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): November 1, 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))

Indicate by check mark whether the Registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ 

Item 2.02 Results of Operations and Financial Condition

Reference is made to the Where Food Comes From, Inc. (the “Company”) press release on November 1, 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 third quarter and year to date period ended September 30, 2017.

Item 9.01 Financial Statements and Exhibits

(d) Exhibits

Exhibit No.	Description
99.1	Press Release issued and dated November 1, 2017
99.2	Transcript for November 1, 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: November 6, 2017		Dannette Henning
		Chief Financial Officer

EX-99.1

Where Food Comes From, Inc. 8-K

Exhibit 99.1

Where Food Comes From, Inc. Reports 2017 Third Quarter Financial Results

Q3 revenue up 42% year over year to $4.7 million from $3.3 million on strength of China reopening its markets to US beef exports and solid performance by all operating units

Q3 Net income up 29% to $290,200 from $225,000

Q3 adjusted EBITDA up 64% to $743,900 from $454,100

YTD cash generated from operations of $1.6 million

CASTLE ROCK, Colo. – November 1, 2017 – Where Food Comes From, Inc. (WFCF) (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 2017 third quarter and nine-month financial results.

“As anticipated, the reopening of Chinese markets to US beef imports resulted in a spike in verification activity and related tag sales for US beef producers eager to qualify their cattle for export to China,” said John Saunders, Chairman and CEO. “In addition to performing required source and age verifications, we are also providing natural and/or non-hormone treated cattle verifications for producers to ensure their products pass spot checks that China is conducting for banned substances. We expect this trend to continue driving double digit verification revenue growth in coming quarters as more packers and producers come on board to take advantage of premiums available through beef shipments to China, the world’s second largest but fastest growing consumer of beef.

“From a broader perspective, Where Food Comes From continues to be a leader in developing and implementing innovative verification programs,” Saunders added. “In the third quarter, we were selected as exclusive third-party certifier of Ben and Jerry’s Caring Dairy Standards and Certified American Grown Flowers. In addition, we leveraged our strengths in animal welfare to win business with the Center for Canine Welfare, which oversees a new program setting rigorous standards for dog breeders nationwide. Our leadership in these areas underscores our ability to react quickly and develop programs that meet the requirements of new standards as they evolve.”

Third Quarter Results

Third quarter revenue increased 42% to $4.7 million from $3.3 million in the same quarter last year. The primary growth drivers were verification and certification services, which increased 24% to $3.7 million from $3.0 million year over year, and product sales (cattle RFID tags), which grew by 81% to $687,200 from $380,400. The growth in these categories reflected the positive impact from China reopening its markets to US beef imports as well as continued benefits of services bundling. In addition, the Company reported revenue in two new categories – software license, maintenance and support, and consulting services – of $243,200 and $131,400, respectively, versus no revenue in those segments in the year-ago third quarter. These new reporting categories were added as a result of the December 2016 acquisition of SureHarvest.

Gross profit in the third quarter increased 43% year over year to $2.3 million from $1.6 million. Gross margin increased slightly to 48.4% from 47.9% year over year. Selling, general and administrative expense increased 49% to $1.8 million from $1.2 million year over year due to increased sales and marketing expense; and higher public company costs.

The Company reported third quarter net income attributable to Where Food Comes From, Inc. of $290,200, or $0.01 per share, a 29% increase over $225,000, or $0.01 per share, a year ago. Adjusted EBITDA increased 64% year over year to $743,900 from $454,100.

Nine Month Results

Revenue for the first nine months of 2017 increased 32% to $11.3 million from $8.6 million in the same period last year. Revenue mix included verification and certification services, up18% to $9.2 million from $7.7 million year over year; product revenue up 43% to $1.2 million from $856,000; and software license, maintenance and support, and consulting services contributing $532,700 and $399,100, respectively, versus no revenue in those categories in the prior year.

