only what just four weeks into his first term, are you seeing any indication or has there been any indication that there is going to be some changes in the USDA and any of the other agencies that you might interact with?

John Saunders - Interestingly enough we have not. We have not seen any change, nor an indication of change. I’ll give you one area that we were a little more concerned about and that is trade and we were we talk last, I think last quarter about China. They made an announcement last year that they were going to reintroduce tax force in China. There is a whole process that you have go through.

So, based on the results of the election, I think we were a little unsure of what that was going to mean, but we’ve learned that there is going to mission to China that happened postelection and those negotiations continue to move along. So, it’s very positive or we’ve didn’t see what we necessarily thought we might see with the new administration but specifically, in any of the organizations that work with, we’ve seen almost no change in fact we probably seen a little bit of the speed there.

Marc Robins - And as I think about that really so many of the services that you provide at least now are caused by demand pull from the consumer rather that a cost push kind of situation from the government, is that a correct characterization or am I reaching for starts here.

John Saunders - You’re exactly right and even when you look at the global food safety mission, which is really the core backbone of what’s been there and the implementation of statement is going to look like meaning that there is three or four standards that are part of that we work with rescue at the BRC and those two programs, I think are probably and I don’t have numbers on this typically but they are among our fastest growing audits and verifications that we do and those are entirely driven by international standards and large multinational companies. They have nothing to do with [indiscernible] was a part of that, but it’s the customers that are forcing it down through the supply chain.

Marc Robins - Great, looks like exciting improvement being there. Thank you, sir.

Operator - [Operator Instructions] Our next question comes from the line of Terry Thompson, Private Investor. Please go ahead with your questions.

Terry Thompson - Hello, John, congratulations on yet another great quarter and another great year, by the way I really enjoyed your and Jeff’s article in [indiscernible] if I could, I’d like to step back to the McDonalds question. Has there been any talk about then possibly bringing - doing an pilot project or something here in the U.S. with you, or could you talk about that?

John Saunders - I go to Leann, I’m going to let her to answer that one.

Leann Saunders - So Terry, as part of the U.S. for sustainable beef and they are looking and doing some field project works and we are very engaged in the U.S. roundtable it’s similar to what’s happening in Canada with the DRSC, it’s a multi stakeholder initiative and so they are starting to looking at some pilot project opportunities in United states.

Terry Thompson - That’s great news and then one other question. Have you all given any more thought you think it’s time to think about listing on one of the big board’s is there anything moving on that direction.

John Saunders - Good question. I will tell you Terry we probably evaluate that question weekly and we think about finding the right point in time to do it and I will say that we continue to build our internal process business systems necessary to do that. And again keep those exchanges that we’re evaluating are very, very eager for us to move up. But we’re unsure of the right time, I guess I will just stand by saying, yes we think about it all the time and it will...

Terry Thompson - Fantastic.

John Saunders - Okay.

Terry Thompson - Okay. I understand it’s pretty expensive but I don’t have any idea of that - but as always about year judgment, you all were doing a great job and I couldn’t be more pleased. Thank you. I will see you in May.

Operator - [Operator Instructions] It does seem that we have no further questions at this time. I would like to turn the floor back over to management for any closing comments.

John Saunders - Well once again thank you all for your participation and the valued questions. I can tell you we are all - here in our new office and we are extremely excited about 2017 and lot of the new projects and old customers that we have been working with. So, lots of good things to come in 2017. Thank you all, bye.

Operator - Thank you. Ladies and gentlemen this concludes today’s teleconference. You may disconnect your lines at this time. And thank you for your participation.