Gross profit in the first nine months of 2017 increased 30% to $5.3 million from $4.1 million a year ago. Gross margin was 47.2%, down slightly from 48.0% in the same period last year. Selling, general and administrative expense increased 47% to $5.0 million from $3.4 million last year due to expansion activities, including increased headcount, payroll and bonuses based on improved performance; higher sales and marketing costs; and higher public company costs, including ongoing implementation of new accounting standards.

Net income attributable to Where Food Comes From, Inc. in the first nine months declined 3% to $467,900, or $0.02 per share, versus $481,900, or $0.02 per share, in 2016. Adjusted EBITDA was $1.5 million, up 45% from $1.0 million in 2016.

The Company generated $1.6 million in net cash from operations through the first nine months of 2017, up 29% year over year from $1.2 million.

Balance Sheet

The Company’s cash, cash equivalents and short-term investments balance at September 30, 2017, increased 41% to $4.6 million from $3.2 million at 2016 year-end. Working capital was $3.9 million and the current ratio was 2.4:1.

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: 13672819

Phone replay:

A telephone replay of the conference call will be available through November 15, 2017, as follows:

Domestic Toll Free: 1-877-660-6853

International: 1-201-612-7415

Conference Code: 13672819

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 15,000 farmers, ranchers, breeders, vineyards, wineries, processors, retailers, distributors, trade associations, consumer brands and restaurants with a wide variety of value-added services through its IMI Global, International Certification Services, Validus Verification Services, SureHarvest, A Bee Organic 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 Income 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 industry leadership and ability to react quickly and develop programs that meet the requirements of new standards; the Company’s ability to continue producing financial results similar to those described in this press release; ability to continue momentum in verifications for beef exports to China and drive double digit verification revenue growth; ability to continue to expand its capabilities; 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 third 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 September 30,					Nine Months Ended September 30,
	2017			2016		2017			2016
Revenues
Verification and certification services	$	3,672,587		$	2,963,853	$	9,152,520		$	7,733,613
Product sales		687,235			380,393		1,226,141			855,986
Software license, maintenance and support		243,186			—		532,684			—
Consulting service		131,427			—		399,120			—
Total revenue		4,734,435			3,344,246		11,310,465			8,589,599
Costs of revenue
Labor and other costs of services		1,890,888			1,522,203		4,860,857			3,973,299
Cost of Products		410,309			220,599		743,308			490,162
Costs of software license, maintenance and support services		141,902			—		362,139			—
Total costs of revenue		2,443,099			1,742,802		5,966,304			4,463,461
Gross profit		2,291,336			1,601,444		5,344,161			4,126,138
Selling, general and administrative expenses		1,841,597			1,239,834		5,023,446			3,412,211
Income from operations		449,739			361,610		320,715			713,927
Other expense (income):
Interest expense		287			649		603			1,347
Other expense (income), net		(1,691	)		1,008		(10,989	)		(2,623	)
Income before income taxes		451,143			359,953		331,101			715,203
Income tax expense		199,000			135,000		150,000			264,950
Net income		252,143			224,953		181,101			450,253
Net loss attributable to non-controlling interest		38,049			—		286,841			31,605
Net income attributable to Where Food Comes From, Inc.	$	290,192		$	224,953	$	467,942		$	481,858
Net income per share:
Basic	$	0.01		$	0.01	$	0.02		$	0.02
Diluted	$	0.01		$	0.01	$	0.02		$	0.02
Weighted average number of common shares outstanding:
Basic		24,705,934			23,772,967		24,673,080			23,817,980
Diluted		24,886,147			23,929,011		24,834,931			23,969,134

Where Food Comes From, Inc.

Calculation of Adjusted EBITDA*

(Unaudited)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
Net Income attributable to WFCF	$	290,192	$	224,953	$	467,942	$	481,858
Adjustments to EBITDA:
Interest expense		287		649		603		1,347
Income tax expense		199,000		135,000		150,000		264,950
Depreciation and amortization		213,237		65,904		634,152		199,460
EBITDA*		702,716		426,506		1,252,697		947,615
Adjustments:
Stock-based compensation		41,167		27,630		130,637		84,457
Cost of acquisition		—		—		117,944		—
Adjusted EBITDA*	$	743,883	$	454,136	$	1,501,278	$	1,032,072

*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

	September 30, 2017			December 31, 2016
	(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents	$	3,809,867		$	2,489,985
Accounts receivable, net		1,911,275			1,344,646
Short-term investments		740,739			733,104
Prepaid expenses and other current assets		381,261			203,744
Total current assets		6,843,142			4,771,479
Property and equipment, net		1,122,594			1,229,350
Intangible and other assets, net		4,076,860			4,228,228
Goodwill		2,652,250			2,652,250
Deferred tax assets, net		157,560			—
Total assets	$	14,852,406		$	12,881,307
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	719,026		$	333,784
Accrued expenses and other current liabilities		1,326,091			480,047
Customer deposits and deferred revenue		849,285			524,396
Current portion of notes payable		8,525			—
Current portion of capital lease obligations		7,477			4,067
Total current liabilities		2,910,404			1,342,294
Capital lease obligations, net of current portion		27,320			15,735
Notes payable, net		45,640			—
Lease incentive obligation		149,898			158,025
Deferred tax liabilities		—			49,440
Total liabilities		3,133,262			1,565,494
Contingently redeemable non-controlling interest		1,601,294			1,888,135
Stockholders’ equity:
Common stock		24,964			24,890
Additional paid-in capital		10,314,549			10,052,597
Treasury stock		(564,688	)		(524,892	)
Retained earnings (accumulated deficit)		343,025			(124,917	)
Total Equity		10,117,850			9,427,678
Total liabilities and stockholders’ equity	$	14,852,406		$	12,881,307

EX-99.2

Where Food Comes From, Inc. 8-K

Exhibit 99.2

2017 Third Quarter Conference Call Script

Call date: Wednesday, November 1, 2017

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

Jay Pfeiffer - Good morning and welcome to the Where Food Comes From 2017 third quarter 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 Saunders - Good morning and thanks for joining us.

Q3 was eventful and productive quarter for Where Food Comes From. From a financial performance perspective:

● Revenue increased 42% year over year to $4.7 million from $3.3 million.

● Gross margins increased 50 basis points to 48.4% from 47.9%.

● Net income increased 29% to $290,000 from $225,000.

● And adjusted EBITDA grew by 64% to $744,000 from $454,000.

As a reminder, we think adjusted EBITDA is a more accurate method of evaluating the profitability and health of our business because our bottom line is significantly impacted by non-cash depreciation and amortization expense primarily related to assets acquired in the SureHarvest transaction. Specifically, depreciation and amortization increased 224% in the quarter to $213,200 from $65,900 and increased 218% year-to-date to $634,200 from $199,500.

I should also note that earnings continue to be impacted by investments in sales and marketing activities and in hiring, training and retaining new personnel to keep pace with our growth. In addition, we continue to incur legal costs associated with our ongoing M&A strategy as well as higher public company costs, including the implementation of new accounting standards.

So, again, we think EBITDA is a better measure and we feel good about where we are from a profit standpoint relative to our revenue growth.

Year to date we have generated nearly $1.6 million in cash from operations. And our balance sheet remains strong with cash, cash equivalents and short-term investments up 41% to $4.6 million from $3.2 million at year-end.

Turning to operational highlights, we had a number of exciting developments during the third quarter and I’d like to focus on a few of them.

The most obvious involved China reopening its markets to US beef imports for the first time since the ban was put in place in 2003 due to the incidence of BSE in the United States. This reopening resulted in a revenue spike for us as producers scrambled to get into compliance with China’s source verification and traceability requirement. And keep in mind that because China is conducting spot checks on beef imports to screen for banned substances such as Ractopamine, producers are also engaging us to conduct Natural and/or NHTC audits. On top of that, the source verification for China requires that a program compliant tag be put in at the source of origin. Therefore, in addition to a sharp increase in verification activity in Q3, we had an 81% increase in tag revenue.

We expect China-related verification activity to continue to increase in the foreseeable future. Remember, China is the world’s second largest but fastest growing consumer of beef. Their growing middle class is driving demand and that’s a population estimated at more than 300 million. US producers will be competing with Australia, New Zealand, Brazil and others for these consumers, but our beef is widely considered to be the finest in the world so we believe U.S. producers will be able to capture existing market share and capitalize on increasing demand as more consumers enter the middle class.

Another highlight during the third quarter was our success in winning new business in areas that are outside of what would generally be considered our core competencies in the food and livestock sectors. In August, we announced we’d been selected as the exclusive third-party verifier for Certified American Grown Flowers. You may not be aware that most flowers sold in the US are imported from South America and other areas of the world, so this program – the largest customer facing certification in the floral industry – has its roots in the buy-American movement. Accordingly, Where Food Comes From will conduct audits for U.S. flower growers who want to distinguish their products under the Certified American Grown brand.

In September, the iconic Ben & Jerry’s ice cream company named Where Food Comes From its exclusive provider of verifications to ensure its milk and cream suppliers are compliant with the company’s Caring Dairy Standards. These standards address cow care, sustainable farming, and farmer livelihood. Where Food Comes From is now conducting on-farm audits to ensure all Ben & Jerry’s suppliers meet the stringent guidelines of the program.

More recently, our Validus unit was selected by the Center for Canine Welfare as the exclusive verification provider for the new Canine Care Certified program. More than 26 million dogs are purchased from breeders annually, and this program sets rigorous, science-based standards that address both the physical needs and the behavioral well-being of those animals. The program’s Standards of Care are the result of extensive research and pilot testing by Purdue University’s Center for Animal Welfare Science in response to a request from responsible breeders seeking to differentiate themselves from non-certified breeders.

So, these are three disparate examples of new verification programs that didn’t exist even six months ago – yet here they are – three new revenue streams for Where Food Comes From driven by what is undoubtedly a major consumer megatrend – the desire to know more about the origins and/or production practices involving the things they buy.

I also see this new business as a tribute to the people throughout our organization – in all of our operating units – who have helped to build a reputation for competence, reliability and excellent customer service in an ever-growing number of verification areas. In all three cases I just outlined, these customers sought us out because of that reputation.

So, to recap Q3, we continue to produce very solid financial results and are now benefitting from four new revenue streams and the addition of three new verification standards to what is already the industry’s most diversified solutions portfolio.

And with that I’ll open the call to questions….operator, please go ahead.

Question-and-Answer Session

Operator - [Operator Instructions]. Our first question comes from the line of Travis Wiedower with Wiedower Capital.

Travis Wiedower - It looks like the SureHarvest segment was up quite a bit over the first two quarters of the year. Was there anything notable there? Or was that just kind of normal growth?

John Saunders - Fairly normal growth. We actually think the second half of the year is going to be much more strong for SureHarvest so we anticipate a strong fourth quarter as well.

Travis Wiedower - Okay. So that’s kind of more of a seasonal thing than anything?

John Saunders - Correct.

Travis Wiedower - Have guys looked into of doing any auditing for the Marijuana industry or producers at all?

John Saunders - Great question. We have, we’ve done some extensive research into it and we have a number of different standards and areas where that could be an opportunity the most notable one that we have seen is the opportunity to verify some production units as organic which we found as much more difficult when rubber meets the road. So we see that. We’re also confronted with obviously the federal, the state aspects of what that looks like and fairly confident that the National Organic Program does not allow verification of Marijuana. I will verify that. It is not illegal to do it so the question really becomes what standards you would verify against and as of yet those standards at least on a more national basis to our understanding do not exist. So we’re keeping pretty good close track of it Travis but we haven’t found the right opportunity yet to enter.

Travis Wiedower - Okay. I appreciate it. I figured especially with you guys being based out of Colorado you might kind of advantage there you know but obviously becomes federally illegal at some point. Then last question I had I saw in the 2016 10K that you guys added SGS [ph] to your list of competitors. Did they do something specific they called you - start thinking of them as more of a direct competitor than past years?

John Saunders - Good question. No, I think it was just casting the net out one more time and looking as we went through the Q2 to see those competitors so SGS just came up on a couple different stream that they didn’t before. So nothing really changed with their activities.

Operator - [Operator Instructions]. Our next question comes from Terry Thompson who is a Private Investor. Please proceed with your question.

Terry Thompson - The Canine Verification, if I remember correctly you all do livestock verifying correct?

John Saunders - Correct.

Terry Thompson - Have you given any thought to moving into verifying of the retail pet food?

John Saunders - Yes we have and we have looked at different ways to do that. In fact when we verify through several standards that we audit via the Validus operating unit there’s a number of those operations which are suppliers, pet food manufacturers so we’ve actually done a lot of the ground work. We’re working with renderers and different type of operations across the country that are involved at a supplier level to pet food manufacturers. So we’re working in that direction literally every day.

Terry Thompson - Have you had any contact with Merrick at Hereford, Texas? I use them pretty exclusively for my standard poodle and they are definitely high-end, $3 a can and so forth and if there was verified pet food there, I wouldn’t even think twice about buying them for my baby. So I think that would be a really good market to get in.

John Saunders - Could you spell it Terry?

Terry Thompson - Merrick. When they demo their pet foods at pet stores they put them in a crockpot and they eat themselves it’s all human grade food.

John Saunders - Did you try some?

Terry Thompson - No I missed the demo, but I’ve heard about it at two separate stores, pretty effective sales if you’re selling pet food but they are definitely high end and it might be somebody that might be interested in adding this to their labels.

John Saunders - We have got the name written down. We’re on it.

Terry Thompson - Okay, great. They out of Hereford, Texas - it’s pretty much a feed lock town too far [indiscernible].

John Saunders - Yes we have a few operations there. Do you have a contact?

Terry Thompson - I’m just a customer, but last time I bought it I bought almost $200 worth at a time. I don’t have any contacts. I don’t know anybody in the company, I’m just a dedicated customer.

John Saunders - One more question Terry, how many dogs do you have?

Terry Thompson - I just have one, black female standard poodle and she is spoiled rotten.

John Saunders - Well thanks Terry. Thanks for the question.

Terry Thompson - Thank you for another great quarter. I’ve been looking forward to the end of the year and give my best to everyone in Castle Rock.

Operator - Thank you. Our next question comes from the line of Ian Cassel with MicroCapClub. Please proceed with your question.

Ian Cassel - My question is about China and I was just curious if you could just maybe shine some light on some of the work that you have had to do as a company to kind of prepare for the demand that you’re seeing and maybe some more color on some of the work that you’re going to have to do to bring on that additional demand and yes if you could provide some color on that it would be great.

John Saunders - Yes, sure I’ve got Leann here, I will let her answer that question Ian.

Leann Saunders - So in preparation as you can imagine we have probably spent three years preparing for the opportunities because we have been talking about China for that long. So we had discussions around what we would have to put in place for verification program. So we have literally have been just growing a trigger win when the opportunity hits, which was just basically working with the USDA expert verification instruction and then for [indiscernible] internally obviously around documents referred in and contacting all of our customers. So we had that ready to go so that we could be the first listed as soon as it hits.

Ian Cassel - Okay. And do you still see the opportunity I mean when you look at it as a baseball game and we’re kind of in the first inning, you know how long do you think it takes for us to kind of bring on full supply or potential supply at least in the near term. Do you think it’s a two or three year process to kind of get up to the figures that you talked about in the last conference call I think 3 million to 5 million?

Leann Saunders - So when you think about that opportunity because it requires first verification in the life span of an animal it’s going to take a long time for that pipeline to the supply chain to fulfil the needs. I mean right now what you’ve packers and processers in the United States just trying to get back into that market that takes a long time to capture market share so they’re doing that aggressively. I guess I’ve been surprised that’s a volume that are already trying to source. We have seen more demand than I thought in a very short period of time but it will take years to develop those supply chains in China. So I don’t want to be overly optimistic on how long - what you said about baseball analogy; how long it takes to get to that inning? So we have been seeing the World Series get to 10 and 11 innings…

Ian Cassel - I guess my next question and it might still go to Leann is on relationship like Ben & Jerry’s I’m just curious how long it took for a relationship like that from first conversation to implementation of something like that and then also maybe if you can provide some color on how many other additional brands of kind of that nature you think the opportunity set is to do similar things with it out there?

Leann Saunders - So when you think about a brand like Ben & Jerry they have so much to lose in the partner that they choose. So it takes a lot of time for them to have enough confidence in that partner selection and here is where I and John talked about earlier we have a great deal of people that work very hard on gaining the trust of those customers and that’s what they work on every day and it is also based on the reputation so they are always looking at referrals from other brands where they feel like we can go in there and continue to protect that brand integrity. I think the future is you know honestly when you look at these brands and where the future holds on that list honestly with all of them looking at third party verification to protect their brand. So hope that answers your question.

Ian Cassel - Yes. I mean this might be a softball but when you look at what they’re doing was there really anybody else that could really provide this type of service and support that you guys provide them in relation to the auditing and everything kind of under one umbrella?

John Saunders - Sure, but I think it goes back to what Leann said at the very beginning that their brand was really their value and if they don’t make the right choice there it could significantly impact that brand. We just literally have to turn on the news daily to see that. Yes there is a lot of opportunity there and we think that Where Food Comes From is the obvious choice to everybody but we’re not the only group out there that says that they can perform audits for sure.

Ian Cassel - Okay. Last question and then I will back in the queue, John when you look at the M&A pipeline, is that still kind of on your mind when you wake up every morning and also maybe if you could just talk a little bit about the breadth of that M&A pipeline if it’s changed over the last every one to two years.

John Saunders - Just as critically hot as it’s always been and again there’s really nothing other than the timing of the relationship and how that proceeds from both the buyer and seller perspective as far as when we can predict or when I can predict that any of these potential transactions would occur so there’s that. On the - I would just look at the things that we talk about you know those were the areas that are critically important and that’s where the growth opportunity is. So if you go back through what we talked about, what we’re launching our new partners that we’ve got you know I mentioned a few of them are pretty excited about, we will see what happens there but that and then the existing markets that have always been there.

Operator - [Operator Instructions]. Our next question comes from the line of [indiscernible] who is a Private Investor. Please proceed with your question.

Unidentified Analyst - Thanks for taking my call, my question, Ian covered a bunch of them but I guess my last question was just you know what is an average contract on the verification side look like? I mean we see a lot of pressure releases for this and does that one year, several year is it a 100,000, is it a million like what kind of I know they’re all different but on average what does that mean when we see a press release like that from a financial standpoint?

John Saunders - In general when we perform a verification and we’re doing that on a timing and materials basis but just use a round number it’s probably about $2500 for us to get somebody on site on location. When we perform those audits, and those certifications for a specific group and it is totally dependent on the size of that group and that supply and if you take that supply base and multiply it times the number of audits or the cost per audit that’s what roughly the opportunity is for us as a verification unit and it’s always on an annual basis.

Unidentified Analyst - And so how many for example I mean on average can you even just talk through a contract or something give us a sense of what that is so 2500 per audit I mean your average customer will have how many audits spots or?

John Saunders - We don’t have an average customer. Well you would be probably better off doing is going and looking at the actual website of the brand that we talk about and they would talk more about the number of locations that they have. It’s one of those things in food and agriculture business that you don’t talk a lot about how big your spread is, so in these case in all of our customers would be the same and that’s something that they’re going to discuss. We’re not going to discuss publicly.

Operator - [Operator Instructions]. There are no further questions at this time. I’d like to turn the floor back to management for closing comments.

John Saunders - Thanks again for the time everybody and I will look forward to talking to you after the first through year. Happy Holidays. One more thing everybody we look forward to the next version of Where Food Comes From coming sometime around Thanksgiving, so I hope you all enjoy. Take care.

Operator - This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.